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Brexit will leave Britain poorer and smaller – but Europe will feel the hurt just as much

The EU has been pummelled by crises for years and these days the mood in Brussels is appalling. What lies ahead could be even worse.

I’ve visited about a dozen European countries since 23 June, and only twice has it been suggested to me that Brexit was a good idea. The first occasion was when an aide to Viktor Orbán said the Hungarian prime minister thought that quitting the European Union would work out well for Britain, if not for anyone else. The second came when a friend and I hitched a ride to the beach during a holiday on a Greek island. “Brexit means Grexit!” the couple who picked us up exclaimed, before launching into encomiums on the virtues of Yanis Varoufakis, the former finance minister who drove Greece’s economy into the ground.

Even Britain’s allies are starting to marvel at the daily horrors across the Channel. “The Tories are in the hands of nutcases,” a UK-friendly EU official told me after the Conservative party conference. “Poor Britannia.” The antics of the cabinet’s Three Brexiteers are monitored with morbid fascination. A senior German politician told me he emerged from an hours-long discussion with Boris Johnson staggered by the Foreign Secretary’s ignorance of Britain’s possible exit paths. If David Davis’s Commons performances have become useful for brightening up dull days, a special degree of scorn is reserved for Liam Fox, known to many European politicians as a swivel-eyed figure they would encounter at think tank events, wittering on about the UK joining the North American Free Trade Agreement.

Britain’s withdrawal from the EU began long before the referendum. Opt-outs rendered Downing Street invisible in discussions of migration and the eurozone. Even building a single market in services, an obsession for every prime minister since Margaret Thatcher, withered as David Cameron lost interest. A couple of years ago a veteran French diplomat told me how much he missed sparring with the Brits in Brussels.

If Britain was once regarded with a blend of irritation and awe across Europe, it is rapidly becoming something else: an example of how not to handle populist outrage, and, more worryingly, a potential source of EU instability. As Donald Tusk, the president of the European Council, likes to argue, the political forces that drove Brexit are alive elsewhere in Europe, albeit in different forms. While governments assemble Brexit task forces and appoint negotiators, their gaze is largely fixed inwards. The EU has been pummelled by crises for years and these days the mood in Brussels is appalling.

It will not be helped by the difficulty of what lies ahead. Brexit is starting to resemble a fractal pattern in which zooming in on each segment of the relationship shows fresh complexities. The divorce settlement under Article 50 will be complicated enough, not least because Brexit will blow a hole in the EU’s budget. Snowballing accruals could leave Britain with a departure bill much higher than the €2.1bn surcharge demand that turned Cameron’s face a vibrant shade of puce at a Euro summit in October 2014.

The deal that governs the relationship to come will be even more difficult. European officials are steadfast in their defence of the EU’s principles, unmoved by the legitimate British argument that in some cases the four freedoms (goods, services, capital and people) remain aspirational at best. In the long term, the club is probably heading for fracture, with “core” groups of countries pursuing their own projects of integration; the internal strains are too great for the machine to lumber on as a whole. Officials confess under their breath that freedom of movement looks unsustainable in the long run. But carve-outs cannot be countenanced for Britain, for fear of encouraging cherry-picking among les autres.

What keeps Berlin up at night, a German official recently told me, is not the UK-EU relationship, but the question of whether European integration has run its course. “Everything else is peanuts,” he said. European politicians, led by Angela Merkel, will take a tough line on Brexit not because of devotion to the EU’s founding principles, nor out of some atavistic urge to “punish” the Brits – but for fear that the project they have spent years assembling will decay if they don’t fiercely defend it. If that means politics must trump economic self-interest, so be it; some might argue that Britain started it.

Everything points to a bumpy few years. True, calls for No 10 to trigger Article 50 instantly, from the likes of Jean-Claude Juncker, the European Commission’s president, have yielded to an understanding that the government needs time to get its Brexit ducks in a row. But Britain has done little to endear itself to partners whose goodwill it will need. Europeans have been shocked at the spike in hate crime in Britain: Juncker lamented the attacks on Poles in Harlow in his recent State of the Union address.

Even worse are signs that Britain may try to stall the efforts of the 27 remaining members to demonstrate there is life after Brexit. Michael Fallon, the Defence Secretary, sparked fury when he warned that Britain could thwart any EU moves towards military integration. Such developments strengthen the hand of those in Europe who just want to say “F*** it” to the Brits, says a senior German MEP. If the Brexit vote gave licence for xenophobic behaviour in Britain, developments since have exhumed anti-British grievances in Europe. When the Brexit talks sink into acrimony, as they inevitably will, expect some grandstanding European politician to declare that the EU is well shot of the tiresome Brits.

Hardly. Brexit will leave Britain poorer and smaller, perhaps literally so. But the EU will feel the loss of its second-largest economy and one of its few members with a real foreign policy. “The effect of Brexit is underestimated everywhere,” the EU official told me. “We look at Westminster and laugh, but we’ll all be hurt by this.”

Tom Nuttall writes the Economist’s Charlemagne column

This article first appeared in the 10 November 2016 issue of the New Statesman, The Trump apocalypse

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Scotland's vast deficit remains an obstacle to independence

Though the country's financial position has improved, independence would still risk severe austerity. 

For the SNP, the annual Scottish public spending figures bring good and bad news. The good news, such as it is, is that Scotland's deficit fell by £1.3bn in 2016/17. The bad news is that it remains £13.3bn or 8.3 per cent of GDP – three times the UK figure of 2.4 per cent (£46.2bn) and vastly higher than the white paper's worst case scenario of £5.5bn. 

These figures, it's important to note, include Scotland's geographic share of North Sea oil and gas revenue. The "oil bonus" that the SNP once boasted of has withered since the collapse in commodity prices. Though revenue rose from £56m the previous year to £208m, this remains a fraction of the £8bn recorded in 2011/12. Total public sector revenue was £312 per person below the UK average, while expenditure was £1,437 higher. Though the SNP is playing down the figures as "a snapshot", the white paper unambiguously stated: "GERS [Government Expenditure and Revenue Scotland] is the authoritative publication on Scotland’s public finances". 

As before, Nicola Sturgeon has warned of the threat posed by Brexit to the Scottish economy. But the country's black hole means the risks of independence remain immense. As a new state, Scotland would be forced to pay a premium on its debt, resulting in an even greater fiscal gap. Were it to use the pound without permission, with no independent central bank and no lender of last resort, borrowing costs would rise still further. To offset a Greek-style crisis, Scotland would be forced to impose dramatic austerity. 

Sturgeon is undoubtedly right to warn of the risks of Brexit (particularly of the "hard" variety). But for a large number of Scots, this is merely cause to avoid the added turmoil of independence. Though eventual EU membership would benefit Scotland, its UK trade is worth four times as much as that with Europe. 

Of course, for a true nationalist, economics is irrelevant. Independence is a good in itself and sovereignty always trumps prosperity (a point on which Scottish nationalists align with English Brexiteers). But if Scotland is to ever depart the UK, the SNP will need to win over pragmatists, too. In that quest, Scotland's deficit remains a vast obstacle. 

George Eaton is political editor of the New Statesman.