In Tokyo last week, I found that Japanese officials had discovered a new English phrase: “hard Brexit”. The words were usually accompanied by a baffled frown or a nervous laugh.
The Japanese and other foreign investors are understandably amazed that the British seem to be opting for the most economically damaging version of Brexit – one that prioritises control of immigration over single market access.
The situation is indeed perplexing. It is also deeply frustrating. For while a hard and damaging Brexit does look like the likeliest outcome, it does not have to be this way.
Flexibility
With intelligence and flexibility in both London and Brussels, it is still possible to find a new relationship that works for both sides. But that requires the British and EU authorities to back down from their current hardline positions – and rediscover the lost art of compromise.
There is no denying that the risks are bigger on the British side. A hard Brexit could mean the loss of hundreds of thousands of jobs in manufacturing – and many billions in tax revenue from the City of London.
But a complete rupture in relations is not in the interests of the EU, either. The EU economy is not so strong that it can shrug off breaking up the single market by expelling the UK. Britain is also a substantial contributor to the EU budget – and many worthy, and not-so-worthy, programmes will have to be sliced without the UK’s money.
Above all, the EU’s security position is perilous – with a menacing Russia to the east, and a Middle East in flames to the south. Europe’s leading democracies and most advanced economies need, more than ever, to bury their differences and work together.
The necessary deal is easy to describe and hard to achieve. The central compromise has to be around the question of free movement of people. Both sides should move away from their absolutist positions.
The British must accept that they cannot “take back control” of immigration fully – and get the access to the single market that is crucial to the UK economy. The EU side should accept that the principle of free movement of people can be intelligently modified – giving the UK some assurance that there can be an upper limit to immigration, while still retaining open labour markets.
Immigration
The way to achieve this goal is to establish the principle of an “emergency brake” on immigration. In normal times, free movement of people would operate as it does currently. But if there were large surges of immigration into the UK above a preset limit – or any EU member state – the country involved would be allowed to limit numbers. Such a deal offers advantages to Europe, as well as the UK. It would prevent a damaging trade war. It would also mean that, in normal times, EU citizens would continue to enjoy the opportunity to work in the UK.
The idea that Britain could continue to make a large contribution to the EU budget, in return for access to the single market, could be another mutually advantageous compromise – certainly preferable to the mutual impoverishment that would be entailed by slashing the EU budget and destroying jobs in Britain.
Unfortunately, at the moment, neither side is thinking pragmatically. The British government still seems to be high on the rhetoric of becoming a “fully, independent sovereign nation” and is willing to ignore the growing risks to the UK economy.
It is hard to tell whether this reflects ignorance, bluff, politics - or some yet to be revealed master plan. Either way, Theresa May’s government must move swiftly to a more realistic and responsible approach to Brexit.
Approach
But the European side also needs to change its approach. Immigration is not a uniquely British issue. Relations between Brussels and non-EU Switzerland are also about to be ruptured over Swiss reluctance to accept complete free movement of people.
The current thinking in Paris, Brussels and Berlin seems to be that the only way to prevent the break-up of the EU is to make examples of Britain and Switzerland.
But the EU is not ultimately going to hold itself together by administering punishment beatings to any European country that deviates from Brussels rules. Does the EU really want to launch a cold war against Switzerland and the UK – two of the oldest democracies and strongest economies in Europe?
The European ideal is ultimately about compromise and mutual advantage - with the wider goal of ensuring peace and prosperity in Europe. Both London and Brussels need to get back to those basic principles.
– (Copyright The Financial Times Limited 2016)
