13 August 2019

Beyond Brexit, the EU and Britain will face the same challenges

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For the European Union, Boris Johnson’s arrival in Downing Street is seen as part of the rising tide of populism. It might shock the new Prime Minister’s supporters to learn that European governments put him in the same bracket as Matteo Salvini, but it is the case.

That said, Johnson’s arrival is by no means seen as entirely negative. In particular, his willingness to get the UK out by October 31 has the merit of clarifying the Brexit timetable.

It’s at least one area where the British government is in agreement with President Macron, who also wants the UK out by Halloween. The French president is ready to risk No Deal. Chancellor Merkel, on the other hand, would prefer a deal even if meant stretching out negotiations even further.

In any case, both sides now know that after that date negotiations will be over. That prospect seems credible and even, from a certain point of view, desirable.

The EU has gone through three psychological phases since the 2016 referendum.

The first was one of amazement and sadness. The UK has been a member state since 1973 and its values were very much those of the rest of the bloc – an attachment to parliamentary democracy and the free market, and opposition to protectionism. Unlike the United States, the UK opposed the death penalty and had a well-established welfare state.

The second phase was one of optimism. It was time to take advantage of Brexit to get on with new initiatives in areas such as technological innovation and defence which the UK had always hindered. At the same time, the overwhelming feeling in the EU was that Michel Barnier had done an excellent job of negotiating Brexit. He had clearly respected the choice of a majority of British voters while being equally clear on issues such as the ‘divorce bill’ and the conditions for participating in the single market.

The third and most recent phase has been one of irritation, particularly towards the end of Theresa May’s premiership. British domestic politics threw the Withdrawal Agreement up in the air at a time when the EU had other more pressing issues to deal with, such as the migration crisis, the rise of populism and Europe’s failure to keep up with the American and Chinese tech giants. The view in Brussels was that Brexit was beginning to take up too much time and energy.

At the moment the prevailing sentiment is more circumspect. The likelihood of No Deal increases with every passing day. Clearly, it would be a bad outcome for the EU. Some French fishermen could go out of business. Most of our businesses are not ready, given that six months ago the odds of No Deal looked close to zero.

In GDP terms, however, it would be significantly worse for the UK than the continent, where the impact would be largely sectoral. For the UK the impact would be more widespread, especially given that last week’s second quarter GDP figures showed the British economy is already in trouble.

Boris Johnson believes No Deal could end up being a kind of investment, following which the UK could eventually become a kind of European version of Singapore. The short-term cost of Brexit in terms of reduced growth would be more than compensated for in the longer term.

It’s a questionable argument. For one thing, Singapore is a city that was run like a business by Lee Kwuan Yew, a despot of rare intelligence. It’s not a democracy of 66 million people. Its success is not only down to fiscal prudence, but also an extremely effective education system, a well-conceived housing policy, very high levels of security and effective, well-compensated public servants. Mr Johnson has recently announced that he wants to attract more foreign scientists. It’s a perfectly legitimate policy, but all the studies suggest that Brexit – particularly of the No Deal variety – will be a hindrance to international academic cooperation.

A macroeconomic analysis of the UK shows that long-term growth is suffering above all from weak productivity. The challenge is therefore to invest in the technologies of the Fourth Industrial Revolution (digital, AI and robots) and training to make both business and government more effective.

The UK also has the same problem as the rest of Europe when it comes to keeping up with the US and Chinese tech giants; Amazon, Apple, Facebook, Tencent and AliBaba are neither European nor British. To start catching up we need a European version of Nasdaq, coupled with the completion of the digital single market, so our start-ups can ply their wares in a huge European market. Both the EU and the UK have an interest in Britain’s involvement in this new single market.

Be it in tech innovation, fighting climate change, tackling terrorism and combating geopolitical threats, the EU and the UK need to work together. These days, the only way to be effective is through international co-operation.

Nationalism has always been a losing strategy.  As we prepare to enter the Fourth Industrial Revolution, especially with China on the rise, it is a suicidal strategy. No Deal would be a bad outcome for both sides, but the status quo is worse still. Whatever may happen from here on in, after October 31 the EU and the UK must do their utmost to work together as closely as possible.

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Nicolas Bouzou is a French economist and journalist whose work has appeared in Le Figaro, L'Express and Le Monde