Euro20/20vision – your decision

As the referendum draws near and debate increases, the natures of the campaigns have become apparent. Some minds were made up before in either side of the fence. Some are confused, some are neutral.

Any academic piece will give the opportunity for the reader to decide any potential for bias. This can come from declaration of interests to any sources of funding to assumptions chosen to be made or not to be made. Some elements of potential bias may require further research. In any piece, the reader may have a different perspective.

Readers of this site will note the lack of the word ‘I’ in any article so far. On this occasion, a brief history may allow the reader to identify bias.

My research into the EU started as a teacher of Economics around the time of the Maastricht Treaty. A personal view was that in order to make my subject relevant to students, the real world should be incorporated as much as possible, hence visits to the Stock Exchange, Bank of England, House of Commons, factories and power stations were a regular feature.

Research was channelled on behalf of the students. Where the Chancellor at the time confessed to not having read the Maastricht Treaty, my students had photocopied paragraphs and protocols from both Maastricht and the Treaty of Rome. I like to think that Common Agriculture Policy brought to life Mordechai Ezekiel’s Cobweb Theorem, just as one example.

My own research led me to appreciate the significant change in reach from what is now called the EU. My own feeling was that this was a matter for the British people to decide, that we should all have a right to understand. I campaigned for a referendum.

As a teacher, arguments were presented from both sides. My teaching philosophy was to help students understand and use the tools to formulate their own opinions and present their own arguments. Most important was encouraging the ability to question.

As for the outcome of any referendum, my view was neutral, that we needed a broader education of the public to understand and vote for the future direction of their government. Very few arguments, particularly in democracy, let alone economics, are clear cut. We should make our minds up after listening to the arguments.

Here we are in 2016, the referendum is imminent. The debate has begun.

Most of us probably use the same sources for information. TV provides us with headlines, sound bites and now debate. Twitter allows MPs to give 140 character (plus attachments) arguments. Newspapers are accessible on line as are blogs and other opinionated web sites.

At this point, my own recommendation is to trawl Parliament TV. A fantastic source is Select Committee meetings. Politicians of varying opinions from each party can grill an expert or government minister (some ministers can also be expert) intensively, sometimes helpfully, sometimes rudely. For the diehard, much of the material that experts bring can be a catalyst for more research.

Back to the debate, the electoral commission has decided in its wisdom that the campaigns be fronted by 2 Conservatives, both Old Etonians, both Oxford scholars. If this article does anything for you, I hope it will be to question the sources of information presented and listen to the supporting casts.

Cameron had a head start. He has framed much of the way the debate is run. He told us we would have the opportunity to vote to Remain in or Leave a “reformed” EU. Those reforms amounted to some tinkering with welfare for migrants, yet to be ratified by the rest of Europe.

Project Fear emerged. Everything that could go wrong would go wrong. The Leave campaign can not tell us what “out” looks like. The economic experts all tell us we will suffer. Issues like migration are sidestepped. Those who are sceptic are “little Englanders”. Let’s look at those in reverse order.

To those of us who have a global outlook, the “little Englanders” is something of an insult. Branches of my family have moved to Spain, Hong Kong and the USA. My favourite birthday treat reflects Irish Industrial Revolution migration combined with Jewish capitalists, fish and chips. Friends come from all parts of the voluntary Commonwealth as well as the EU. Don’t patronise us, Dave.

The economic experts have been covered to an extent here. In short, the central reports are from the Treasury. These have been dissected by or presented too late for consideration by the Treasury Select Committee. The incestuous nature of the relevant expert bodies is apparent if people are prepared to look. One piece of work is cited by another, then another. A body of “evidence” emerges. The evidence is unreliable.

Forgive me but I thought this was a referendum about whether we should remain in the EU or leave. I thought that if we had a democratically elected government, they would shape what ‘out’ looks like.

There are some questions back, Dave. What does “in” look like? What is the direction of EU reform? Will the 2020 election produce a free market government, a protectionist government or anywhere in between? Without knowing which governments we have, we face a lifetime of uncertainty. Don’t divert the question and reply with your tired script, provide answers please, even if the answer is “don’t know”.

Dave may claim that he wants a “strong Britain in Europe” so we can expect a change of leadership after the referendum, given his capitulation over “reform”.

There is work to be done to give a positive message if Remain is to ensure a majority. Have Leave done enough?

The campaign leadership was decided by the Electoral Commission. The leader had ostensibly not decided on his position until the last minute. Johnson is not necessarily the next Prime Minister in the event of Brexit.

There are a variety of views about what “out” looks like. What we know is that it depends on the government of the day. We also know that it depends on how resolute that government is in its negotiations.

We may be able to strike our own trade deals, they may or may not maintain free movement, therefore unrestricted immigration from the EU. We do know that we have a choice from what is currently a small list of political parties in future elections. We will be able to tell the government what we want through the ballot box.

There are a number of questions without answers. Leave are not in a position to answer with authority. We therefore face a simple choice between Project Fear and Project Freedom.

This is not the forum to list every single argument. That has been done elsewhere, some hyperlinks being within this text, some of those leading to more hyperlinks. There are however some basic principles.

For Remain, we have a devil we know. We know that devil intends to extend its doctrine. We can judge whether Britain has the capacity to be a force against that devil given the competences that the EU controls and our relative democratic strength within the EU.

We can identify those elements of the debate important to us. Depending on where our employer trades, we can legitimately have a range of opinion. That is what a democratic referendum is for.

For ‘out’, we have the devil we don’t know. Overcoming this devil depends on faith, our own faith that returns sovereignty and faith that we have the ability to thrive with a global perspective.

It is a sad reflection that the dominating view at the moment might be based on trust. Remain have woven a tissue of questionable evidence. This is reinforced by MPs on Twitter, openly making representations that when researched prove to be false at worst and half truths at best.

Yes, claims from Leave can be questioned. We can make our own judgements on what sort of deal a trade deficit of £80billion or so give us. We can wade through the arguments about £350 million per week or a lower figure.

What has helped to make up my mind is not the bluster of a Boris or the chicanery of Cameron and Osborne but some of those obscure figures giving evidence to select committees. We have the radical thought, agree with him or not, of Patrick Minford. We have the quietly spoken, intensely thoughtful and magnanimous Martin Taylor and Richard Sharp. We have the people to deal with anything in so many walks of life.

British democracy is a gem. Select Committees give us transparency that the EU does not. Britain has given democracy to much of the world. We may be stifled by the EU but have much still to share with the world and the rest of the world with us.

To conclude with the question of bias, I confess to a bias forming. This can perhaps be summarised by, of all things, a variety of British winning Eurovision song titles. Do we wish to remain as a “Puppet on a String”? Is the “Boom Bang-a-Bang” a barrage of incoming artillery or a firework celebration? It is time for “Making Your Mind Up”.

Personally, I always had a thing for Lulu.

Sovereignty and democracy made (slightly) less complex

In our quest to follow and explore the arguments over the EU referendum, our attention turns to sovereignty and democracy. Can we unravel what they mean and more importantly, what they mean to us?

These could be treated as different topics but it will hopefully become apparent in this piece why both should be considered together.

The Oxford English Dictionary defines sovereignty as “supreme power or authority”. In simple terms, in any given community, who decides? National sovereignty is therefore “the authority of a state to govern itself or another state”.

Britain is a parliamentary democracy, therefore, Parliament decides on policy and law. We also have a constitutional monarchy, the monarch being a non-political figure, personifying the state as nominal head of the constitution. This brings other bodies with an influence over how a country operates under one umbrella.

At local level, Britain has councils, organised on a geographical basis, typically by town, city or county. These have power to apply local taxes and deliver local services. The decision makers represent voters who elect them in or out over a fixed term.

At national level, Parliament decides, again representatives being elected and capable of being dismissed after a maximum period of 5 years, which brings us to democracy, which is defined as “a system of government by the whole population or all the eligible members of a state, typically through elected representatives”.

There is another part of the constitution or the state, which is the legal system which provides an element of certainty in how government decisions are enacted. In the event of any disputes under democratic law, a court will decide how the law should be interpreted.

There are a variety of courts in the legal system, relating to different areas of law; such as criminal and civil which is further subdivided into, for example, family and employment. After legal decisions have been made, in each area of law, an appeal can be made, the ultimate British body since 2009 being the Supreme Court. Prior to 2009, ultimate responsibility for interpretation was the House of Lords.

Having identified the systems pertinent to Britain, we can explore how the principles of sovereignty and democracy have changed.

Any community can share sovereignty or how to allocate the ability to make a decision. Residents of a county are also residents of Britain. Although legal systems exist in the United Kingdom, there is one parliament and one Supreme Court.

As members of NATO, we agree to act in each others interests militarily, as defined by treaty. As such we share or pool sovereignty in some areas with NATO members. The same applies as members of the United Nations in agreeing to international law.

In principle, sharing sovereignty with the European Union is the same. The big difference comes in the scope of decisions to be made. To understand how, a brief look at history helps.

In 1972, Britain joined the European Economic Community, a customs union which had abolished tariffs between member states. By 1979, the first directly elected European parliament was formed, more of which later.

The Single European Act came about in 1986, setting out a framework for completion of the Single Market 5 years later. This had the effect of weakening the parallel European Free Trade Area (EFTA) encouraging wider membership.

At the same time, European Political Cooperation (EPC) was codified extending the reach to other policy areas and Qualified Majority Voting (QMV) to more areas, ostensibly to speed up the introduction of legislation. A lurch to common foreign policy accompanied.

More treaties brought more shared sovereignty. Maastricht (1992) introduced the path towards monetary union, along with European citizenship, foreign and security policies too. Amsterdam (1997) and Nice (2002) went further.

The Lisbon Treaty (2009) was the latest stage. At first this included an attempt to bring an EU constitution until referenda blocked that objective. However, it brought the European Union structure to what it is today.

Amongst the Lisbon Treaty measures, QMV was extended to at least 45 different policy areas for the Council of Ministers. The Charter of Fundamental rights became legally binding. Sovereignty became shared in more areas.

So how does this look in practice?

Laws are effectively put forward by the European Commission which equates to the civil service in Britain. The difference is that in Britain, the elected politicians frame legislation, with the support of the civil service. Commissioners are appointed from across the EU. Jobs are rotated around the countries.

The Council is a collection of government ministers from each state, the prime ministers or departmental ministers. Their decisions are made largely by QMV. Decisions have to be agreed by at least 15 out of 28 members representing at least 65% of member populations. Here, Britain has 12.7% of voting power, the Eurozone has 67%.

The role of the European Parliament is to vote on new laws proposed, effectively having the right of veto. They also have powers over the EU budget.

The EU also has its own court which can override national law for members. Its judgements are passed down into national law. This makes Britain’s the Not So Supreme Court.

The EU’s responsibilities are defined by ‘competences’, some are exclusive to the EU, such as fisheries policy, aspects of the customs union, monetary policy for the Euro zone and international agreements.

Others are shared with member states, including notably justice, consumer protection, agriculture, employment, foreign security and defence policies. Supporting (and coordinating) competences include health, culture and education.

Between them, the Commission, European Court and Council pass down around 2,500 directives and decisions annually.

The same sort of democratic principle applies when looking at different aspects of the EU. Britain is a country whose economy has a high degree of service base, low degree of agriculture in comparison and a significant element of oil and gas. On each of those criteria, Britain will not be in a significant majority for the foreseeable future so can be outvoted.

Looking at how democratic the European Parliament is, there is s higher weighting for smaller countries. That translates into Britain having 12.3% of the EU population and 9.8% of the vote in the European Parliament, not so bad perhaps.

From a different perspective, Britain has 1 seat for every 840,000 of her population. For each MEP from Luxembourg or Malta, they represent less that 1/10th of that figure at around 75-80,000.

The figure looks worse when taking yet another view that of the net budget contribution. Remembering that figure of our population being 12.3% of the population, our gross contribution is around 10.6% of the total EU budget. Expenditure in the UK is around 5.4% of the budget, making us net contributors.

Of the net financial contribution, Britain accounts for around 14% in return for that 9.8% vote. The level of EU taxation does not correspond with our level of representation, nor does it represent the level of our population. We are in no position to insist on change.

Adding another dimension, there are a number of majorities in the European parliament, most notably the Eurozone but also in countries with who we operate a trade deficit, countries without oil, countries without the same level of services and countries with less access to the sea. Most European trade is done over land with implications to our fisheries and to haulage regulations which also covering shipping.

A significant proportion of British laws are made in the EU where we have less than 10% of the power.

The democratic deficit is very real. Our choice is whether we continue to share, or decide to regain sovereignty. This referendum campaign gives the opportunity to assess whether the sacrifice of self-determination is worth whatever benefit we derive.

What does out look like 2 (short run)

Following on from part 1, a look at some of the evidence leads naturally to part 2. What are the realistic expectations in Britain votes to leave. There are of course alternative scenarios.

Much of the debate so far has been shaped by the Prime Minister. A large part of the focus has been in international trade and trade deals. He has highlighted the drawbacks of different models such as Norway and Switzerland, according to the IMF 6th and 9th globally in per capita income, 2nd and 4th in the continent of Europe (sandwiching non EU San Marino) behind Luxembourg.

According to Cameron, trade deals are a problem. Canada provides an example, 20th on the same IMF list. Britain is 25th on per capita income. He also teases us with Albania in 97th place.

A question mark has been raised over Cameron’s assertions that trade deals with the rest of the world will take years to negotiate. Lawyers for Britain identify that existing deals, made on behalf of the EU and its member states will continue.

Brexit means that the EU loses its majority on G7. Britain is no longer bound to support EU policies on the global stage. There is an element of bargaining power that goes with being the 5th largest economy in the world.

Scenario 1
Britain votes Leave, Cameron is still in charge with his sidekick Osborne beside him. Cameron decides he wants to cling on so that he can chair the council of Ministers.

Based on his manifesto commitments, the Prime Minister and his team failed to negotiate his promises to the British people. In a fit of pique, he immediately files for Article 50.

Having painted a picture of doom and gloom, Cameron gives in again. He and Osborne prove themselves right by accepting free movement of people, a contribution to the EU budget. Little change on the trade front, Cameron and Osborne step aside at the next election, taking up positions with a European bank and the IMF respectively.

Scenario 2

A leader steps forward in the Conservative party. Motions are put before Parliament, the first a vote of no confidence in the Prime Minister after his running down the UK economy, the second postponing debate about Article 50 until Parliament resumes.

The summer recess is used for lobbying with other groups, stressing that the will of the British people is to take a plunge from the fish in a small pond into an ocean that allows for growth, subject of course to not being caught by the Dutch or Spanish.

During the recess, a position is agreed across parties. A proposal is formulated along with an agreement to have a transparent debate in the House of Commons. MPs are encouraged to speak openly, a free vote resulting in a desire to seek a trade agreement with the EU.

The agreed position is that the preference is for an outline deal to be put forward during Britain’s Presidency of the EU in July 2017. The aim will be to file under with a view to negotiations being complete in 2019, before an election in 2020.

The outline of that negotiation stresses that we wish to retain a neighbourly relationship with the EU, as both parties are required under Article 8. There is a default position of reverting to WTO status. That would involve tariffs on EU manufactured goods from washing machines to cars and agriculture making EU goods relatively more expensive as compared to world prices.

Spanish, Portuguese and Greek holidays may take a back seat compared with other destinations. American and Japanese cars will become relatively cheaper. A Mercedes Benz might be cheaper to import from Brazil rather than Germany. In all, yes, the EU can block a sensible deal if it wishes to push its marginal countries to the edge.

It may be that British companies have to look at other markets. The EU may insist on freedom of movement, Britain does not have to deal on that basis. So be it. The USA is a bigger market by value. The Commonwealth is growing faster and accounts for 1/6th of global economic activity with 1/3rd of the world population.

Britain has bigger fish to fry, particularly from reclaimed fishing rights around the British coast. The EU has a chance to preserve its preferential status. Certainly the EU can expand where it likes, Britain however has her red lines, no to freedom of movement, yes to freedom for financial services.

Over to you EU, do you want our £80 billion trade deficit or would you rather risking your workers losing jobs?

In case we didn’t mention it, Britain is the 4th largest global military power and we wish to use our nuclear deterrent to protect your interests under the maintained umbrella of NATO. We are now an independent voice on the WTO, IMF and in the UN. You may lose the majority on G7 but you can count on our support in times of need and rational argument. We are friends and will act as friends unless you choose otherwise.

In the meantime, there are other decisions for a government to make. How should fishing grounds be licensed, agricultural support, allocating funds to research, reform of VAT, not least immigration policy, potentially reform of labour markets and thousands of pieces of EU law to select from. Infrastructure projects can guarantee British resource use.

Of course in the short term there may be an inflationary shock that could accompany a potential devaluation. This is something for the government and Bank of England to manage. Evidence given to the Treasury Select committee suggests that interest rate rises would be delayed. The Foreign Select Committee heard that world prices might lead to an 8% decrease in the cost of living.

It could be that exchange rates have already been discounted due to uncertainty. Inflationary effects are mitigated by cheaper imports from elsewhere in the world.

It could be that the lower relative cost base which follows a devaluation promotes inward investment and export led growth, as it did following ERM exit in 1992. As for government borrowing, Britain looks safer than big borrowers in the EU.

It is up to the government of the day to present a positive message about the economy.

The EU perspective

EU budgets will have to change, after all, there will be a net loss of around £10bn from the second largest net contributor. Will that amount be cut or will it be raised elsewhere? Will some be reclaimed in a trade deal?

There is an uncertainty factor for the EU too, on top of having to deal with weaker Mediterranean countries. Is the political climate right for further integration? Can the Euro survive without further political integration or at least co-operation over fiscal policies?

Initially, EU members might expect a soft approach to negotiations, after all, the EU is used to being dominant. What have been red lines over free movement have to be decided upon. Are the EU capable of compromise, will red lines be erased?

Britain gradually confirms exiting trade agreements with countries around the world. Early signs of growth in American and Korean car sales, Chilean and Australian wines start to show a trend. EU voters who sell to the UK become restless. EU negotiators feel pressure as Southern Europe suffers high unemployment with further austerity.

Pressure increases as Japanese car makers invest more in the UK to satisfy the ever buoyant demand. Perhaps even one of the American giants returns production to the UK, maybe even Transit van production relocated back from Turkey as a Middle East solution appears increasingly remote.

Market forces dictate that far from being a messy divorce, an amicable alimony settlement of the trade deficit is a welcome relief which at least gives us access to the kids. Article 50 does not need to be extended. Germany has to contribute more, perhaps even France but it is a necessary step to keep their economies alive.

Non-Eurozone EU members will be watching with interest with their own decisions to make.

Summary

Of course, we do not know for certain what the outcomes will be. Neither do we have any idea who will be Prime Minister. Cameron will have a hard time to stay in position. The nature of debate has eroded trust in him. What we do know is that the electorate will have sent an instruction.

For those who believe the Treasury, IMF and other intertwined bodies, a hit on the scale that they predict might be balanced against evidence given to the Defence Select Committee, that “successful” sanctions against Russia over Crimea amounted to a 1-1.5% reduction in Russia’s GDP.

Of course, there may be a scenario 3, 4 5 or 6. It is up to voters to judge which is most probable.

Treasury Select Committee Brexit report reviewed

The Treasury Select Committee (TSC) has delivered its report on Brexit, or to give the full title, “The economic and financial costs and benefits of the UK’s EU membership”. The result is far reaching, leaving a few questions unanswered.

At times, observers might feel that the committee has been uneven in the level of zeal applied in forensic questioning of witnesses. The final report provides a balanced analysis of competing claims. In effect, it becomes a usable reference document for those who seek clarity in EU finances.

TSC Osborne

The committee is made up of 11 parliamentarians, broadly reflecting a balance of the political parties in the House of Commons though not necessarily the range of opinions within each party. The report is presented as unanimous which is a credit to all members in addressing the outcomes impartially.

The first target for clarification comes from the Leave campaign’s assertion that the EU costs the country £350m per week. The TSC identify that this is the gross contribution, not including the abatement or “rebate” and ignoring the expenditure re-allocated by the EU in Britain.

The correct net figure is therefore around £110m per week. Whilst significantly less, this leaves the Leave campaign with a manageable figure to use, an amount equivalent to the annual spend of a small clinical Commissioning Group such as Scarborough and Ryedale for a year or a monthly figure equivalent to the annual spend on health by a larger CCG such as the Vale of York.

The report also highlights that a British government, rather than the campaigners, would have to decide how to re-allocate the £167m per week that is currently decided by the EU.

The last main area of criticism for the Leave camp surrounds the burden of EU rules, the independent Open Europe think tank having calculated the 100 most onerous being £33bn per year according to their original evaluation. A later reviewed estimate is that £12.8bn or so of savings could be achieved with repeal.

osborne TSC

The Remain side received criticisms of their own, largely aimed at Treasury claims of being £4,300 worse off. For those who felt that George Osborne had an easy ride at the hearing, the result is stinging.

The Treasury study did not include the potential upsides of Brexit in their modelling. As such to paraphrase, the basic assumptions showed an element of bias.

Given some of the assumptions made, there are uncertainties. The rigour of the model was not tested by sensitivity analysis.

The limitations of the Treasury’s approach are exposed by some counter-intuitive results from their analysis, buried in the appendices.

The final figure of £4,300 should not be used by the Remain campaign. Similarly, the £3,000 figure generated by the CBI does not specify an alternative trade model to be compared with.

The Treasury received further criticism over a later report, that relating to short term effects in the event of a Leave vote. That report was ultimately released a mere couple of hours before ‘purdah’ and not within the time scale that had been advised to the TSC by the Chancellor.

The TSC forcefully conclude by saying “it is to be hoped that scrutiny and transparency have not in this case been subordinated to the imperatives of the Number 10 ‘media grid’.”

Osborne has received further criticism over his evidence on extra demands from the EU and the rebate. The committee found that Osborne’s evidence was “not supported by the facts”.

There are a number of other observations. There are competing claims over prices, whether they would rise or fall industry by industry. Of course, much depends on the policy of the government of the day, whether reciprocal tariffs are imposed or not and to what extent Brexit would affect patterns of trade between countries.

The claim that import costs would rise by £11bn is dependent on assumptions; we would still buy the same good from the EU if tariffs were imposed, we would maintain tariffs on imports from outside the EU and we fail to strike a trade deal with the EU.

By the same token, Common Agricultural Policy (CAP) support may be continued in a different form, therefore it can not necessarily be claimed that food prices will fall by £400m.  The OECD suggests CAP food price support costs consumers £10bn.

On jobs, the TSC found that although 3 million jobs may be linked to EU trade, those jobs were not dependent on EU trade. Such claims should be careful over use of language.

As would be expected, the TSC heard evidence from the Bank of England. Efforts were made to explore the effect on exchange rates and interest rates in the event of Brexit. Uncertainty in the markets may be more likely to delay interest rate rises. Sterling might fall, as would the Euro, the effects mutually offsetting each currency with regards to EU trade.

The Bank of England witnesses were also to put risks into some sort of perspective. Brexit may be an internal risk but there are greater risks to economies in a global context. Indeed, there are also further risks that may be associated with a Remain vote. These include bank liquidity in the Eurozone and further EU reform which may undermine the Bank of England’s ability to ensure monetary stability.

The committee were broad in their approach. Several questions were explored in detail. It is acknowledged that there is plenty of uncertainty, both with a vote to Remain and a vote to Leave. These largely extend to the nature, scope and timing of trade deals.

Other avenues, some overlapping trade, related to foreign investment, financial services, global markets and immigration.

There are of course some potential limitations to the report. Whether certain exclusions were made in the interests of unanimity is a question for the committee.

Whilst the TSC has been able to explore and make recommendations from British representatives and institutions, some international organisations were unrepresented. These include the IMF, whose Managing Director, Christine Lagarde, is on record for thanking the Treasury for its help in compiling the IMF report. Other organisations, such as the Institute of Fiscal Studies, were not called.

Notably, a further IMF report has been brought forward to the week before the referendum. During hearings, the TSC have noted the change in timing from previous years.

Perhaps surprisingly, there was no exploration of the funds that might be raised by imposing tariffs on EU imports, new found freedom over being able to set VAT rates with its own implications on price levels and competitiveness. Other policy angles, such as Minford’s free market model were effectively marginalised.

Despite any criticisms of the report and, on occasion, an apparent lack of even-handedness of ferocity of questioning, the TSC have produced a balanced document. Certainly, there are some omissions but the final result is one which has been presented as unanimous.

The range and detail is a tribute to the TSC themselves. The variety of media comment from MPs concerned following publication gives each their own angles to argue, with different weight given to the different components according to their own views.

They have highlighted some of the key statistics in a balanced way, despite the majority being Conservative and a different majority being apparently pro EU. The strongest criticism is for the Chancellor with rebukes for others who have used questionable data.

Those involved on the committee have provided an example of parliamentary democracy of which Britain can be proud – for as long as the Select Committee system lasts.

Brexit – the campaign so far

We are a few weeks into the referendum campaign. Arguably the most important vote for British people in over 40 years, what have we learned? Perhaps more importantly, what are we yet to learn?

Naturally, the parameters for early debate would be set by the Prime Minister. Beforehand, we were told that we would have the choice about staying in a “reformed” European Union.

Reform amounted to some tinkering around welfare payments with a promise that Britain would be able to opt out of the ‘acquis communautaire’, the drive to ever deepening union. Whatever has been achieved at Council of Ministers level has yet to be ratified by EU member states. Was the promise false?

wires crossed

Cameron’s campaign had a head start. He knew that he would be championing the cause of Remain. Revelations have emerged that in fact he was building up support, the evidence being dated 8th February in a reply, 11 days even before his “reform” negotiations were complete. In practice, he has had 6 years to build up his arsenal of dubious evidence.

It was not until 14th April that the Electoral Commission published its decision, which of 3 alternative groups should lead the Out cause. The decision was to designate Vote Leave, fronted by Boris Johnson who, ostensibly at least, had not made his decision in which way to go until 21st February. At the time, Johnson denied that he would take a leading role.

That Electoral Commission decision effectively threw two Conservative Old Etonians and Oxford graduates against each other. Were we in for a balanced debate representing a broad cross section of British society? The UKIP based Go faction has been marginalised.

So the campaign began, arguably ahead of schedule with £9.3m worth of leaflets outlining the “government” position. With its early start the Remain crowd were able to dictate the content of early exchanges. The lines were drawn on the economy, safety, strength and incomes.

Both the Labour party and Liberals are ostensibly pro Europe but on the whole, are strangely quiet. Perhaps this is a planned tactic with the next election in mind? Certainly, Corbyn in the past has voted against steps to further integration. Farron is clear in his views but has refrained from his repeating his inaugural conference speech, where he branded the Leave camp as “little Englanders”.

So how does the Remain argument translate?

Firstly, the extra time has allowed the Remain side to develop support. This has come from 150 Royal Society members (out of 1,653) felt we should Remain. Of Britain’s economists, 200 say we should Remain. Quite how many economists there are in the UK, perhaps several thousand, the rest did not sign.

From the international stage, Obama made a splash by relegating Britain to the back of the queue for trade deals. He conveniently omitted to mention that he would not expect Britain to be back of the queue for military support in Libya, Iraq and Syria. Neither did he put Britain at the back of the queue for a Trident replacement or the purchase of American fighter aircraft.

The popular view is that Project Fear has begun. If we leave, inflation rises, unemployment rises, exchange rate drops, incomes fall, Putin and Daesh are dancing in the streets, World War 3 will break out. Surely it couldn’t get much worse? Incidentally, EU trade sanctions against Putin are estimated to have hit Russian GDP by 1-1.5% which puts the wilder claims into perspective.

The economic views seem at first sight to be repeated by a variety of supposedly independent bodies. Of those, at least the International Monetary Fund and Institute of Fiscal Studies have quoted a barely credible Treasury report, the Treasury being stripped of its forecasting role by the very same Chancellor who advocates the Treasury model.

There is a sad absence of a positive message. The biggest objection is that we don’t know what Out looks like. That is hardly surprising, the Leave campaign has yet to derive a consensus to decide for sure but there is a serious point, the government of the day can decide.

boris-johnson-vote-leave-campaigner

So what of the Leaves?

There is a view of what Remain looks like. As yet, that particular fight has to be taken to the Remain camp. Strangely, the German white paper on defence, as revealed in the Financial Times, has not been flagged as a significant debating point.

The 5 presidents’ report from the EU has not been capitalised on. The Leave side have not picked up on shaky ground, that the direction of reform in the EU is towards further integration.

The Leave camp has not picked apart the harsh realities that the only currency unions that have provided success are those that include political integration. Given the late start, the Leave’s have been unwilling or unable to take the fight of what Remain looks like with the associated uncertainty that integration brings.

Instead, they have been left with the open goal to miss, that of immigration. It has been an ironic set up, that those who argue to prevent Eastern EU citizens can be dubbed as racist. Ironically, Britain remains able to control immigration by those from the Commonwealth Indian sub continent, from Africa and from the West Indies whose citizens’ sacrifices are strongly represented on the Menin Gate and war graves across Europe.

The Leave campaign as it stands have been unable or unprepared to challenge some basic spin, a classic example being the portrayal of trade figures such as 44% of our exports go to Europe but less than 10% of EU exports come to Britain.

In practice, this is an argument easily refuted. Prior to EEC membership, less than 25% of British exports went to the current EU. In terms of value, British imports make a net injection of, by the latest figures, £8billion per month into EU economies.  Percentage and value are different beasts. More EU jobs rely on trade with Britain than vice versa.

There are many arguments left to explore. How would the flow of manufacturing jobs from the UK to the EU core or cheaper fringes change either in or out? Are trade deals with Europe worth more than trade deals with the Commonwealth and new friends in South America, Asia and globally?

Which trade model would suit Britain best? Should we decide our own with a deficit that our EU partners would want to continue?

There are decent arguments on both sides, perhaps the most convincing for Remain being that an extreme British government can be neutralised by Europe, the most convincing for Leave being that British voters can help shape our own future.

Despite the head start, Remain flounder in presenting a positive message. Since one of the arguments is whether it is the EU or NATO and the UN that have kept peace in Europe, please forgive an analogy. Remain are fighting a rearguard action, seeking to minimise casualties, akin to Dunkirk in 1940.

Leave have 4 weeks rather than 4 years, to form the sort of alliance that can provide a vision for victory. Their own D (for democracy) Day is June 23rd. There is time yet for them to come up with a positive vision to capture the imagination of an outward looking nation.

Ultimately, Electoral Commission rules, which supposedly provide for a fair fight, have stifled planning, Leave having to fight a guerrilla war so far. The vote will ultimately be decided by those currently wavering. It seems to be a straight choice between fear and freedom but can either side provide a popular vision?

Another view on the IFS report

A further report of doom and gloom after Brexit has been released, this time from the institute of Fiscal Studies (IFS), claiming the Brexit would bring two more years of austerity. Is the body of evidence from independent analysts really increasing?

The IFS is a charity, based in London specialising in taxation and public policy, claiming to be politically independent. Its formation had its roots in opposition to Labour Party policy in 1964, formalised in 1969 with a cross party Council being established the following year.

Of its funding, 54% comes from the Economic and Research Council (ESRC) whose parent body is the Department for Business, innovation and Skills. The bulk of the rest comes from foundations and charities (14%), the EU (11%) and other government departments (8%) with only 1% from corporations.

It is always interesting to look at personnel on any of these bodies, certainly well respected people with august backgrounds. President of the IFS is certainly august, in fact Lord Augustine O’Donnell, better known as Gus O’Donnell. Gus is not unaccustomed to public scrutiny having featured in the delayed Chilcot Inquiry over his decision not to publish correspondence between Blair and Bush.

On a more operational level, it is interesting to see the Director is Paul Johnson. Curiously, Johnson studied at Oxford, Keble College, a short walk along Parks Road from Brasenose College where David Cameron also read PPE at the same time.

It is not unusual to see a flow of personnel from the IFS to the Treasury and back. Another Old Etonian who was also a PPE graduate moved from the IFS to work with the Oxford educated George Osborne, both in opposition and for the Treasury. Nobody would suggest that the Oxford educated Chancellor, godfather to one of Cameron’s children, could be guilty of providing “jobs for the boys”.

Given that obvious total impartiality, it is worth a closer look at the IFS document which can be found here.

As ever, the report starts with an executive summary, which is expected to outline objectively how the study will be carried out. Surprisingly, as early as the first page, we see the pejorative use of the word “absurd” in relation to the commonly used figure of £355 million which is sent on average weekly to the EU.

Certainly, it is fair to question figures using non-emotive language. The language used appears to illustrate a potential bias. They are correct to highlight that part of that is what they call the “rebate”, which in fact should be correctly identified as an “abatement”. They might also point out the resources that are allocated by the EU which might be more efficiently allocated by a UK government.

There is a delicious irony in that having disparaged the total resource that the EU reallocates, the IFS argue that it “is not necessarily inappropriate to describe the deterioration in the government’s finances as making households worse off”.

In short, funds that households do not see are not equivalent to funds that households do not see. There is logic and consistency in there somewhere.

The IFS proceed to well worn arguments and, perhaps unsurprisingly given the movement of personnel between Treasury and the IFS itself, return to use the Treasury’s own figures. These have been widely discredited.

They also refer briefly to the 8 economists’ report, after 2 mentions consigning independent and eminent economists, including those who arguably steered Britain to above average growth rates, to the dustbin of “outliers”.

In essence, the IFS has fallen in, whether consciously or otherwise, to the myopic view induced by the Remain campaign, that there are a limited range of options available but not including those that come from an inspired generation of free thinkers associated with economic success.

Much of the report refers back to other reports, the Treasury and the apparently closely linked OECD report as well as NIESR and CEP. The Norway and WTO models seem to be interpreted as the only ones that are feasible. Unfortunately, the report was written before Bank of England Treasury Select Committee appearances by external members of the Bank of England presented their own views (here) , putting the risk and policy in context.

The “shock absorber” effects in an efficient Foreign Exchange market provide stabilisers, as does the potential monetary policy brief of the Bank of England. The Governor does not necessarily speak for those who have direct input into decisions.

The IFS ignores what Bank of England members consider as potentially greater risks to stability within the EU and indeed the global stage.

On a deeper level, in not having been able to consider the TSC questioning of Bank of England members, any contingency planning on how to deal with potential fall outs the IFS report can in no way claim to have been a comprehensive, therefore rigorous, analysis of Brexit.

In summary, the IFS have compiled a variety of reports before supporting the Treasury line. Their integrity is beyond question, despite the various links with the Treasury personnel movements, old school and university contacts. The report is just not sufficiently thorough.

To their credit, later in the text when many readers will be bored, the IFS group take steps to provide caveats that the central assumptions, therefore the outcomes may be wrong. In doing so, in the future, they provide Osborne with excuses for not hitting his own targets or to change policy, which Osborne and his neighbour are doing a lot of at the moment.

That may be a subjective judgement. Look at the documents and the TSC recording, you can decide for yourself. One of the great lessons is how to recycle the same dubious evidence to build a body of opinion.

Osborne 2, the horror movie

George Osborne, as he promised, has released a second dossier on the effects of a no vote on 23rd June. This time, the target of doom and gloom was the first two years after a Brexit vote.

Sadly, Osborne decided not to attend the House of Commons to defend the document, instead delegating to his deputy, David Gauke in a “departure from normal procedure”.

In short, the dossier predicted the shorter term effects to the economy. On a macroeconomic level, 500,000 job losses (a lovely round number), GDP would be 3.6% lower and inflation would increase to 2.3% higher. Sterling would be weaker by 12% while house prices would fall by 10% and public borrowing would rise.

osborne TSC

It is worth remembering that this is the Chancellor who, when announcing the Office of Budget Responsibility said “I am the first Chancellor to remove the temptation to fiddle the figures by giving up control over the economic and fiscal forecast”. Sometimes, temptation is hard for a Chancellor to resist.

The report identified 3 impacts. The first of these was “transitional effect” i.e. “the UK becoming less open to trade and investment under any alternative to EU membership”. The second was “uncertainty” the final impact being “financial conditions effect”, i.e. the extent of financial market volatility.

As with the report covering the longer term, a narrow range of assumptions were made. The language used was persistently negative. No consideration was given to any upside potential. Once again, there were a number of own goals.

The cycle of doom starts with consumers not consuming due to uncertainty. Producers will not produce through uncertainty, investors will not invest due to uncertainty. The same sort of vicious cycle is the sort that the Treasury predicted when the UK opted out of the Exchange Rate Mechanism (ERM) in 1992, before a decade of growth ahead of the rest of the EU.

Much of the negativity is based on a potential fall in the exchange rate. The inflationary effect comes from increased input prices. There is a certain logic if, but only if, the exchange rate were to fall to the extent predicted. Osborne’s 12% reduction would nullify the suggested 10% tariff on British car exports to the EU. The Treasury also suggests that overseas investors will divert investment to other EU bases.

As an indication of selected bias, the report ignores any extra incentive provided for British producers to sell into an export market with potentially higher revenues.

Unfortunately, once again, Osborne’s Treasury do not explore the options in the sort of detail that a truly “rigorous” report should, particularly the opportunity costs, that is to say if investors do not invest here, where would they invest?

A lower exchange rate has converse benefits. Any company producing in the UK would experience a lower level of costs relative to their own currency. If Sterling were to drop against the Euro, the relative cost of producing in the European Union, such as Germany, becomes higher.

It is conceivable that the withdrawal of production facilities from the UK by some of Osborne’s famous examples, the motor industry including General Motors and Ford, will have damaged their own cost base.

There is a good argument that in recent years, the Euro currency was undervalued for Germany, even if Germany’s exports made the Euro overvalued for the Southern EU countries. German exports were thus more attractively priced in the UK, hence the domination significant trade deficit that Britain has with the EU and Germany in particular.

Extending Osborne’s logic, whether a trade agreement were to exist with the EU or not, there is at least a positive reason to consider maintenance of investment in the UK, at least for the duration of the next two years. Afterwards, there may be more motivation for companies like Ford and GM to return production to the UK, lost whilst members of the EU.

It is also worth considering the opportunity cost of other investment, particularly in securities markets and government stock. The implicit assumption behind Osborne’s Treasury model is that the Euro provides a secure investment.

It is well publicised that Eurozone banks provide a source of insecurity. The economic troubles of Greece, Italy, Spain and Portugal are well documented.  The Euro is by no means a solid alternative currency in which to invest. Osborne’s pessimism may have been misplaced.

osborne lagarde

Interestingly, the Treasury report mentions the IMF 25 times. It will be remembered that the head of the IMF, Christine Lagarde, thanks Osborne for the Treasury’s help in compiling their pessimistic forecast (here at 9.09). Lagarde herself awaits the outcome of corruption charges.

Curiously, the IMF’s warning over £715billion of non-performing loans (NPLs) among Eurozone banks was not included in the Treasury report.

Further negativity is based on the assumption that trade deals will be hard to come by. The UK has to agree its own trading relationships with the EU. The point is made that the EU might be a priority for the 50 nations looking for trade deals. By definition, at least, at least at least 44 of those have smaller economies than the UK as a G7 member.

One thing that Osborne has got right is the uncertainty of being able to negotiate any sort of trade deal with the EU. His leader, David Cameron was unable to negotiate a successful outcome for reform, even with the backing of a near £10billion net budget contribution and imports from the EU running at £8billion per month.

The comedy value of this report was highlighted by some case studies selected.

The first of these was agriculture, where the report highlighted where DEFRA has seen agricultural support cut in the last 3 settlement rounds – whilst a member of the EU. The second inadvertently highlights how some companies are relocating out of Britain into the central EU area, even whilst members. The third reinforces this by referring to the Society of Motor Manufacturers and Traders (SMMT), an organisation largely dependent on revenues from importing over 2million cars last year.

In short, Osborne’s illusion is easily dismantled. He exhibits no faith in his government to secure trade deals from a position of strength. In running down Britain’s ability to respond to a “shock”, the british Chancellor would risk creating a self fulfilling prophecy, wee he to retain any credibility at all.

On the plus side at least, should Lagarde be found guilty, he has a job to apply for where inaccurate forecasts appear welcome.

George Osborne’s leaky defence and own goals

The Treasury Select Committee (TSC) met on the afternoon of 11th May to question George Osborne and Treasury official, Mark Bowman over the EU Referendum campaign. The session can be seen here.

For those who are unaware, select committees are broadly organised to reflect government departments. Naturally, the TSC reflects the Treasury. The committee is made up of 11 MPs from across the parliamentary spectrum, at least as far as party representation is concerned.

In practice, the significant majority of the committee are currently on the IN side as far as the referendum is concerned. Seasoned observers of the TSC, that Jacob Rees-Mogg usually cuts a lonely figure, sitting at one end of the horseshoe of tables. For once, he had two other Conservatives positioned adjacently.

Those who have seen other recent TSC meetings might have expected a forensic examination of Osborne’s figures. When figures from Leave campaigners, Arron Banks, Richard Tice and Matthew Elliott had appeared, questioning was penetrative. TSC made recommendations to change figures on their web site. Could we expect the same?

TSC Osborne

The Chair, Andrew Tyrie, opened proceedings revealing that a further document will be produced by the Treasury, concerning the short term impact of a Leave vote.

The first challenge, from the Chair, came from a Cabinet paper, the Best of Both Worlds. The question was whether Britain can unilaterally enforce access to the European Council over management of the economy, as outlined in the document, if principles are not being respected.

osborne TSC

Osborne showed what he does well, obfuscated the process with a long winded tangent of his own agenda, of the type he was to repeat for much of the afternoon. What appears to be the case would be met based on the balance of probabilities rather than legally enforceable.

Stephen Hammond started to probe on two points, whether sensitivity analysis was conducted. Bowman and how the famous figure of being £4,300 worse off was arrived at. The sensitivity analysis question was asked several times, to which Bowman replied not fewer than 6 times that the Treasury used “cautious neutral assumptions”.

So what is sensitivity analysis and what is the point? This is a method of accounting for uncertainty, using alternative assumptions to test how robust a model is, sometimes removing some variables. The fact that it was not carried out can suggest that a model is not “robust” as we were told when the document was released. In short,l the Treasury did not challenge its own assumptions.

The question set up Osborne to return to the increasingly hackneyed phrase that “we don’t know what leave looks like”. At this point nobody challenged as to how this government would seek to shape what leave looks like whilst they are in power.

Rees-Mogg took his turn to question. The early part of his questioning concerned productivity growth, highlighting that European productivity growth has indeed been a problem since 1992, at least compared with international competitors. Osborne chose an alternative time frame to disagree.

The Chair intervened to suggest that the £4,300 figure was “the product of imprecise modelling, ranges”. Osborne had been given a lifeline of an alternative position to defend.

To his credit, Rees-Mogg persisted to attempt to identify what other reasonable assumptions had not been included by the Treasury. In his 4th apparent attempt to cut Rees-Mogg off, the Chair shifted the discussion to Foreign Direct Investment (FDI) and an admission that statistical significance was not established.

Attention shifted to Labour MP Rachel Reeves, Osborne’s “new very close friend” which was perhaps reflected by her approach, including Tweeting from inside the committee. Unsurprisingly they agreed that all was doom and gloom outside the EU. Osborne let himself off the hook by shifting policy measures to the Bank of England.

reeves

One curiosity out of the Reeves/Osborne love in was that house prices would fall but would not stop foreign investors buying UK property due to a falling exchange rate? Unfortunately, there was nobody left who was allowed to challenge his economic literacy as to why foreign buyers would want to invest in a falling market with weak exchange rates and nobody able to want to buy their failing investments.

Some tests came from Steve Baker who asked why Osborne made “the assumption of no confidence as to what the British government can achieve”. He received the response that it would take 15 years to get a trade deal with the EU. Apparently, existing templates would not provide a basis for other trade deals.

Chris Phelps briefly highlighted foreign trade, growth in trade deficit with the EU, the 61% growth in trade with the USA (with who we don’t have a trade agreement) compared with 44% growth in the EU over the last 10 years. According to Osborne, the EU is the only area to have had a hard time over that period. There was no challenge as to why the EU is stagnant.

The soft questions secured the potential for an own goal by Osborne in admitting that the German and French would beat us in any negotiation over freedom of movement. Unfortunately, the defence had gone missing so nobody was there to knock in the winner over the extent of our trade deficit with Europe.

The last real challenge came from the Chair, with what turned out to be around an hour before the Monty Python like inquisition. This was over deregulation should the nation choose to remain. Even though new regulation has shrunk by 80%, no existing costly regulation was to be repealed.

Further questions resembled the comfy chair, soft cushions, coffee and glass of milk coming from Anne Goodman, George Kerevan, John Mann, Wes Streeting and the particularly helpful Andrew Garnier.

More potential own goal emerged. This government has no contingency plan. We can not project public expenditure savings. We are apparently in a position from inside to clean up the EU, despite being unable to pressure them into producing signed off accounts for a quarter of a century.

Strikingly, there was no challenge as to the EU’s ability to remain protectionist, reducing the scope and impact of WTO deals over decades.

The Chair summarised with an attack on the Leave camp, glossed over the lack of contingency planning and set Osborne up for the potential winner. Osborne was invited to reiterate his slogans.

The questions that were not asked were glaring. What if we were to reciprocate with tariffs on the EU? How would we spend the receipts? Would the EU want to protect their biggest export market? Would the EU really be stronger with Britain out? What did the report cost? Is it moral to use Treasury resource to scare the public?

Sadly, the forensic questioning that we have seen of late was not forthcoming. There is no requirement for the deeply flawed Treasury document to be edited. We can see that in our parliamentary democracy, some are more equal than others.

You are invited to judge for yourself, based on the links provided in the text. To finish on a positive note, congratulations to those on the TSC on their stamina. Listening to George Osborne for two and a half hours demonstrates certain qualities.

House of card tricks

The debate surrounding Britain’s referendum on the EU is well under way. After making some surprising statements at the end of February and start of March, Foreign Secretary, Philip Hammond, has been surprisingly quiet.

Hammond’s reputation was once that of being something of a Euroscpetic. As recently as 2013, in an interview with the BBC, he suggested that he would vote to leave the EU.

On appointment to his current position, with a general election in sight, he insisted that his position was to renegotiate for a reformed EU. This general thrust of policy was enshrined in his party manifesto (page72 et seq).

After an election win, the position changed within a couple of months. In further interviews, his line was distinctly middle of the road. Mr Hammond also said the government wanted to engage in the debate “in a fair way” and would ensure public money was not allowed to be “inappropriately spent”.

By 26th February this year, he boasted on Twitter “I lead a robust #EU debate in Parliament today. The UK is safer, stronger & better off inside a reformed #EU. #EUreferendum”.

hammond 2

In an interview with Andrew Marr, Hammond sidestepped the issues of what would be achieved relative to manifesto commitments. Effectively, he did not deny that manifesto commitments had not been realised. His suggestion, a repeat of what he told Parliament, was that voters would see the outcomes “in the round”.

The phrase “in the round” is an interesting one. Apparently its roots are in the theatre where a performance can be seen from all sides. One interpretation is that the performance can be exposed. Another is akin to a firing squad forming a circle.

Since his comments after the announcement of a referendum, Hammond might be seen as a weak link. His promises about fair debate and public funds appear to have been contradicted by the notorious £9.3m pamphlet and Osborne’s Treasury dossier.

He does seem to have been strangely quiet on EU affairs since February. What has he been up to?

A trawl of Foreign and Commonwealth Office press releases, combined with his Twitter account give us some answers. He has been incredibly busy on the world stage.

Leading up to the Easter period, Hammond was seen in Afghanistan, Pakistan, Paris, Baghdad, Georgia and Lebanon. Since then, his travels have taken him to Hong Kong, Beijing, Vietnam, Tripoli and Colombia.

hammond_cuba

His latest overseas appearance was in Mexico, discussing economic reform and investment opportunities for UK investment in energy and infrastructure. His previous stop was in Cuba where he was able to declare a bilateral agreement arguably to the embarrassment of the IN campaign who tell us how long it takes to strike a deal.

He has certainly been a busy bunny. During those trips, his absence from Foreign and Commonwealth question times received criticisms from both sides of the House.

Some cynics might suggest that it has been decreed as a potential liability in the campaign, Hammond is being kept out of domestic view. Certainly, some of the unease of Conservative colleagues about taxpayer funded information might be traced back to Hammond’s own comments in June 2015.

Others, arguably more cynical, might liken his disappearing act from the domestic scene to John Major’s wisdom teeth at the time of Thatcher’s toppling.

Of course, a return to the firing line would be welcome. If Britain is a democracy, it is entirely appropriate the Foreign Secretary shares his views on the most pressing foreign policy question for over 40 years. He should not miss another question time and his achievements or otherwise should be open to public scrutiny.

It will have been noted that Hammond took his front bench seat for PMQs on 4th May. The following day, he met with the delegation from Japan accompanying Prime Minister Shinzo Abe. He has been silent on the outcomes.

Therefore, the question remains, has Hammond been gagged, has he gagged himself or is the flurry of meetings with representatives from around the world merely coincidence?

Victory for IN means he can claim to have won all the reforms achievable, victory for OUT presents him as a candidate who has credibility around the globe, even if his earlier slashing of defence budgets leaves him without the military power to back up support for some of the regimes he has visited.

According to opinion polls, the debate is a close run thing. Cameron has already stated that he will not stand for another term. Politicians from both sides have suggested that in the event of a LEAVE vote, his position becomes immediately untenable. Either way, there are fractures to repair in the Conservative Party.

Who is most likely to succeed him? The majority of Conservative MPs identify with the Remain camp. The decision is ultimately theirs. Even in the event of a Leave vote, internal disputes will be a challenge for those most ardent supporters to Remain. The most ardent in the Leave camp face a challenge to gain a majority.

Hammond can claim to be a suitable compromise candidate. The longer he stays quiet, the more he can be regarded as one not to have offended either side.

Perhaps more critically, he can realistically claim to have a presence on the world stage, a potential Prime Minister who can bridge gaps with those outside Fortress Europe, one with a history of bilateral agreements.

If the outcome is to remain, he might expect to be regarded as instrumental in securing the “reform” necessary to secure the vote. If the outcome is to leave, he is the man who can negotiate deals with the EU in a timely manner. In either event, he was the man to present the referendum bill.

As Iain Duncan Smith, himself a compromise candidate, famously stated at the 2002 Conservative party conference “do not underestimate the determination of a quiet man”, but why is Hammond so quiet?

Obviously, there are several weeks for Hammond to make a public contribution to the greatest debate on policy from the Foreign and Commonwealth Office for over 40 years. Whilst he is waiting in the wings, his views will not be seen “in the round”. Until he does, there will inevitably be conjecture that he sees his real place as centre stage.

It is said that history repeats itself. After the 1975 referendum, when the Prime minister of the day stood down, he was succeeded by the Foreign Secretary. Just as Callaghan followed Wilson, Would anyone really bet against Hammond following Cameron?

Philip-Hammond drink

Is Britain really safer in? (Part 1 – military)

One of the early claims in the referendum campaign, even before the campaign started in earnest, is that Britain is “safer IN”. Let’s have a look at these claims.

There are three aspects to the claim. The first of these is militarily, the second is in terrorism, the third crime. The focus of this piece is on the military security between nations, a follow ups will consider terrorism and crime.

In attempting to assess the principle threats to Britain, it is worth taking a brief look back at history.

One of the main arguments about security has been made for decades, that we have averted wars in Europe since 1945. Indeed, one of the aims of the founding members of the EU was to link economies to an extent which made countries interdependent.

Both world wars had their origins in Europe, even though for the second, Japan and China had been in conflict since 1937. War in Europe came from German expansion into neighbouring countries, starting with Poland in 1939, with fluctuating alliances.

In 1941, the war extended, Germany invading the Soviet Union and with the Japanese attack on Pearl Harbour. The conflict became global. The allied victory came in 1945. Settlement in Europe meant division, the East being controlled by the Soviet Union. Until 1989, the Communist ideology was seen as perhaps the biggest threat to peace in Europe.

After 1945, a range of international treaties and groupings evolved. Immediately, the League of Nations was established, now the United Nations. NATO followed in 1949 with the Warsaw Pact established in 1955, its demise coming from 1989 to 1991 as countries on the periphery of the eastern bloc sought freedom. The Soviet Union also disbanded in the same year.

It is true that there has been no military conflict between members of the European Union since 1945, despite there being other conflicts on the continent of Europe. Whether relative peace can be attributed to the existence of the European Union is open to debate. The UN, balanced alliances of NATO and the Warsaw Pact countries may have been a factor.

It is also true to say that there have not been conflicts between members of NATO.

The European Union had been involved in a variety of operations in different parts of the world, in fact 30 since 2002. These have inevitably included a British presence. In Europe these have included the former Yugoslavia, monitoring missions which included Gaza and policing missions.

There have been no large scale operations, however, some have been linked to trade protection, such as piracy off Somalia. Perhaps the most significant operation was EUFOR in Libya in 2011, largely an airborne campaign.

So where are the threats?

Led by Cameron, the IN crowd would have us believe that Putin would be the happiest if Britain voted for OUT. Does that mean that Russia are a threat to either Britain or the European Union?

putin

For a moment, let us assume that Putin might consider an attack on the United Kingdom. What would he face?

Britain is ranked 5th -6th globally amongst military powers depending on criteria, more or less alongside France, behind USA, Russia, China and India. The above, as well as North Korea and Pakistan have declared possession of nuclear weapons. Retaliation could be apocalyptic.

It is true that Russia’s volume of military assets is far greater than those of Britain. However, as members of NATO, an attack on one country would be seen as an attack on all. A declaration of war would trigger a combined response, not least from USA military assets within Europe.

During the Syrian crisis, a Russian aircraft was shot down, allegedly encroaching Turkish air space. Turkey are also members of NATO. The lack if a military response from Russia might be seen as a clue to Russian intentions and sensibilities. It is barely conceivable that Putin would take on NATO in the European Union area.

Certainly, Russia has flexed its military muscle in the annexation of Crimea. Ukraine is not a member of NATO. The European Union response has been limited to trade sanctions.

Whilst Putin may be presented as some sort of pantomime villain by Cameron’s cronies, it is worth reflecting for a moment why Russian forces have been deployed in Syria, or from another perspective, why they have been deployed against ISIL.

Initially at least, the campaign declared in support of efforts to counter terrorism. Later, a Russian passenger aircraft was shot down over Sinai with ISIL claiming responsibility. The campaign intensified.

It seems fair to say that Russian, and indeed USA approaches differ to Britain’s view on “collateral damage”. There is certainly a case to challenge other superpowers’ less discriminate activity. Both Russia and America have bombed hospitals in war zones. It is hard to argue that Putin has destabilised the Arab world any more than Bush, Blair, Obama and Cameron.

Of course, British forces have been deployed in conflict zones, during this century. The first of those was in Sierra Leone without external support. The next was Afghanistan, led by USA as a NATO campaign with EU support coming from France, Germany, Poland, Italy, Romania, Denmark and Spain, by no means all 28 nations.

The Iraq war was again led by USA with EU involvement also including Poland and Denmark. The Libya campaign was largely a NATO led enforcement of a no-fly zone, naval blockade and civilian protection. The main EU participants were Britain, France, Denmark, Italy and Sweden.

The ongoing campaign, involving 9 EU states currently, is against ISIL. The terrorist battle in Europe will be the subject of a further piece. However, it is clear that the EU does not necessarily contribute unanimously to each military intervention. It is also clear that UN involvement tends to ensure that the risk of expansion is limited.

A partial explanation of different levels of contribution may be the resource allocated to defence. NATO’s recommendation is 2% of national income, a figure that is currently only matched by Britain and Estonia. France and Poland are not far behind with around 1.95% whilst of the other larger nations, Spain is less than 1%, Italy and Germany at 1.32% and 1.23% respectively.

At 22.7% of total defence expenditure (EDA 2012), Britain’s is the largest financial contribution. It is clear that Britain’s military power enhances the European Union. The bigger question for the referendum is how much does the EU strengthen Britain?

In practice, NATO forces undertake joint exercises. In conflicts undertaken, the more active participants obviously deploy more resource than the less active. If those activities are of benefit to EU members, it stands to reason that those who contribute less gain benefit at the expense of others. Put another way, Britain contributes more than she gains, other nations gain more than they invest.

There are other threats to British interests. We can take two simple but linked examples, the Falkland Islands and Gibraltar. The Falklands were invaded by Argentina in 1982. Argentina maintains their claim, supported by Spain.

falklands

In 2013 a European Parliament delegation visiting Argentina led by Spanish MEP Luis Yanez-Barnuevo Garcia declared that “British sovereignty over the Islands, as such, is not accepted”.

During a recent trip to Argentina, Spanish Foreign Secretary José Manuel García Margallo said: “Our two countries, Argentina and Spain, wish resolutely to put an end to the two colonial situations”. Interestingly, Spanish control of the North African enclaves of Ceuta and Melilla are not seen as equivalent.

Were there to be a further attack by Argentina on the Falklands, it is clear that support from EU countries would not be totally forthcoming. It is hard to see how that would change by either remaining or leaving the EU.

The situation could be further confused in the longer run. The prospect of the creation of an EU army has been floated before. Most recently, in 2015, EU Commission President, Jean Claude Juncker, said “a common army among the Europeans would convey to Russia that we are serious about defending the values of the European Union.”

Similarly, Tony Blair stated in January this year “I would argue that in the medium term, there will be a growing requirement for Europe to build defence capability.

Only this month, the Financial Times (not the express or Mail as Cameron’s cronies claim) reports on a white paper to be put forward by the German government which allegedly claims “It is therefore necessary that military capabilities are jointly planned, developed, managed, procured and deployed to raise the interoperability of Europe’s defence forces and to further improve Europe’s capacity to act”. According to the FT, proposals include plans to “create a joint civil-military headquarters for EU operations, a council of defence ministers, and better co-ordinate the production and sharing of military equipment”.

Credibility is given by comments last year from German Defence Minister Ursula von der Leye along with the Dutch 11th Airmobile Brigade and 43rd Mechanised Brigade coming under German command between now and 2019. Dutch and German submarine operations were integrated in 2013.

Clearly, if British armed forces were to be integrated in the long term under the umbrella of the European Union, Britain’s ability to protect those who have chosen to remain British might well be subject to compromise.

In other pieces on this site, the direction of “reform” has come into question. There are other threats from within the EU to stability and British interests. Unrest and protests have been seen in Mediterranean countries suffering from austerity measures. It is yet to be seen how far that unrest will spread.

The question is whether Britain really is “safer in”. In order to answer, we have to question what the real threats to Britain and British interests really are. We also have to question the direction of reform in the EU. Ultimately, we have to ask if we believe that Britain’s nuclear deterrent remains in British control or whether it will pass into the hands of a President from Luxemburg, Slovakia or indeed any other country.

The British government is asking us to decide for the first time since 1975. It is up to them to now give clear guidance on how British interests are safeguarded. Merely stating a subjective opinion is not enough.

Cameron and his cronies have from now until 23rd June to convince us.