5 May 2021

As Europe struggles, the Brexit doom-mongers are being proven wrong

By Neil MacKinnon

The calamitous economic effects of Covid are now all too well known: precipitate falls in output and demand across major economies, and a massive hit to employment, especially for the self-employed and those working in the hospitality and service sectors.

Added to all that, severe travel restrictions have impeded international mobility. Not surprisingly, net migration to the UK has fallen for the first time in decades. To listen to some commentators, the prospect of lower post-Brexit immigration should be a cause for serious concern.

In a recent Daily Telegraph column, for example, Matthew Lynn argued that a dearth of EU workers would fundamentally reshape our economy and squeeze corporate profits because of higher wages and consequent requirements for greater investment in automation. This assumes that net migration is the tail that wags the dog when, in fact, the post-Brexit outlook for the economy will be shaped by the economic policy decisions our government is already implementing.

Getting those decisions right, free of EU restrictions, is what will make the UK economy attractive for investment and employment. Contrary to what some Remainers might have you believe, a fall in the number of EU migrants is not going to capsize the UK economy. Indeed, in some poorer communities, unfettered migration has had a negative impact on wages, employment and access to public services. A fall in net migration after Brexit should also spur the Government to properly focus on training unskilled British workers, so they can boost their wages and living standards.

In any case, it’s quite possible the scale of such a fall has been overstated – even Goldman Sachs says alarmism about an exodus of 1.3 million foreign nationals from London is “nonsense”. Qualifying lower-paid workers from both EU and non-EU countries may well return when lockdown restrictions lift, for the simple reason that the UK is an attractive place to be. Of course, like other major economies we are not yet out of the woods, but there are plenty of reasons for optimism about Britain’s prospects.

Unfortunately, there is a large element of our media that is simply unable to report “good news” and there is a consistent flow of “knocking copy” that talks down the UK economy. Of course, a lot of it comes from unreconstructed Remainers who are incapable of saying anything positive about the economy and government policy, while totally ignoring the much worse economic situation taking place in the Eurozone.

And make no mistake, things are dire over there. It’s not just the slow vaccination rollout – a classic example of everything that is wrong with the bureaucratic, inward-looking Brussels bureaucracy. Readers might also recall the much-vaunted ‘Recovery Fund’ unveiled last July to kick-start economies that were already on ‘life support’ from the European Central Bank even before the pandemic struck.

Almost a year on, Germany – the so-called powerhouse of the Eurozone – is still struggling and Germany economists are downgrading its growth outlook. Its politics is also in flux, with Angela Merkel’s 16 years in power already effectively at an end and the Green Party’s candidate currently leading the polls to replace her as Chancellor. Whatever your views on climate change, the Greens’ agenda is not the stuff of a new German economic miracle. Equally worrying is that even before the ravages of Covid, the German economic machine was creaking, with key industries dependent on capital exports and geared too heavily towards old technologies. In common with the rest of the Eurozone, the German banking sector is in the doldrums, and badly needed restructuring and recapitalisation has unfortunately been deferred.

If Germany is struggling, it does not need much imagination to guess how the rest of the Eurozone is faring. Growth is low and unemployment high. Italy is a particular concern: it has landed itself with even more debt, which the ECB is paying for in the vain hope it will kick-start the Italian economy. More debt did not help the Italians pre-Covid and is unlikely to help them now. If anything the debt pile-up risks setting the scene for the next Eurozone financial crisis.

The experience of the US and UK economies has been markedly different. In prompt response to the pandemic, US authorities implemented unprecedented monetary and fiscal reflation that has put the US economy onto a recovery path. Although seldom acknowledged, President Trump laid the foundation for America’s remarkably successful vaccination programme – an honour it shares with the UK.

Similarly, the UK implemented monetary and fiscal measures that are now starting to bear fruit. The economy is picking up and consumers and firms are much more optimistic. The UK vaccination programme and the Government’s response has played a large part in restoring confidence, with the economy now recovering strongly, boosted by a buoyant housing market and the £100bn or so that British companies have saved up during the pandemic. Investment and tax incentives put in place by the Chancellor have also helped, and the UK is already a leader in new technologies that do not always get the media coverage they deserve.

The fact is that Remainers have been proven consistently wrong in the doom-mongering assessment of the UK economy. Virtually none of us who work in the City have moved to Frankfurt, which remains essentially a provincial banking centre. If anything, Brexit is opening up new opportunities for the financial and other sectors, especially in exciting trade opportunities outside the EU.

The UK, post-Brexit, looks exciting. The global economy continues to evolve and change while the EU seems stuck in a rut weighed down by an inward-looking, self-serving bureaucracy. Of course, there is a huge amount we can do to improve our own economy, which is far from perfect. But the last year should give us the confidence to chart our own course towards a prosperous future for all.

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Neil MacKinnon is a City economist and a member of Economists for Free Trade

Columns are the author's own opinion and do not necessarily reflect the views of CapX.