Tuesday, 18 December 2018

Norway - no way (says Mark Carney)

While calls for the country, or just its MPs, to come together continue to be resisted by everyone digging their trenches deeper, what can we tell from the Bank of England's Brexit "scenarios not forecasts"? Not much, I think. We all knew that the uncertainty of a leave negotiation would hit the economy. It has, though not as much as predicted and our economy is still doing relatively well internationally. Investment has been seriously hit though and that will have an insidious impact down the line. Moreover, on any scenario, the transition to future arrangements is likely to hit growth. Further down the line one would expect a recovery as business adapts. Whether we end up a bit better or a bit worse off way down the line is a matter of judgement and opinion, but most long term economic forecasts show that how well we are doing in 20 years time depends more on factors like our ability (or inability recently) to improve productivity than Brexit, which is a second order effect. And, as Keynes said, in the long run we're all dead.

Most of the above was broadly evident at the time of the referendum and we all heard Project Fear just as loudly as Boris's £350 mill. So I discount all comments about people in the referendum not voting to make themselves poorer, partly because the risks were writ large (they were the main reason for me turning chicken and voting Remain) but also because many people voted on non-economic factors. Wolfgang Munchau  put this succinctly in his Eurointelligence blog when he said "Economics is a useless tool when it comes to discussions about distant future states of the world, which is why we are ignoring the hysterical warnings by the Bank of England and the Treasury on the impact of various Brexit scenarios. The only point we would make is political: a fear-based campaign did not work last time, and we don’t think that the current hysteria will fare much better."

It is not clear if a debate will be allowed before the clock runs down as that seems to suit both May and Corbyn. But if it were to be one option that could yet emerge as the most supported in the Commons, though without an overall majority (no option has that!) is the so-called Norway plus option, supported by Lord Owen*, Tory Nick Boles and probably quite a few on the Labour benches. This option is the just about the closest you can get to staying in while leaving so I have always been suspicious of it. But the Bank of England has told us why it's a bad idea: it would be "a threat to financial stability" (wow!) Sir John Cunliffe, a deputy governor at the Bank, told the Treasury Committee "Our financial sector is about 20 times bigger than Norway's. It is much more connected internationally and more complex..." Mark Carney added that "the risk of being a rule-taker goes up with time" and "from a financial perspective it is highly undesirable to be a rule-taker and to lose supervisory autonomy for any considerable length of time". David Smith** notes that the Norway option could be modified to allow significant UK input on the rules affecting financial services and that it would have to be to come close to satisfying the Bank.

One can criticise the government for not starting off our Brexit process by having a kind of Royal Commission to analyse the alternatives and flush out these issues while there was time to do something about them. But I suspect this would have been pie in the sky - the whole Brexit issue had got too heated for anyone in politics to attempt to debate it dispassionately.

Smith notes that the Bank is often accused of being "Remainer Central" but if that were the case it would presumably support Norway plus as an option. He has also commented on no deal saying that, if you take the Mad Hatter, a box of frogs and the pop group Madness, no deal is madder than all of them put together. Wish I'd thought of that one!

As I always suspected, there's no perfect answer here, no matter what folk might claim. May's deal that isn't yet a deal still looks the least worst to me.

*Lord Owen says its EEAsy PEEAsy, my post of 13 August. Owen actually advocates staying in the EEA as a step towards future arrangements, not a destiny in itself, which is why he says we must assert our legal right to stay in the EEA as its members would not accept us joining temporarily.

**David Smith's column Be braced for more chaos, but give thanks to the Bank was in the Sunday Times on 9 December.


  1. 'because many people voted on non-economic factors'. Indeed Phil but you are being polite it's called racism.

    1. Well, DM, you know I can't let you get away with that and it certainly was not what I meant! I actually had in mind things like freedom including from remote bureaucracy, democracy including the ability of political parties being able to do what they say or promise and sovereignty. I accept that the last of these can merge into nationalism but they aren't synonyms. One can wish that things were more as they were or hope that the pace of change gets slower without being racist.

  2. I'm still of the view that many Brexiteers are racists Phil and that was the motivation for their voting. Yes I'm also sure there were many other reasons for backing Brexit but underneath far too many votes will have been this sad reflection of our age.