Saturday, April 23, 2016

Brexit Bollocks

            A common complaint about the referendum debate from so-called “ordinary voters” is that while soothsayers and their opinions are many, facts are depressingly thin on the ground. In default of facts, the public is bombarded with unverifiable assertions whose reliability tends to be in inverse proportion to the confidence with which they are expressed. Some of the most forceful of these are manifestly untrue and routinely take the form of histrionic tantrums and insults - humorous and otherwise - directed at opponents. Bombast and fury, notably from advocates of the ‘Leave’ campaign, occupy the sound waves and headlines, elbowing out rational argument and well-researched analysis.  Boris Johnson’s scatological quip about the government’s referendum leaflet, for example, tells us less about the quality of the document than about the puerile humour of a man who, by some accounts, is using ‘Vote Leave’ as part of a plan to replace the current occupant of Number 10. If he succeeds, he will be the first overt buffoon ever to lead the country. Ambition, cold calculation of personal or corporate advantage seem more present among the ‘Outers’ than concern for the country’s future.
            By contrast, the ‘Remain’ campaign seems oddly low-key - probably because it is difficult, perhaps impossible, to be passionately angry about advocating “no change”. Yeats’ unforgettable lines come to mind:
“the best lack all conviction, while the worst
Are full of passionate intensity.”
            Not that we should in any sense admit the current UK prime minister into the ranks of “the best”. He is, as Anthony Barnett describes in his excellent piece, an inveterate dissembler, a callow purveyor of untruths. But with respect to the referendum, the arguments for ‘Remain’ put forward by Cameron’s team - and by Corbyn’s for that matter - give the impression at least of appealing to our intellect rather than to crude emotion.
            What is lacking so far in the ‘Remain’ camp is any sign that the manifest absurdities of  prominent ‘Out’ campaigners like Johnson are being subjected to scrutiny. So here is a taste of what such scrutiny might reveal.
            Among Johnson’s recent pronouncements is a claim that President Obama is a hypocrite for recommending that the UK remain in the EU (with a concomitant loss of sovereignty) when the US wouldn’t dream of sharing its own sovereignty with any other nation. That Johnson feels free to voice such an offensive insult suggests that he will say anything to advance his case regardless of whether it is fair, true, or an appropriate way of referring to a foreign head of state prior to a visit to this country.  This is embarrassing enough; but even worse is that his remark is patently untrue.  When, in 1994, the US government entered into the North American Free Trade Agreement (NAFTA), it surrendered a substantial degree of autonomy, as did the co-signatories Canada and Mexico. A complex and substantial range of NAFTA rules and regulations governs trade and investment between the three countries, a fact that has given rise to unease in some quarters at the loss of sovereignty supposedly involved.
            The idea that trading arrangements in the modern world are free of political consequences is, to borrow one of Johnson’s favoured epithets, piffle. All such agreements involve releasing control over some aspects of national economic life in return for expected advantages. Whether these involve a fundamental loss of sovereignty, rather than a reversible one, is another matter. ‘Leave’ campaigners are fond of pointing out with declamatory relish the percentage of UK laws now made in Brussels (a Farage speciality), and that various desirable initiatives of the UK government are stymied by EU regulation. What they overlook is that the UK parliament remains sovereign in law and that while, on joining the European Community (as it then was) in 1972, it agreed to acknowledge the supremacy of European law, it could not and cannot bind its successors. Like other EU members, the UK can repudiate existing EU legislation or refuse to sign up to new legislation with which it disagrees. As I have signalled in a previous piece, other EU members have a decidedly pick-and-choose attitude towards EU legislation; and the idea that the UK lacks this element of discretion is, to borrow once more from Johnson, bunkum.
            One of the ‘Leave’ campaign’s most outspoken storm-troopers is Daniel Hannan who, despite his distaste for the EU, is an elected MEP with a right therefore to enjoy the associated perquisites. A curious reversal of Groucho Marx’s refusal to join a club willing to accept him is Hannan’s adherence to a club that he evidently feels should have no members at all - not UK ones at any rate.
            As readers wearing armour plate can verify for themselves, Hannan has assembled  what he doubtless considers to be an imposing armoury of munitions against ‘Remainers’ and everything they stand for; and he expresses himself with the frightening self-confidence of someone for whom doubt is an alien concept, and facts are discardable or subject to revision if they fail to correspond with his vision. 
            An anti-EU article by Hannan in The Spectator  offers a summary of his views. He begins by telling readers that: “… the migration and euro crises are deepening, and Britain is being dragged into them.”  As an exercise in misrepresentation this could hardly be bettered. Given that the UK has not adopted the common currency, the euro troubles to which Hannan refers can only affect the UK indirectly through commerce; and since no one is advocating a cessation of trade with the EU, the issue is irrelevant to the case for or against Brexit. More sinister is Hannan’s reference to migration because it directs our attention, as he doubtless intends, to the refugees flooding into southern Europe from various conflicts in the Middle East, North Africa and elsewhere. Their numbers certainly qualify the phenomenon as a crisis, but it is not one created by the EU. If responsibility lies anywhere beyond the conflicting parties themselves, it is with foreign powers that have interpreted their role on the world’s stage as a right to meddle, to bomb, to invade, and to sell arms to those regions, with scant regard for the consequences.
            Hannan’s migration comment slides neatly over the UK’s own role in fomenting the migration crisis: the wreckage of Iraq that gave rise to ISIS, a dithering intervention in Syria, military adventurism in Afghanistan, Cameron’s pathetic failure to keep his promises on Libya, and so on. The inference is that we can and should close our eyes  and borders to the refugee problems facing Greece and Italy, and instead pursue a policy like those of Hungary, Macedonia and now Austria aimed at keeping out unwelcome hordes.  If Europe is descending into what may be the kind nationalism that we saw prior to WWII, then the EU project may come to an end anyway - not for the reasons cited by Johnson and Hannan, but because of a dispiriting failure to exercise the common solidarity that, in a globalised and increasingly volatile world, is critical to our well-being.
            What of the accusation that Brussels obliges the UK (and presumably all the other members) to accept unwelcome regulation? Here is Hannan comparing Swiss “liberty” with EU regulatory oppression:
“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.”
Describing the EU as “malicious”, and its activities as a “menace” to London anthropomorphises it as a villainous creature intent on doing us down. Since Hannan offers a list of malign EU initiatives, let’s take a look at them. The Alternative Investment Fund Managers Directive (AIFMD) represents an attempt to limit systemic risk in the “alternatives investment” market, such as hedge funds and derivatives, that are widely considered to have contributed to the global downturn of 2008. Despite coming into force in 2011, only a handful of EU members have bothered to ratify it - the UK being one of them. No one forced the hand of government to sign up, and given the havoc wreaked on the world economy by out-of-control financial speculation, the menace would seem  to be not in Brussels but in the minds of those who wish to allow fund managers to carry on as before. One can only wonder at the reason why Hannan thinks the AIFMD threatens our well-being.
            The short-selling ban is a piece of legislation designed - like the AIFMD -  to foster financial stability in the light of lessons learned in the aftermath of the 2008 crisis, and it contains exemptions available to all member states; while the cap on (bankers’) bonuses - at an almost grotesque maximum of 200% of pay - seems so absurdly innocuous that to cite it as an example of EU maliciousness is either perverse or simply weird. Finally the Financial Transactions Tax is an initiative of the European Commission in which fully half of the EU members - including the UK - have opted not to participate.
            In summary, Hannan’s terrifying examples of EU malevolence turn out to be neither terrifying, foolish, oppressive, malevolent, or even obligatory.
            Turning to the cost of EU membership, Hannan refers to an obscure paper by “Professor  Herman Matthijs of the Free University of Brussels” in which figures are given for national contributions to the EU budget. Hannan’s complaint is that Iceland, Norway and Switzerland, which are non-EU members, only contribute €50, €107 and €68 respectively per capita, while the UK has to pay €229. What he fails to point out, either because the message is inconvenient or because of his own ignorance (he incorrectly describes Professor Matthijs as the only available source) is that the UK’s net per capita contribution after rebate and financial support deductions is not €229 but €118, equivalent to 2.5 pence per day.  By contrast, France pays €176 per capita, Germany €270, Belgium €302, and Netherlands a whopping €504 [1]. Of the twelve EU countries that make positive net contributions to the EU, only Ireland, Spain and Luxembourg pay less per capita than the UK.
              The UK’s position as a net contributor to the EU budget roughly corresponds to the country’s relative wealth per capita. This may come as a shock to those who have become accustomed to hearing - notably from ‘Leave’ campaigners - that the UK economy is the fifth largest in the world. Absolute size is far from being a reflection of economic success, and in Europe, the UK lies in tenth position in terms of GDP per capita behind Austria, Belgium, Denmark, Finland, Germany, Ireland, Luxembourg, Netherlands, and Sweden. Where the country stands proud is not in relative wealth but in achieving the rank of Europe’s most unequal country.
            Hannan’s peroration in his Spectator article borders on the delusional. In scratching around for evidence of how we could happily go it alone, he quotes the following from disgraced Icelandic Prime Minister Sigmundur Davíð Gunnlaugsson:
 “Iceland is much better off outside the EU. Unemployment is minimal, purchasing power has never been higher, and we have control over our own legal framework, currency and natural resources.” 
            Some might consider this comment to be a damned cheek as well as misleading. Iceland is the country that had to be bailed out by EU countries (plus Norway) when it went bust; and it adheres to virtually the entire EU framework - including the “Schengen” open-border arrangement from which the UK is exempt.
            On the BBC’s Today Programme, MP John Redwood, another ‘Leave” proponent, saw fit to trash the recent  Treasury analysis of the consequences of Brexit, before confidently affirming that “we will be better off out”.  He then excused the ‘Leave’ campaign’s lack of supporting data for this view with a stunning  piece of rhetorical self-contradiction: “Who knows what’s going to happen?”;  a question to which presumably the only possible reply is that of Voltaire’s potty anti-hero Dr Pangloss: “All is for the best…”
            Rhetoric rather than information is the ‘Leave’ campaign’s main weapon; and its case rests largely on arousing sentiments of nationalism, on appeals to emotion and to certitudes whose validity on inspection seeps away like sand through a sieve.
            Writing in 1934, Stefan Zweig presciently identified the difficulty as well as the fundamental  nobility of the European ideal:
            “The European idea is is not a primary emotion like patriotism or ethnicity;….it is not the product of spontaneous fervour, but the slow-ripened fruit of a more elevated way of thinking….the egoism of nationalism will always cut more keenly through to the average man than the altruism of the European ideal because it is always easier to be aware…..of one’s own kind than of one’s neighbour….If we cannot arouse enthusiasm for our idea (of European unity) in the heart and blood of our peoples, our effort will be in vain, for never in the history of change has the intellectual sphere and that of patient reflection ever triumphed.” [2]
            His warning went unheeded, with all the ensuing consequences. Former Greek finance minister, Yanis Varoufakis, speaks in similar terms in a recent interview with Owen Jones of The Guardian.  His message: we need to bond across borders if we are to avoid a descent into xenophobia, racism and ultra-nationalism.
            Perhaps, in the end, we just need to glance back at the last century, and learn.

[1] Net figures for 2014. Source: Laissez Faire
[2] Stefan  Zweig, The Unification of Europe in “Messages from a Lost World”, Pushkin Press, London.

Note: This piece first appeared in

A Gulf in Understanding

            Great Britain and Ireland are the only members of the European Union with a legal system based on common law. Civil law prevails in all the other member states. These two traditions are the basis of quite different ways of approaching EU regulation; and they lie at the heart of some of the most critical misunderstandings between - in particular - the UK and the EU. They also  go some way to explaining why the UK seems constantly to struggle with EU bureaucratic rigidity and with what eurosceptics perceive as undemocratic regulatory incontinence.
            Custom and equity are the two guiding principles of common law: precedent tempered by a sense of what is “just”, so that while past judgements make up the scripture, they don’t necessarily override fairness.
            Civil law, on the other hand, owes its origin first to ancient Roman law - developed under the emperor Justinian - but also somewhat to the canon law of the Catholic Church. These were the twin influences that fed, under Napoleon,  into what became known as the Napoleonic Code which was subsequently adopted in most of Europe, with variations, updates and rewrites appropriate to each nation. For our purposes, what is important in the Napoleonic tradition is that the law is codified in the form of statutes. Under civil law, a judge is supposed to be able to reach a decision by applying logical deduction to the written code. If this proves impossible, it is theoretically either the fault of the judge for not understanding the law properly, or of the legislature for failing to keep the  code up to date.
            In common law countries, courts interpret the law, while in civil law countries judges follow and apply it. Common law plays out as a gladiatorial contest between opponents; while civil law works more as an inquisition in which the judge’s role is to expose the truth. What this means in practice is that the British tend to take the law literally, probably because its cultural basis is consent - a consent epitomised with respect to new legislation through acts of parliament but where judicial interpretation and precedent still hold sway. By contrast, those who live under forms of civil law work under what distinguished lawyers and  codifiers have written down. The Napoleonic Code (1804) was drawn up by a commission of four eminent jurists. Hence why Europeans tend to be more comfortable than the British with laws “made in Brussels”. Brits are simply not used to legislation being drafted by unelected bureaucrats or specialists; and some therefore conclude with sniffy condescension that while wein the UK are wedded to democracy those Europeans must necessarily be less so.  Eurosceptics are doubtless not alone in looking askance at the proliferation and seeming intractability of EU “rules”. and in wondering why the whole of Europe has not risen in arms against the Brussels bureaucrats.
            One answer lies in the fact  that the primacy of “the book” in the European legal tradition has given rise to a long-established custom of working through the interstices of the legislative framework whenever it seems possible and convenient to do so;  and where civil legislation is concerned, legitimate reasons may sometimes be found for simply ignoring the letter of the law in favour of a higher purpose.
            A few words of biblical context may help us understand the thinking. When, in the Old Testament, the Israelites demanded “like other nations” to have an earthly king as well as a heavenly one”, the prophet Samuel acceded to the request on the Lord’s advice, but only after warning the people that a king would use his power to bend them to his will. (Samuel Bk1, ch. 8).Thus began a dichotomy between human and divine authority that led along one path to claims that monarchs and spiritual leaders were divinely anointed, and along another to what became known as scholasticism, and subsequently under Jesuit influence as casuistry. The latter are forms of argumentation and abstract reasoning aimed at achieving a desired conclusion without trespassing on received dogma. Even today, Roman Catholics are used to discussing how and under what circumstances it is permissible to disobey the law. We are in the realm here of a cultural inheritance whose roots lie deep in the past.
            Different attitudes towards the law are fundamental to understanding why Europeans states seem able to handle EU  legislation even when it appears not to be in the national interest, while the UK - government as well as eurosceptics - claims to be powerless against its strictures.  While Brits tend to think that EU legislation is set in stone - however “undemocratic” it may seem - Europeans are used to working out ways to circumvent it or, at any rate, to avoid some of its unwelcome consequences.  A Spanish phrase summarises the approach: “La ley se acata pero no se cumple.” - the law is respected but not (necessarily) obeyed. This particular formulation arises from the Spanish colonial period when edicts from Madrid were dutifully acknowledged in the distant colonies of Latin America and thereafter ignored as “impractical”; but it is an inbuilt cultural characteristic of countries that have inherited the Catholic-Napoleonic tradition.
            How are these differences between the UK and the EU manifested? Let us start with the issue of nationalised industries. Maintenance of a level playing field between member states in matters of commerce is a prime responsibility of the European Commission  (EC) which is supposed to have wide powers of regulation. According to the EC, long-term state holdings in corporations are a form of state aid and therefore constitute unfair competition. Tories famously eschew nationalisation on ideological grounds, but both UKIP  and strong  Labour voices concur that the EU won’t allow it anyway. An illustration of the earnestness with which EU state aid regulations are treated as gospel is the government’s own manual on the subject published for the enlightenment of officials (downloadable, and excellent nourishment for masochists). For readers with less tolerant digestive tracts, an EC powerpoint focused on the steel industry provides the essentials of what we are supposed to believe. Clearly stated in the legislation is a prohibition on state aid for companies in trouble or for disadvantaged regions.  That would seem to put paid to Redcar, Port Talbot and the entire British steel industry. Too bad that Chinese steel, under the protection and sustenance of the Chinese state, is being dumped on the European market at knock-down prices! Too bad for the UK that is because, as has not escaped everyone’s attention, so many exceptions to the state-aid prohibition exist that there’s room enough for tanks to trundle through the legislative gate without touching the sides, Belgian, French, German and Italian tanks among them.
            Germany’s way with the rules is notably instructive. A  study conducted by the TUC in 2012 and which formed part of a submission to a government committee states that “….over the period 2010-2012, German industries, including energy intensive industries, benefitted from a range of reliefs from duties, levies and taxes worth EUR 26 billion, or some EUR 8billion a year. These reliefs are set to continue for the longer term”. Moreover, “…they cover a wide range of measures (including) grids, power plants, energy efficiency, renewables, energy research and compensatory arrangements for businesses competing at the international level "(my italics).  Nor is energy the sole framework for direct state aid to industry. Buried a little shyly in a long piece in The Economist on German manufacturing is an admission that the state doles out cash in support of industries that it thinks are important areas of growth, and offers “extensive” research facilities to small and medium-sized firms when they need help.
            All that seems to be required for these subsidies to pass ‘go’ is a careful reading of the regulations allied to a determination to ensure that these don’t interfere with German economic interests. Even when Germany is caught in a flagrante breach of the rules, as seems to have occurred with the subsidisation of Deutsche Post,  it somehow manages to avoid embarrassment or even bothering to respond.  Thanks to the Centre for Policy Studies,  we now know about Germany’s recent gas pipeline deal with Russia - a development  entirely contrary to EU energy policy but which the EC will doubtless be unable to prevent. Germany is, after all, the EU’s biggest beast and, like the ghost in Hamlet, “is as the air invulnerable and the EC’s vain blows malicious mockery.”
            Perhaps the most egregious German subsidy of all concerns exports to the rest of the EU - and, in particular, to the countries of southern Europe. Here Germany takes sublime advantage of the European Central Bank’s inter-bank payments settlement system known as TARGET2. Every time money flows from the banks of one euro member country to the banks of another, it does so through the TARGET2 system which works as follows. Let’s say a Greek dealer orders a consignment of luxury cars from Germany. The German exporter duly dispatches the vehicles while the Greek importer instructs her local bank to arrange for payment. This is effected via the Greek Central Bank, which then registers a TARGET2 credit in its accounts in favour of the German Bundesbank (central bank), after which the latter in turn credits the amount to the bank of the German exporter.  Because the deal is in euros no foreign exchange is applicable, and no money needs to change hands because these apparent financial transactions are just computerised entries. 
          If, for example,  the funds are lacking in Greece to pay the debt (which has been the case), then the Bundesbank simply registers a claim against the Greek Central Bank. 
At the end of February 2016, the Bundesbank’s TARGET2 claims amounted to EUR 605 billion. Prior to the onset of the financial crisis in 2008, the balance was EUR 71 billion, while at year end 2006 it was only EUR 5 billion. In other words, as Greece and other southern European countries descended into critical levels of debt, the Bundesbank’s TARGET2 balances swelled in parallel. TARGET2 credits have enabled the Bundesbank to finance and therefore subsidise German exports to cash-strapped Eurozone countries - albeit at some risk to the German taxpayer because if any of these countries had been “allowed” to default, German citizens would have had to foot the bill. Hence the German pressure on Greece to knuckle down to austerity and to flog off state assets.
            Admirers of German efficiency and apparent economic success tend to confuse the country’s reputation for meticulousness with straightforward dealing. Meticulous the Germans certainly are, and fine engineers too; but as the recent Volkswagen scandal has amply demonstrated, straightforwardness is not a characteristic to which they can fairly lay claim. An objective observer might be tempted to conclude that the German government favours the national interest above the interests of her European partners; but then it is to the German electorate not the EU that Mrs Merkel must answer.
            France differs somewhat from Germany in her approach to dealing with EU regulations,  though the objectives are similar. French nationalism is more overt, and direct state participation in industry more significant. The country maintains a large state sector, and readily finds
reasons for blocking foreign ownership of French businesses, not simply those one might expect such as defence or “foundation” industries, but any firm considered to be a quintessential representative of the nation. When yoghurt-maker Danone became a takeover target, the government took up arms to defend what the French Prime Minister referred to at the time as “one of our industrial treasures”; a striking contrast  with the UK government’s response to the takeover of Cadbury. But then France offers scant respect for “prohibitions” that are deemed not to be in the national interest, the attitude being that if an initiative is not allowed, then it will be redefined as “strategic” and therefore allowable after all, or simply met with a ministerial shrug of the shoulders and a sotto voce “on s’en fout” (we don’t give a damn). Here we see casuistry at work - if necessary with a defiant twist - in modern Europe. France has adopted a fiercely nationalistic policy of industrial development and seems unlikely to change course any time soon.
            Whether protectionism is good or bad is not the subject of this essay. What may be of concern, however, are the possible long-term consequences of industrial laissez-faire - or an over-zealous adherence to EU state-aid rules. One consequence is suggested by the annual Thompson-Reuters report on the top 100 global innovators, the 2015 edition of which has Japanese and US companies leading the way with 40 and 35 respectively, while France has ten and Germany four.  Among the newcomers are Korea with three and Taiwan with one.  And the UK? None.  In the short-term we may not notice much effect on our standard-of-living of what appears to be a lacklustre level of innovation, although the UK’s stubbornly low productivity may well be one; but who knows if in the medium-term we will not end up as hewers of wood and drawers of water in an economic universe controlled elsewhere? The UK’s finance sector currently feeds the government with tax revenues, and the low-paid service sector feeds the employment statistics; but they do little to foster the development of a vibrant, creative nation.
            Ideology, of course, plays a role in the UK’s policy - notable since Thatcher - of delivering the country’s industrial welfare to the vagaries of the market.  Ironically, the United States, considered by some to be the model of free-market thinking, is far less hesitant than the UK about protecting strategic industries. But regardless of the ideology at play, successive UK governments - and the current one not least  - have a history of bowing to EU regulations more punctiliously than any other major country.
            Nothing perhaps more clearly demonstrates the weirdness of the British attitude to EU regulation than the Hinkley Point C nuclear power saga.  In 2014, the EC graciously gave the UK permission to proceed with Hinckley Point despite serious misgivings about pricing and loan guarantees that bear a striking resemblance to state subsidies. Moreover, the proposed lead builder and operator of Hinckley Point is to be none other than EDF - a French state-owned utility company. Both the Austrians and the Germans have objected to what looks like a stitch-up, and in July 2015 they filed a lawsuit against the EC for its decision to override EU competition law against state aid. In March this year, the plot thickened when it came to public knowledge that the Information Commissioner has been refusing to reveal details of the full extent of subsidies planned for Hinkley Point. Unsurprisingly, the EC’s green light for Hinkley seems not to have been based on the regulations but on politics. France has taken the UK by the hand and shown that if you have the clout, the guile and the effrontery (in varying degrees) then rules become largely a matter of “consumer” choice and of keeping up appearances in case the hoi polloi (the smaller or more gullible countries) get ideas above their station.  If Hinkley Point goes ahead it will not be because the Austro-German lawsuit has failed, nor because the EC benignly looks away, nor even because the UK government wants it to happen. French self-interest will be the deciding factor - a conclusion as revealing about the EU as it is humiliating for the United Kingdom.
             A  word more  about democracy. France, and Germany among other EU countries have shown themselves willing to prioritise national interests over formal EU strictures when the two are in conflict. Their electorates would doubtless interpret this willingness as an example of democracy in action.  In the UK, by contrast, which makes a noisy virtue of sticking to the rules whether made in Europe or inherited as part of a sclerotic and unrepresentative political system, democracy seems to be little more than a smug soundbite, a totem of self-congratulation. The UK is not more democratic than our European neighbours. It is considerably less so; and the lazy failure of our political class to understand Europe, to grasp what it offers with both hands, to prioritise the national interest within a framework that is far more accommodating than we are led to believe, should induce us to question not whether we ought to be in Europe but why any of our politicians deserve our vote.

This piece was first publish in