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The optimism error

We are told that austerity has triumphed and that the British economy is running full steam ahead. The reality is more alarming.

In Cardiff last Thursday, 7 January, George Osborne warned of a “dangerous cocktail of new threats” to Britain’s prosperity. These include collapsing global stock-market and commodity prices, weak growth in China and Latin America, stagnation in Europe and turbulence in the Middle East. Osborne was right to prepare us for “headwinds”. What he could not admit was that the fragility of the British recovery he now discerns – just two months after his triumphal Autumn Statement – is due, in no small measure, to his own austerity policies.

The unpalatable truth is that austerity in the face of the private-sector collapse of 2008-2009 has weakened our ability to produce output. Britain has been left overfinancialised, overborrowed and underinvested. It is not surprising that it is exceptionally exposed to any global downturn.

Before John Maynard Keynes it was believed, by economists at least, that a competitive market would normally produce full employment. As the facts of experience appeared to indicate otherwise, economists, prompted by Keynes, sharpened up their theory. A market economy would ­always lead to full employment provided wages and prices were flexible. Workers, if facing unemployment, had only to accept wage reductions to “price themselves back into work”.

However, as it seemed unrealistic to suppose that workers would do this – or do it quickly enough – government policy could short-circuit the painful process of adjustment. When a slump threatened or occurred, a government could stimulate spending by cutting interest rates and by incurring budget deficits. This was the main point of the Keynesian revolution.

This policy ran from the 1950s to the 1970s. It was overthrown in the 1980s, when unemployment prevention became confined to interest-rate policy, eventually run by the central bank, not the government. By keeping the rate of inflation constant, the monetary authority could keep unemployment at its “natural rate”. This worked quite well for a time, but then, following the widespread failure of the banking system, the world economy collapsed in 2008.

In a panic, the politicians, from Barack Obama to Gordon Brown, took Keynes out of the cupboard, dusted him down, and “stimulated” the economy like mad. When this produced some useful recovery they got cold feet. “Keynes,” they said, “you’ve done your job. Back in the cupboard you go.” I wrote a book at the time called The Return of the Master. A reviewer pointed out that the Master had returned for six months only.

Why had the politicians’ nerve failed and what were the consequences?

The answer is that in bailing out leading banks and allowing budget deficits to soar, governments had incurred huge debts that threatened their financial credibility. It was claimed that bond yields would rise sharply, adding to the cost of borrowing. This was never plausible in Britain, but bond yield spikes threatened default in Greece and other eurozone countries early in 2010. Long before the stimulus had been allowed to work its magic in restoring economic activity and government revenues, the fiscal engine was put into reverse, and the politics of austerity took over.

Yet austerity did not hasten recovery; it delayed it and rendered it limp when it came. Enter “quantitative easing” (QE). The central bank would flood the banks and
pension funds with cash. This, it was expected, would cause the banks to lower their interest rates, lend more and, by way of a so-called wealth effect, cause companies and high-net-worth individuals to consume and invest more. But it didn’t happen. There was a small initial impact, but it soon petered out. Bank lending, an important index of recovery, in fact went down as the institutions sat on piles of cash and the wealthy speculated in property.

So we reach the present impasse. Events have confirmed that a competitive market economy is subject to severe collapses, and the effects of these linger in the form of elevated unemployment, lower output, lower productivity and increased poverty. At the same time, however, counter-cyclical policy is disabled. Monetary expansion is much less potent than people believed; and using the budget deficit to fight unemployment is ruled out by the bond markets and the ­Financial Times. The levers either don’t work, or we are not allowed to pull them. Where do we go from here?

 

The present situation

The first thing is to establish where we now are. How much recovery has there been in Britain? Economists try to answer this question with reference to the output gap – the difference between what an economy is actually producing and what it can produce. The OECD’s most recent estimate of this gap in the UK stands at a negligible -0.017 per cent. We might conclude from this that the British economy is running full steam ahead and that we have, at last, successfully recovered from the crash. This is the basis of George Osborne’s triumphalism. His critics, including myself, have been proved wrong. His austerity policies have worked. Or so we are told.

But such a conclusion would be premature. Although we are producing as much output as we can, our capacity to produce output has fallen. This can be shown by comparing the current economic situation to where we would expect to be, according to the historic trend.

From this perspective, championed by the Oxford economist Simon Wren-Lewis, the position is far less rosy. Growth in output per person in Britain (roughly “living standards”) averaged 2.25 per cent per year for the half-century before 2008. Recessions in the past have caused deviations downward from this path, but recoveries had delivered above-trend growth, lifting us back up to the previous path. One can say that the “business cycle” oscillates between errors of pessimism and errors of optimism. In other words, the loss of output is temporary.

This time it was different. The recovery from the financial crisis was the weakest on record, and the result of this is a yawning gap between where we are and where we should have been. Output per head is between 10 and 15 per cent below trend.

We are faced with a puzzle. If the output gap is as small as the OECD believes, then the British economy appears to have lost much of its productive potential. It is no longer a case of demand falling short of supply, leaving a surplus of workers and capital equipment. The supply is no longer available: we have lost eight years’ growth of productivity. Between 1971 and 2007 productivity growth averaged 2-3 per cent a year. Since the recession started it has been close to zero. Why is it that the recession turned spare capacity into lost capacity? One answer lies in the ugly word “hysteresis”.

 

Hysteresis

This is an idea borrowed from physics. If an insulated wire is wrapped around an iron bar, and an electric current is then passed along the wire, the iron bar becomes magnetised. Some of this magnetism remains even after the current has been switched off. A shock has a long-lasting effect. This is labelled hysteresis.

An economy experiences hysteresis not when output falls relative to potential output, but when potential output itself falls as a result of a recession. What happens is that the recession itself shrinks productive capacity: the economy’s ability to produce output is impaired.

The intuition behind it is simple enough: if you let a recession last long enough for capital and labour to rust away you will lose growth potential, on account of discouraged workers, lost skills, broken banks and missing investment in future productivity. By not taking steps to offset the negative shock of the recession with the positive shock of a stimulus, the coalition government cost the country 10 per cent or more of potential output.

The phenomenon of hysteresis is not ­necessarily captured by high levels of “headline” unemployment. In fact, low levels of unemployment may reflect low productivity growth, as employers prefer to use cheap workers to investing in machines: unemployed workers may be re-employed in part-time or minimum-wage or zero-hour contract jobs. Much of the new private-sector job creation lauded by the Chancellor is exactly in such low-productivity sectors. The collapse of investment is particularly serious, because investment is the main source of productivity.

The challenge for policy is to liquidate the hysteresis – to restore supply. How is this to be done?

 

Blockage of policy

An economic recession is precipitated by a fall in private spending, be it investment or consumption. It can be countered by monetary and fiscal policy, aiming either to stimulate private spending or to replace it temporarily by public spending. On the monetary front, the bank rate was dropped to near zero; this not being enough, the Bank of England pumped out hundreds of billions of pounds between 2009 and 2012, but too little of the money went into the real economy. As Keynes recognised, it is the spending of money, not the printing of it, which stimulates productive activity, and he warned: “If . . . we are tempted to assert that money is the drink which stimulates the system to activity, we must remind ourselves that there may be several slips ­between the cup and the lip.”

That left fiscal policy. Fiscal policy can fight recession by cutting taxes or increasing public spending. Both involve deliberately budgeting for a deficit. In Britain, any possible tolerance for a deficit larger than the one automatically caused by a recession was destroyed by fearmongering about unsustainable debt. From 2009 onwards, the difference between Labour and ­Conservative was about the speed of deficit reduction. The contribution that deliberate deficit budgeting might make to recovery was never mentioned, except by unreconstructed Keynesians.

So we now have a situation in which the main tools available to government to bring about a robust recovery are out of action. In addition, sole reliance on monetary policy for stimulus creates a highly unbalanced recovery. The money the government pours into the economy either sits idle or simply pumps up house prices, threatening to re-create the asset bubble that produced the crisis in the first place. We already have the highest rate of post-crash increase in house prices of all OECD countries. This suggests that the next crash may not be far off.

 

The public accounts trap

From 2009 onwards the main obstacle to a sensible recovery policy has been the obsession with balancing the national budget. A government can finance its spending in one of three ways: it can raise taxes, borrow from the private sector, or borrow from the Bank of England (that is, “print money”). Each has advantages and disadvantages, but public opinion has decided that the first of these – covering all spending by taxes – is the only “honest” way. In popular discourse, borrowing signifies a “deficit”, and a particular horror attaches to deficits, because they suggest the government is not “paying its way”. “We must get the deficit down” has been the refrain of all the parties.

Printing money to finance public investment has been suggested by both the Labour leader and the shadow chancellor as a way to get round the borrowing constraint. Its advantage is that it wouldn’t directly increase the national debt, because the government would only owe the money to itself. On the other hand, it might destroy confidence in the state’s ability to control its spending, and it would jeopardise the independence of the central bank. So, printing money to pay for public spending should only be a remedy of the last resort.

It is right to be concerned about a rising national debt (now roughly £1.6trn). But the way to reverse it is not to cut down the economy, but to cause it to grow in a sustainable way. In many circumstances, that involves deliberately increasing the deficit. This is a paradox too far for most people to grasp. But it makes perfect sense if the increased deficit causes the economy, and thus the government’s revenues, to grow faster than the deficit. If the economy is in the doldrums, practically all forms of government expenditure should be welcomed, as they utilise idle resources.

In our present situation, with little spare capacity, the government needs to think much more carefully about what it should be borrowing for. Public finance theory makes a clear distinction between current and capital spending. A sound rule is that governments should cover their current or recurrent spending by taxation, but should borrow for capital spending, that is, investment. This is because current spending gives rise to no government-owned assets, whereas capital spending does.

If these assets are productive, they pay for themselves by increasing government earnings, either through user charges or through increased tax revenues. If I pay for all my groceries “on tick” my debt will just go on rising. But if I borrow to invest in, say, my education, my increased earnings will be available to discharge my debt.

Covering current account spending by taxation is at the heart of the balanced budget rule. But as Thomas J Sargent, certainly no Keynesian, wrote in 1981 (Federal Reserve Bank of Minneapolis, Research Department Working Paper W): “The principles of classical economic theory condone deficits on capital account.”

Now is an ideal time for the government to be investing in the economy, because it can borrow at such low interest rates. But surely this means increasing the deficit? Yes, it does, but in the same unobjectionable way as a business borrows money to build a plant in the expectation that the investment will pay off. It is because the distinction between current and capital spending has become fuzzy through years of misuse and obfuscation that we have slipped into the state of thinking that all government spending must be balanced by taxes – in the jargon, that net public-sector borrowing should normally be zero. George Osborne has now promised to “balance the budget” – by 2019-20. But within this fiscal straitjacket the only way he can create room for more public investment is to reduce current spending, which in practice means cutting the welfare state.

 

A British Investment Bank

How can we break this block on capital spending? Several of us have been advocating a publicly owned British Investment Bank. The need for such institutions has long been widely acknowledged in continental Europe and east Asia, partly because they fill a gap in the private investment market, partly because they create an institutional division between investment and current spending. This British Investment Bank, as I envisage it, would be owned by the government, but would be able to borrow a multiple of its subscribed capital to finance investment projects within an approved range. Its remit would include not only energy-saving projects but also others that can contribute to rebalancing the economy – particularly transport infrastructure, social housing and export-oriented small and medium-sized enterprises (SMEs).

Unfortunately, the conventional view in Britain is that a government-backed bank would be bound, for one reason or another, to “pick losers”, and thereby pile up non-performing loans. Like all fundamentalist beliefs, this has little empirical backing. Two relevant comparators – the European Investment Bank and Germany’s KfW (Kreditanstalt für Wiederaufbau) – show that, in well-regulated financial systems, such banks pay for themselves. Neither bank has had to go back to its shareholder(s) to raise fresh money to cover losses. The EU is setting up a European Fund for Strategic Investments, which, with a capitalisation of €21bn, is expected to lever at least €315bn of investment over the first three years.

George Osborne has rejected this route to modernisation. Instead of borrowing to renovate our infrastructure, the Chancellor is trying to get foreign, especially Chinese, companies to do it, even if they are state-owned. Looking at British energy companies and rail franchises, we can see that this is merely the latest in a long history of handing over our national assets to foreign states. Public enterprise is apparently good if it is not British.

Britain already has two small state investment banks – the Green Investment Bank (GIB) and the British Business Bank. But the Treasury is so obsessed with avoiding any increase in the deficit that, up to this point, it has deprived these newly formed institutions of any power to borrow. This has restricted their investment potential. The Green Investment Bank was capitalised with £3.8bn of public funds in 2012; it has so far invested £2bn. Now the government proposes to privatise the GIB, because “it is necessary to move the bank off the public balance sheet if it is to arrange additional funding through borrowing”. The same fate no doubt awaits the British Business Bank, set up to channel money to SMEs.

Apart from exposing its unjustified belief that public investment must be loss-making, the Treasury’s stance is an artefact of its insistence that there should be no net borrowing. It was to avoid this grave effect on public investment that Gordon Brown, as chancellor, was drawn into the large-scale Private Finance Initiative, when there were cheaper financing mechanisms available.

Setting up a British Investment Bank with enough borrowing power to make it an effective investment vehicle is the essential first step towards rebuilding supply. Distancing it from politics by giving it a proper remit would create confidence that its ­projects would be selected on commercial, not political criteria. But this step would not be possible without a different accounting system. The solution would be to make use of comprehensive accounting that appropriately scores increases in net worth of the bank’s assets. The British Investment Bank I envisage would only finance investment in productive assets: although its borrowing would show up in the public accounts, it would be financed by revenue from its own activities. This is fundamentally different from tax-financed debt, and fully in line with the conventional theory of public finance outlined above.

Has the Chancellor the courage to grasp the opportunity?

He can justifiably congratulate himself on having avoided the worst disasters to which Treasury accounting rules and narrow ideology could have led him. But in the non-political recesses of his mind he must understand that the recovery over which he has presided is incomplete, fragile and, above all, unfair.

The first necessary step is to reform the way we do our national accounts, in order to dispel the deficit and debt phobia that blights sensible policy.

Robert Skidelsky is a cross-bench peer and a leading biographer of J M Keynes. His most recent book is “Britain Since 1900: a Success Story?” (Vintage)

This article first appeared in the 14 January 2016 issue of the New Statesman, David Bowie

ANDRÉ CARRILHO
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The Great Huckster: Boris Johnson’s reckless distortions of history

As a scholar of Churchill, Boris Johnson could have articulated a constructive vision for Britain and Europe. Instead, he wilfully manipulates and distorts the historical record.

This month, 76 years ago, the defeated British Expeditionary Force was making for the Channel ports. Thanks to the ferocious resistance put up by the garrison at Calais, and Hitler’s hesitation, the bulk of the men were safely taken off the beaches at Dunkirk to fight another day. Whatever their private feelings during those terrible hours may have been, most of them knew even then that they would return to Europe to finish the job.

Their forefathers had been intervening in Europe for as long as anyone could remember. From Shakespeare’s Henry V through to Elizabeth’s support for the Dutch revolt, the Second Hundred Years War against Louis XIV, the French Revolution and Napoleon, and the First World War, London had always been profoundly invested in the continent. Defending the “liberties of Europe” and thus British freedoms was what Englishmen and Britons did. It was part of what they were.

In early June 1944 – on D-Day – the British, Americans and Canadians hurled themselves into northern France as their ancestors had done since the late Middle Ages. At least one British officer tried to inspire his men that morning as the landing craft approached the strongly defended beaches by reading out Henry V’s speech before Harfleur, in which Shakespeare has him exhort the men, “once more unto the breach”. The film version of the play was released that same year, dedicated to the “commando and airborne troops of Great Britain”. In the popular mind, these Englishmen and their North American descendants were part of the continuity of a European story that went back to the medieval English empire in France.

Some of those liberating Europe thought that they could not simply return to “business as usual” after the war. One of them was the later Conservative prime minister Ted Heath, the man who took Britain into the European Economic Community in 1973. He first defended Liverpool as an anti-aircraft gunner and then took the fight to Hitler as an artillery man during the campaign in north-west Europe. Over the course of the next 11 months, Heath and his comrades fought their way across the traditional battlefields of northern France and the Low Countries, including the Walcheren swamps in which their ancestors had been mired in Napoleonic times; and through western Germany into the centre of the Reich. They were to stay there, at the heart of Europe, for some 60 years. They created a stable European order, based on Nato and what was to become the European Union, which remains with us to this day.

Now the Brexit stalwart Boris Johnson, my fellow historian, claims that it was all in vain. “The European Union,” he says, “is an attempt to do what Hitler wanted by different methods.” Worse still, the EU is a German plot, whose currency, the euro, was “intended by the Germans” to “destroy” Italian manufacturing and generally grind the faces of its unfortunate members. Johnson has also invoked the spirit of Churchill in support of his arguments. He has since doubled down on his remarks and has received support from other members of the Brexit camp, such as Iain Duncan Smith, though not apparently from more informed figures such as Michael Gove. Unfortunately, Johnson’s claims are as historically wrong as it is possible to be, comparable in their crassness only to his predecessor as London mayor Ken Livingstone’s suggestion that Hitler supported Zionism.

Far from supporting European political unity, Hitler was violently and explicitly opposed to the idea. This was partly because it was proposed by his opponents on the “left” of the Nazi Party, such as the Strasser brothers. They belonged to the “anti-imperialist” wing of the Nazi Party, which wanted a pan-European front against the Jews and the British empire. Hitler’s hostility to the European project was also in part due to a racial antipathy to the half-Japanese Richard, Count Coudenhove-Kalergi, the author of the widely discussed book Pan-Europa (1923). One way or the other, Hitler condemned the Pan-Europa movement as “a fantastical, historically impossible childishness”, which would be no more than a “Jewish protectorate”.

Nor did he hold back with his alternative view of what the continent should look like. “The solution,” he wrote, “cannot be Pan-Europa, but rather a Europe of free and independent national states, whose spheres of interest are separate and clearly delineated.” Comparisons involving Hitler are usually odious but if one is going to draw parallels, his view of European integration then was much closer to that of the Brexiters today than that of the advocates of the European Union.

Moreover, the European project did not originate in the Nazis’ attempt to mobilise the continent on their behalf but rather in the resistance movement against Hitler. Take Sicco Mansholt, who hid Dutch resisters on his farm during the war, at great personal risk. He subsequently became the Dutch minister for agriculture and one of the fathers of the Common Agricultural Policy (CAP). Take Altiero Spinelli, the Italian anti-fascist who spent ten years in Mussolini’s prisons. It was there, in June 1941, at the height of Hitler’s power, that he secretly wrote his draft manifesto For a Free and United Europe.

Take Paul-Henri Spaak, later prime minister of Belgium, first president of the Common Assembly of the European Coal and Steel Community – the forerunner of the EU – and secretary-general of Nato. He was forced to make a daring escape from wartime Europe in the false bottom of a lorry in order to carry on the struggle against Hitler in exile. Indeed, across Europe there were thousands of men and women who fought, died, were imprisoned or tortured because they believed in a free and united Europe. To suggest that they were trying to achieve the same thing as Hitler by different methods is an outrageous slur on their memory. If Johnson ever makes it to the top of the Conservative Party, and thence to No 10, he will have a lot of explaining and apologising to do in Europe.

***

As if all this were not bad enough, Boris Johnson’s invocation of Churchill flies in the face of everything we know of the great man’s attitude to the European project. To be sure, he began as a Eurosceptic. When army reforms were proposed in 1901 to support the creation of a substantial land force on the continent, the young Winston Churchill was one of the few MPs to oppose them on the grounds that the navy, rather than the army, was of crucial importance to British security. Writing in the Morning Post, Churchill argued that “history” and “geography” showed that the British empire was “essentially commercial and marine”, and had been defended by armies of foreigners.

As the German threat loomed large, however, he changed his mind. Churchill, then first lord of the admiralty, told the Australians and New Zealanders in April 1913 that Europe was “where the weather came from”. It was the terrible storm of the First World War that caused Churchill not only to believe in the centrality of Europe but in the need for European – or at least continental European – unity.

In May 1930, the president of the Pan-Europa Union, the former French prime minister Aristide Briand, made a formal proposal for a “European federal union” based on a “European conference” with an executive to co-ordinate economic and military co-operation. The British government of the time rejected the surrender of sovereignty involved but many were sympathetic to the idea of continental European union under liberal auspices. The arch-imperialist Leo Amery, secretary of state for the colonies and later a powerful critic of appeasement, was a strong admirer of Coudenhove and his projects, which he regarded as the extension of Anglo-Saxon principles to the continent.

Likewise, Churchill, then chancellor of the Exchequer, told parliament in June 1925 that he hoped that one could “weave Gaul and Teuton so closely together economically, socially and morally as to prevent the occasion of new quarrels and make old antagonisms die in the realisation of mutual prosperity and interdependence”. Then, he continued, “Europe could rise again”. Churchill did not believe, however, that Britain should be part of any continental political union. “We are with Europe, but not of it,” he wrote in 1930. “We are linked but not compromised. We are interested and associated but not absorbed.”

In mid-June 1940, however, as western Europe buckled under the Nazi onslaught, Churchill went a step further. He made an unsuccessful offer of union with France – involving joint citizenship and a common government – designed to lock the French into the war effort against Germany or, failing that, to secure their fleet. The Nazi threat was so existential, in other words, that it justified the surrender, or at least the pooling, of British sovereignty.

When the threat of invasion passed, Churchill returned to the theme of continental European integration. In October 1942, he “look[ed] forward to a United States of Europe in which barriers between the nations will be greatly minimised. He “hope[d] to see the economy of Europe studied as a whole”, and the establishment of a council of “ten units, including the former Great Powers [and thus presumably Britain], with several confederations – Scandinavian, Danubian, Balkan, etc, which would possess an international police and be charged with keeping Prussia disarmed”.

Churchill returned to the subject immediately after the war, as the Soviet threat menaced Europe. In a speech at Zurich University in September 1946, he urged the continent to “unite”, with Britain supporting the project from the outside. Once again, including the Germans was central to his conception. Churchill urged no less than the full political union of the continent in a “kind of United States of Europe” under the “principles embodied in the Atlantic Charter”. He again praised the work of Hitler’s bugbear, Count Coudenhove-Kalergi’s “Pan-European Union”.

Churchill demanded an “act of faith”, beginning with “a partnership between France and Germany”, assembling around them the states of Europe “who will and . . . can” join such a union. Its purpose was clear, namely “to make the material strength of a single state less important. Small nations will count as much as large ones and gain their honour by their contribution to the common cause.”

Moreover, Churchill argued, “The ancient states and principalities of Germany, freely joined together for mutual convenience in a federal system, might each take their individual place among the United States of Europe.” In short, the new polity was designed to solve not merely the European question but the German problem, the two being one and the same. Once again, Churchill conceived of this United States of Europe alongside but not including the United Kingdom and the British “Commonwealth of Nations”, that is, the empire. Instead, he believed that Britain should be one of the “sponsors of the new Europe”.

Churchill’s attitude to continental European union was, unlike Hitler’s, highly positive. For Johnson to suggest, therefore, that he is donning the mantle of Churchill to prevent the current European Union from achieving Hitler’s aims through other means is a complete travesty of the historical truth.

Far from being intended to promote German power, the European Union was designed to contain it, or at least to channel it in the right direction. Contrary to what Johnson suggests, the euro was not planned by Germany to subjugate Italian industry or any other European economy. It was insisted on by the French to decommission the deutschmark, which they described as Germany’s “nuclear weapon”. Likewise, the Germans are not incarcerating the Greeks in their European prison: Greeks are desperate not to be released back into the “freedom” of the drachma and the corrupt national politics that they joined “Europe” to escape. If there is one thing worse than being dominated by Germany in the European Union, evidently, it is not being in the EU at all.

Boris Johnson may not have known the details of Hitler’s attitude to European integration, or the European sympathies of many resisters, but he is very well informed about Churchill and Europe. His ignorance is thus not just a matter of making mistakes; we all make those as historians. Nor is it simply a matter of these mistakes being, like bank errors, in favour of one’s own argument. To say that Johnson knows better is not a figure of speech: he has shown in print that he does. His recent book, The Churchill Factor, contains a very balanced account of Churchill’s position on Europe, including most of the statements listed above.

In making his arguments, Johnson is not appealing to the baser instincts of the electorate; it is far worse than that. The deeply ingrained British instinct to fight European tyranny is not base but fine. What Johnson and those who defend his rhetoric have done is to take something virtuous and pervert it. The European Union is not, as we have seen, the continuation of Hitlerism by other means and to suggest so is blatant manipulation.

The shame of it is that there is a perfectly plausible Eurosceptic argument on its own merits. It was well stated by Michael Gove at the start of the campaign. It insists on the historical distinctiveness of the United Kingdom, whose history does indeed set it apart from the rest of the continent. It makes the case for a reform of the EU. It rejects the scaremongering of “Project Fear”, on the cogent grounds that the United Kingdom has the political, economic and military weight to prevail even without the stabilisers of the EU. It scorns President Obama’s impertinent warning that Britain would have to “get to the back of the queue” for a trade deal after Brexit, with a reminder that Britain and her empire defied Nazi Germany for two years before the Americans joined the fray, when Hitler declared war on them (not vice versa). One does not have to accept every detail of this discourse to feel its force. Uniquely among the democratic European powers, the United Kingdom can “stand alone” if it must or wants to.

The Achilles heel of the Brexit campaign, however, is that it has no viable vision for continental Europe. Even Gove falls down here, as his idea of a British departure unleashing a “democratic liberation” of the continent is pure fantasy. It seems odd to have to explain this to Brexiters but Britain really is special. Casting off the bonds of Brussels will not emancipate mainland Europe but let loose the nationalist and xenophobic demons tamed by the integration project. This is clear when we look at the rise of radical anti-European parties in France, Hungary, Austria, Germany and many other parts of Europe as the European project fragments. These developments should not surprise anyone who knows the history of mainland Europe before the mid-20th century and to a considerable sense beyond.

***

 

Most of continental Europe had failed before 1945 and even now the European Union is only failing better. Unlike virtually every other European state, which has at some point or other been occupied and dismembered, often repeatedly, England and the United Kingdom have largely – with very brief exceptions – been subjects of European politics, never merely objects. In this sense, too, she is exceptional. Yet this should not be an occasion for British triumphalism. Whatever the outcome of the referendum on 23 June, the European Union is not an enemy of the United Kingdom. It should best be understood as a modern version of the old Holy Roman Empire; hapless and officious, perhaps, but not malign. It needs help. The failure of the European project and the collapse of the current continental order would be not only a catastrophic blow to the populations on the far side of the Channel but also to the United Kingdom, which would be
directly exposed to the resulting disorder, as it always has been.

In short, the Brexit camp in general and Boris Johnson in particular are missing a great opportunity in Europe. A student and partisan of Winston Churchill, the former mayor of London was qualified to articulate a constructive vision for Britain and the continent. He has failed to understand that the only safe way that Britain can exit from the European Union is not through Brexit – whose consequences for mainland Europe would be dire – but through Euroexit; that is, a Churchillian political union of the continent in close co-operation with the UK.

Instead, in addition to their distortion of the historical record, Johnson and the Brexit camp are committing the cardinal sin of making a decision before they need to. The European Union is not, sadly, a United States of Europe, even though it needs to become one to survive, and is becoming less like one every day. If and when it musters the strength for full political union, there will be plenty of time to leave. Meanwhile, the EU needs all the support that Britain can give it from within.

In 1940, the British forces had been defeated and retreat was the only option. The situation could not be more different today. This is no time to head for the beaches in what will be a legislative Dunkirk of epic proportions, with incalculable consequences not so much for Britain as for the rest of the continent. Unlike in 1940, the United Kingdom is not being forced out of Europe. It has hardly begun to fight there, unless shooting oneself in the foot through Brexit counts as combat. The battle in Britain today is a distraction from the great struggle on the mainland. There is much work to be done in Europe. It is time the British stop tearing themselves apart and return unto the breach once more.

Brendan Simms is a NS contributing writer. His latest book is “Britain’s Europe: a Thousand Years of Conflict and Co-operation” (Allen Lane). He is president of the Project for Democratic Union

This article first appeared in the 19 May 2016 issue of the New Statesman, The Great Huckster