May throws down gauntlet to European leaders

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV.COM Ltd.

What happens when the 'sugar rush' of early economic indicators is over, and the UK actually leaves the single market, asks Denis MacShane. [European Union]

Watching Theresa May in a hotel room in the capital of a small European nation, not in the EU, has been a surreal experience. Her insistence that every other EU leader had to accept that their citizens cannot any longer travel to the UK on the terms they can today seemed borderline impertinent, writes Denis MacShane.

Denis MacShane is a former UK Minister for Europe and the author of Brexit: How Britain Will Leave Europe (IB Tauris).

More importantly, the long list of things May doesn’t like about Europe – none of which were on the ballot paper on 23 June 2016 – are identical to some of the campaign points of Marine Le Pen in France, Geert Wilders in the Netherlands,  or Frauke Petry in Germany who are running on eurosceptic tickets in national elections this year.

Mark Rutte, the centre-right PM in the Netherlands, François Fillon, the conservative challenger for the Elysée and, above all, Angela Merkel in Germany will not be thanking May for echoing all the criticisms of Europe from their opponents.

The eurozone has just posted a massive balance of trade surplus so her view that Britain is the model to follow won’t make much sense in Berlin or the Netherlands.

As Iain Martin writes in his book on the Big Bang, the reason it worked was that the City took advantage of the single market to steal as much global financial business as it could by pitching to every foreign bank and finance house that if they opened in London they would be able to buy and sell in every corner of Europe.

The idea that Frankfurt, or Vienna, Paris or Dublin must not take advantage of Britain turning its back on the single market defies all history of trade. As the Deutsche Boerse report published yesterday (16 December) shows, Frankfurt will now move to get the lucrative London trade in euros moved to the EU.

The ECB and the European Commission, as well as national finance ministers, have endorsed this policy and the idea they will forgo making a profit to help May is not realistic.

The promise of the single market is now dead

1,000 Japanese firms have set up shop in the UK having been promised by Margaret Thatcher and all her successors – up to now – they would have access to the market of 500 million customers without let or hindrance. That promise is now dead.

Other countries like Switzerland or Norway have done deals with the EU on the single market without joining the EU. It seems odd that this option was not explored.

Customs Union?

The oddest part of the speech was about the EU Customs Union. A Customs Union can include some exceptions. Turkey is in the EU Customs Union but not for agricultural products – but a country cannot claim to have its own private trade deals but still stay in a Customs Union where tariffs and duties are uniform. So stand by for filling in millions of customs forms and big queues at Dover and Folkestone as lorries, van and car boots have to inspected.

All these are matters for negotiations. Not the Article 50 negotiations which will get going only after the EU has chosen its government leaders in France in May and Germany in September.

The Article 50 talks have to be over in October 2018 to allow 27 national governments and parliaments time to ratify a withdrawal agreement for Britain to leave the EU before the next European Parliament is elected and Commission chosen in May 2019.

So there is at best 12 months of serious talks. Chatter about a UK-US trade deal are not serious as nothing can happen legally until the UK is out of the EU and in any case it is the US Congress, not the White House that decides trade deals.

Will either London or Washington want to have contentious trade deals featuring in elections in the US and the UK in 2020?

In short, Theresa May has announced several years of tough talks with Europe stretching well into the 2020s. In that time opinions may change.

‘Sugar-rush’ economy

Right now there is still a ‘sugar-rush’ glow in the UK economy as interest rate cuts, more QE printing of money, and stepped up government spending plus consumers on a buying spree before the devalued pound impacts on prices have kept up consumption.

Will that feel good economy still be there in 2018 or early 2019 especially if foreign investors quietly reduce their presence in the UK?

On the whole, a Conservative premier and Conservative MPs do not enjoy presiding over a reduction in the nation’s income and wealth.

Today, it was ‘politics stupid’ as May decided that only the views of 37% of the electorate who voted for Brexit should be taken into consideration.

If in two years’ time it is ‘economics stupid’ as the UK economy looks shaky then the politics will change. If conversely, Theresa May’s amputation of the UK from the world’s biggest market turns out to herald the dawn of a new glorious era for British firms and people, then the Brexit vote and the way she has chosen to interpret it will be well and truly validated.

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