Friday, 28 July 2017
Brexiters. Don't Forget The Timing!
It's interesting seeing the newspapers laid out in the local newsagent. Easy to compare the headlines, from the FT to the Star. I'll come back to the FT's in a minute.
Only when dipping into the i newspaper did I see the headline "Shout it out: Brexit is good for us". It's actually a very good summary of the justification for Brexit, written by Kathy Gyngell, a Conservative journalist.
I happened to read it sitting alongside a couple from New Zealand. Started chatting. They are British in origin, lived here, now retired, and over here for a holiday. I asked them what the view of Brexit is 'down under'. There isn't a general view, as people there have a lack of information. They personally are looking forward to a new trade deal to boost trade. They also commented that when they voted for the Common Market there was only 6 countries and it was to be all about trade. It is much different now. Many people over 60, who voted in 1974 and 1975, voted to Leave for that reason.
The change from 1975 is one of the reasons quoted in Kathy's article. As someone who is euro-sceptic (as distinct from europhobic) I agree. But Brexit is not the answer. A key reason is timing. Critical, but something which Brexiters seem to consistently ignore.
I could challenge Kathy on all her points, but will concentrate on those relating to timing.
TIMING OF TRADE DEALS
Let's start with trade deals. With the best will in the world, each deal takes years to negotiate, let alone trying to run many in parallel. These can't be concluded until after the UK leaves the EU, and officially negotiations can't even start till then. In any case, the nature of the EU/UK relationship for trade needs to be understood first. We're talking 10 years from now, maybe 20. Still great news if the UK/EU trade has held up. But what if it doesn't?
TIMING ON TRADE
The article says "deteriorating economic prospects (untrue)". Kathy might like to look at forecasts from several forecasters, including the IMF, perhaps published since she wrote the article. In any case can we afford the risk?
She goes on "Within weeks of the referendum, Britain had an economic boom; the much-needed depreciation of the pound had an immediate impact on exports and set off a tourism bonanza.". It did. But I don't remember an earlier clamour of voices for a devaluation. Do you? The reason is the positive consequences are outweighed by the negative .
The significant deterioration of the pound's exchange rate means people from elsewhere in Europe, especially those who send money home, are less inclined to come to the UK to work. Those already here are inclined to go elsewhere in Europe. Here's the impact on farms. So Kathy you might like to think again when you say "skills shortages due to the ending of free movement (untrue)" - it's happening now! Timing.
More importantly perhaps, she doesn't mention the impact on importers and imports. You might enjoy a glass of wine, of prosecco or a sherry. The vast majority of these products are imported in euros or US dollars. Beer is made increasingly from imported hops. Wine importers will fix their purchase price in sterling, and therefore their sales prices, with forward currency exchange contracts. Like many other importers, purchases in most of 2016 were covered, so little affect in 2016. But for 2017 they have had to pay current exchange rates. Sterling cost up, so either it's an increase in sales price or a squeeze on margins. For most importers, there is only one option - increase prices. A time lag that is a matter of timing.
With so much of our food and drink imported, prices are rising fast in the supermarkets. Deals at £2 are now £2.50. It means that overall CPI inflation is running above target at 2.6%. Creating a real-terms drop in living standards, especially for the lower paid who are harder hit by food price inflation. Again, timing.
TIMING OF HOLIDAYS
It's now holiday season. For many, summer is the one time of the year they go abroad. Holidaymakers got less for their pounds last year, and even less this year. Even the Sunday Mail complained that it was because of Brexit! Another matter of timing.
Let's see how public mood is about Brexit come the start of September. That's when Parliament returns and the first Brexit Bill is debated, the "European Union (Withdrawal) Bill 2017-19" . We must stop Brexit.
So sorry, Kathy. Your arguments just don't stand up. One key issue. Timing. Don't forget it!
BACK TO THE FINANCIAL TIMES
This is the other great timing bungle from the Brexiters. Suzanne Evans was on TV recently saying that all could be sorted with the EU in two years. That's highly unlikely. But even if that were possible, there would be no time for changes to IT systems and business processes, either within businesses or at UK's borders. Her views are utterly dangerous, economically.
Talk is of a transition phase between officially leaving the EU in March 2019 and perhaps the three years to 2022. Basically the practicalities will stay the same for that period, including free movement of people. That would provide time to implement the post-Brexit agreements. Frankly it is the only sensible way.
Brexiters will be jumping up and down with rage. "Let's just walk out" they'll say "and adopt WTO rules". Which brings us back to New Zealand. Lamb, butter, wine and the many other products they already sell to the UK. There are typically limits to what can be sold, but these are currently set to cover the whole of the EU What they can sell to the UK and EU will have to be separately negotiated, product group by product group. It won't be easy. New Zealand will lose the flexibility they currently have. It will take years. And then the systems and processes will need to be changed. adding months if not years more.
Brexiters please stop the talk of walking away from the EU to adopt WTO rules. The timing issues are horrendous.
Timing. It's no laughing matter!