Brexit was the right choice.  Unfortunately, many people made it for the wrong reason, which tends to obscure the fact that the choice was right.

The wrong reason was migration.  It is fairly apparent from the post-event coverage that a great many people voted in opposition to unlimited immigration.  But there are three million EU citizens living and working here as against two million Brits living and working in the EU.  So the net impact is one million.  One million out of sixty-five million is not a problem.

I don’t doubt that it may seem to be a problem locally.  Boston, a few miles from here, has changed its character completely and Thetford, likewise, is now home to a great many migrants from Europe. This may upset local people but it is not a national problem.

What is a national problem, and what on its own justifies the decision to exit the EU, is the Eurozone and, in the immediate future, Greece.  Greece runs a trade deficit with Germany and many other countries.  Under the old system, the Greek Drachma would simply drift downwards to compensate for the fact that more money was flowing out of Greece than flowing in.  This was not good for Greek inflation or Greek self-respect but it did enable the Greek government to print the money it needed to run its social services and it gave the country the capability of addressing the productivity issues that underpinned the trade deficit.

 

Inside the Eurozone, Greece cannot do this.  Locked inside a single currency it will simply run out of money unless the flow in can balance the flow out.  The only benign way for this to happen is for Germany to transfer large sums from its surplus to Greece with no strings attached.  There is absolutely no political possibility of Germany behaving in this way. Such Germans as I have met seem to see themselves as the heroes of the situation, supporting Europe by their work ethic.  This despite the fact that the ones I have met take long holidays and do not seem to me to work particularly hard!  What Germany is actually doing, along with other nations and banks, is lending Greece the funds to balance the outflows.  Now if you had a friend who was unemployed with no prospect of employment, lending her money and charging interest would be about the worst thing you could do for her.  She would probably feel obliged to accept the loans but in the full knowledge that this made her future bleak indeed.  So it is with Greece.  She is accepting loans as the only way of functioning day to day and in the full knowledge that she cannot repay.  The only way Greece can pay is to trash her own economy by means of crippling austerity and economic shrinkage.  So it is only a matter of time before Greece bows to the inevitable, defaults on its loans and leaves the Euro – Grexit.

The immediate impact of this will be a banking and financial crisis in the rest of Europe and beyond.  It won’t solve Greece’s problem, either, but that’s for another discussion.

Perversely, the Euro will increase in value on Grexit since the weakest economy will have been removed.  This will exacerbate recession in the rest of Europe, including Germany, and will put intolerable strain on the next-weakest members – Italy, Spain and Portugal.  They will struggle to remain in the Euro but will bow to the inevitable and fall out in due course.  The Euro will then jump up again, forcing Ireland and many Eastern European countries out.  France will hang on as a matter of pride for far longer than makes sense but eventually France will go too and the Euro will be history.  The trouble is, this process will take years if not decades, during which time Europe will be a basket case economically and therefore socially.

Could I be wrong about this?  Of course!  But I can’t find any economic school of thought that explains how this could not happen but if you know of one, please direct me to their work.  The only way I can see of avoiding this scenario is for the emergence of a single European government that is prepared to redistribute wealth from north to south and I think this possibility is vanishingly small.  It would also raise intractable issues concerning democracy.

This will hurt us whether we are in or out of the EU, so why leave?  We haven’t done so yet, but we need to get on with it if we are to reduce the impact on us.

 

Before we joined the EU (Common Market as then was) we did about thirteen percent of our trade with it and the balance with the rest of the world.  But this is not comparing apples with apples as the Common Market in 1974 was only the original six members.  Adjusting for present-day members, around a quarter of our trade was with the EU and three quarters with the rest of the world.  If this were still the case then our vulnerability to the forthcoming economic depression in Europe would be about half what it is.  In fact, we do just over forty percent of our trade with the EU.  There are two reasons for this growth: it has become much easier to trade within the Single Market and it has become more difficult to trade outside it.  The Single Market has removed the tariff barriers to trade within the EU and many of the non-tariff barriers.  But the biggest non-tariff barrier, which is language, remains in place with every country in the EU except Ireland and Malta. 

As regards the rest of the world, the EU is a protectionist grouping of nations.  It allows free trade internally but not externally.  Various trade barriers are in place that are compromises between the needs and wants of twenty-eight nations.  The trade policies of the EU serve to bear down on our trade with the rest of the world.

When we eventually leave, it will become more difficult to trade with the EU and, over time, will become progressively more easy to trade with the rest of the world.  This won’t be a quick process as we will have to establish new trade relationships but over time it will reduce our vulnerability to depression in the EU.  The trouble is, we should have begun the process at the time of the Maastricht Treaty when the Euro was agreed.  We have left it rather late and will pay a heavy price for this.  Nonetheless, it is better late than never.

In the long term we have made the right choice.  The fact that it may have been for the wrong reasons should not detract from that.