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Coffee House

What Brexit would look like for Britain

21 February 2016

6:09 PM

21 February 2016

6:09 PM

‘So what’s your alternative?’ demand Euro-enthusiasts. ‘D’you want Britain to be like Norway? Or like Switzerland? Making cuckoo clocks? Is that what you want? Is it? Eh?’

The alternative to remaining in a structurally unsafe building is, of course, walking out; but I accept that this won’t quite do as an answer. Although staying in the EU is a greater risk than leaving — the migration and euro crises are deepening, and Britain is being dragged into them — change-aversion is deep in our genome, and we vote accordingly. Europhiles know that most referendums go the way of the status quo, which is why their campaign is based around conjuring inchoate fears of change.

What is the alternative? Well, all the options involve remaining part of the European free-trade zone that stretches from non-EU Iceland to non-EU Turkey. No one in Brussels argues that Britain would leave that common market if it left the EU. Nor, in fairness, do Remainers. Instead, they talk about jobs being ‘dependent on our trade with the EU’, hoping that at least some voters will hear that line as ‘dependent on our membership of the EU’.

So when every non-EU territory from the Isle of Man to Montenegro has access to the European free trade area, which model should we follow? The nations arguably most comparable to Britain, being neither microstates nor ex-communist countries, are Iceland, Norway and Switzerland. All three prefer their current deal to ours: 60 per cent of Icelanders, 79 per cent of Norwegians and 82 per cent of Swiss oppose EU membership. Who can blame them? Norway and Switzerland are the wealthiest and second-wealthiest nations on Earth.

Norway is a member of the European Economic Area (EEA); Switzerland is in EFTA. The EEA was established in 1992 as a waiting room for the EU. It contains what was originally envisaged as a transitional mechanism for the adoption of EU legislation — the ‘fax democracy’ which Europhiles like to bang on about.

Never mind the archaic metaphor: Little Europeans are nostalgists at heart. The charge is that Norway has no vote in some EU regulations that it later enforces. But this is more a problem in theory than in practice. According to the EFTA Secretariat, the EU generated 52,183 legal instruments between 2000 and 2013, of which Norway adopted 4,724 — 9 per cent. A written answer to a parliamentary question in Iceland found a similar proportion: 6,326 out of 62,809 EU legal acts between 1994 and 2014. Yet rather than use the official statistics, Europhiles have seized on a remark by a Eurofanatical Norwegian minister to the effect that ‘three quarters of our laws’ come from Brussels, and have -solemnly translated that throwaway line into an official-sounding ‘75 per cent’.

[Alt-Text]


In Switzerland, there is no ambiguity: the figure is zero per cent. The Swiss sometimes copy EU regulations for reasons of economy of scale, though more often both Switzerland and the EU are adopting global rules. But though Swiss exporters must meet EU standards when selling to the EU (just as they must meet Japanese standards when selling to Japan), they generally don’t apply those standards to their domestic economy. Britain, by contrast, must apply 100 per cent of EU regulations to 100 per cent of its economy.

Switzerland is not a full participant in the single market in services. This doesn’t mean, obviously, that UBS can’t operate in Frankfurt, but it does mean that Swiss financial institutions are not part of the same regulatory structure as those in the EU. If they want to trade there, they must adopt different rules. The flipside, of course, is that Zurich doesn’t need to worry about the expensive and sometimes downright malicious EU regulations that menace London: the Alternative Investment Fund Managers Directive, the short-selling ban, the bonus cap, the Financial Transactions Tax.

Now here’s the clinching statistic. The EU takes 64 per cent of Swiss exports, as opposed to 45 per cent of British exports. Europhiles like to claim that ‘around’ half of our exports go to the EU, but that figure has fallen by 10 per cent since 2006. How much lower must it go before we drop the idea that we need to merge our political institutions?

To summarise, then, Norway gets a better deal than Britain currently does, and Switzerland a better deal than Norway. But a post-EU Britain, with 65 million people to Switzerland’s eight million and Norway’s five, should expect something better yet.

The deal on offer is based on free trade and intergovernmental co-operation. We’ll recover our parliamentary sovereignty and, with it, the ability to sign bilateral trade deals with non-EU countries, as Norway and Switzerland do — an increasingly important advantage when every continent in the world is growing except Antarctica and Europe. We’d obviously remain outside Schengen.

Would we have to pay a participation fee? According to Professor Herman Matthijs of the Free University of Brussels, who has produced the only like-with-like comparator, Iceland’s annual per capita contribution is €50, Switzerland’s €68 and Norway’s €107 — largely because Norway insists on opting into lots of EU aid and research projects. Iceland, though it has precisely the same treaty terms, chooses to participate in fewer common activities and so pays less. The United Kingdom’s -current per -capita annual payment, by the same methodology, is €229.

Why should the other member states allow Britain such a deal? Because it would be in everyone’s interest. The UK runs a structural deficit with the EU, only partly offset by its surplus with the rest of the world. On the day we left, we would immediately become the EU’s biggest export market. The idea that either side would wish to jeopardise the flow of cross-Channel trade is bizarre. And, in any case, it is remarkably difficult, under WTO rules, to apply a trade barrier where you previously didn’t have one.

Many European federalists actively campaign for Britain to be given an economics-only relationship — what Jacques Delors calls ‘privileged partnership’ and Guy Verhofstadt ‘associate membership’. It would allow them to push ahead with a European army, a common tax system and so on, while Britain led an outer tier of some 20 European states and territories, part of a common -market but not a common government.

‘Iceland is much better off outside the EU,’ says prime minister Sigmundur Davíð Gunnlaugsson. ‘Unemployment is minimal, purchasing power has never been higher, and we have control over our own legal framework, currency and natural resources.’

Iceland has 300,000 people. Britain is the fifth largest economy in the world, the fourth military power, a leading member of the G7 and one of five permanent seat-holders on the UN Security Council. I think we might just about scrape by.

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