In their desperate scramble to find something to negotiate about, the EU and UK governments are turning to ever more ridiculous topics. The latest artificial disagreement is about deadlines.
First Prime Minister Theresa May refused to extend the March Brexit date.
So the EU fired back by giving May “four weeks to save exit talks” according to the Financial Times.
May responded by obstinately declaring “extending negotiations isn’t an option”, imposing a deadline of two months instead.
Trying to out-deadline each other is very odd behaviour. It exposes the nature of the Brexit negotiations. The two sides don’t actually disagree. They’re just trying to outdo each other in the headlines. He who deadlines the most wins…
But I’ll never understand what they’re all arguing about in the first place. Free trade is clearly beneficial, otherwise the EU wouldn’t favour it inside the EU. That benefit does not suddenly change when a country leaves the EU. Therefore, continued openness of trade is obviously the best outcome.
The idea that we need a border in Ireland is predicated on the idea that British goods in Europe or European goods in Britain are somehow dangerous. Which is odd given they’re currently under the same regulations… Not only that, but it’s not difficult for British firms to comply with EU rules and then export. They’re doing it already…
It seems to me that the EU’s concerns are primarily about making Brexit painful. Plenty of EU and European politicians have said so. But that’s not really a negotiating position. And it also means inflicting pain on the EU’s citizens.
The EU and its currency are of course inflicting plenty of pain on its citizens already. So this is nothing new. Perhaps it was naïve of anyone to expect the EU would bend to internal pressure. It never does. If it won’t listen to any of the past referenda, nor a Greek economy being immolated by EU austerity, why would it listen to EU exporters who want to sell to the UK?
Why the EU is so destructive
The key to understanding the EU is all about size.
EU politicians know their interventionist policies are bad. But if they can create a big enough bloc, then the detrimental effects of their policies will never be fully exposed.
If a single country like Spain were to make a stupid law, such as the link tax we wrote about yesterday, it would feel the consequences. As I explained yesterday, Google just turned off Google News in Spain and Spain’s biggest news aggregator boycotted a national media company. Website traffic tumbled.
But the same law on an EU wide basis has a much better chance of surviving. Google will be much more likely to try and keep Google News up and running, no matter how stupid the law may be, because the EU is big.
The benefits of Ireland’s low corporate tax rate would be hidden if the EU implements tax harmonisation across the EU. That’s why they’ve been trying to. Ireland makes high tax countries look stupid. Worse still, it proves the point beyond any International Monetary Fund forecasting rubbish’s ability to counter it. So it must be stopped.
The benefit of having your own monetary policy and exchange rate would never have so obvious if Britain was in the euro. That’s why they wanted us in. Instead, they now have Italy threatening to leave the euro thanks to envy over our fluctuating exchange rate.
The stupidity of tariffs is hidden if they only apply to trade from outside the EU because so much trade can be conducted within it. It makes the EU look good instead of making tariffs look bad.
The EU is all about creating a bloc big enough to hide the downsides to EU policies. A country leaving exposes the trouble the EU causes for its members more than other differences between states. That’s why the EU is so worried about a booming Britain and why the EU is so obsessed with forecasts of the costs of doing so. (They’ve never paid much attention to the economic costs of their own policies.)
Where governments compete
Compare the EU to the United States.
One of the underlying ideas when the US was founded was to encourage states’ rights. The federal government was only allowed to make laws on interstate commerce. By having economic policy that differs within different states, those states who pursued good policy would prosper and those who pursued bad policy would struggle.
This forces states to remain reasonable because they look stupid if they don’t. It’s competition between governments that strips out ideology and theory in favour of trial and error. You can’t argue with results, even if you can’t explain them.
The EU takes the opposite view. It’s all about explaining and theorising in the face of contrary evidence. Harmonisation supposedly helps the economy by creating a level playing field across the EU. It sounds good, but it doesn’t work out well. Brexit threatens to expose this with a real-life experiment.
An interesting comparison between the two models – harmony and competition – is where the two leave you in terms of political process.
Inside the EU, the debate between nation states on austerity and budgets, immigration and borders, tax rates and agricultural policy, it’s all been rather rambunctious. Threats and insults are hurled back and forth. Everyone calls each other a Nazi at some point. People battle over economic forecasts and democratic will, calling each other anti-democratic liars. They accuse each other of instigating violence or ignoring its causes, calling each other totalitarian and blind.
Compare that to American states. Instead of having to debate about a single income tax, the states just set their own. And the consequences prove who’s right. Eventually, the states who were wrong have to follow good policy. It’s a much more peaceful, proven and stable process.
The only fly in the ointment is the federal government. But the constitution limits its powers to some extent, at least.
If Europe can go back to allowing competition between states on policy, it would solve a huge portion of their problems. There would be more harmony, not less.
Only profits are on fire in this theatre
People love the “yell fire in a crowded theatre” story. But what about the reverse? What if it’s raining cash inside the theatre and we’re all waiting to get in?
Veteran investor and fund adviser Eoin Treacy uses the second methodology to make money in the markets. He’s found a bottleneck that backs up every fortnight. All you have to do is queue up the day before the mad rush and then ride the wave as everyone else piles in.
On Monday, Eoin will share his methodology with you. For free. Which I think is bonkers. But you can’t say it won’t be worth it. Sign up here.
Until next time,
Nick Hubble
Capital & Conflict
Category: The End of Europe