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<b>Omkar Goswami:</b> Brexit is a pyrrhic victory

Britain's gains from being in the European Union significantly exceeded its losses. Withdrawal from the group will trigger several negative outcomes for the country

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Omkar Goswami
Last Updated : Jun 25 2016 | 10:11 PM IST
Truth be told, much of Britain was never comfortable being in the European Union (EU) which it entered under Edward Heath in 1973. After all, Brits were Brits, and Europeans were strange creatures with funny languages and weird customs who lived across the Channel. And perish the thought of having a silly place like Brussels telling Britons how to run their government.

But there are things called habit and change. By the time Margaret Thatcher demitted office in November 1990 after ruling for over eleven years, much of Britain had changed. While the Welsh coal mines and shipbuilding and manufacturing in Northern England had become things of the past, large parts of Britain, especially Southern England and the Lower Midlands, had become more competitive and prosperous. So too Scotland, with North Sea oil. Prosperity brought a more accommodating attitude towards Europe. More Britons started speaking better than barely passable French; and many middle-class folk bought a second home in France, Spain, Portugal and Italy.

By the end of Tony Blair's premiership in 2007, Britain was even more comfortable with Europe. The continent absorbed the bulk of British exports. London's financial centre was the investment bank and treasury manager for Europe's countries and large business. The country enjoyed a long boom. And having sensibly abjured the euro, Britain enjoyed the dual freedom of pursuing an independent monetary rate policy and fiscal regime. Britain enjoyed the benefits of being in the EU, while having sufficient freedom to pursue its own domestic economic and monetary policies. This led to higher GDP growth than in most other similar EU nations.

Unfortunately, the European Commission (EC) still rankled many Britons. This included many Tories who loved bulldogs and John Bull and hated Brussels, and some in the Labour party who felt, without sufficient evidence, that Europe was taking away rightfully British jobs. So, after the EU was enlarged to accommodate Poland, leading to a huge influx of Poles in Britain from 2004, you invariably heard two different tales: the first that sang the praises of the quality of Polish plumbing and bricklaying that was suddenly available at unbelievably low prices; and another that complained of too many non-English speaking chain-smoking Poles in the neighbourhood.

Despite such episodes, Britain had adjusted to being European - tangentially perhaps compared to the French and Germans, but EU chaps nevertheless. There was one problem. By being not-quite-fully-European, Britain punched well below its weight in the EC and other EU institutions. In general, the agenda was set by France and Germany. Britain acquiesced, often unhappily, sometimes sullenly. Even so, the equilibrium continued. It was not always to Britain's advantage. But the country's gains from being in the EU significantly exceeded its losses.

Enter David Cameron, he of Eton and Oxford and a false smile. He sensed the discomfiture of many of his Tory colleagues with the EU. Matters heated up with the greater electoral presence of Nigel Farage and his Eurosceptic political party, the United Kingdom Independence Party (UKIP). Mr Cameron upped the ante. In his 2015 election campaign, he promised to renegotiate a more favourable agreement for Britain in the EU. So, he went to the EC with a long charter of swarajya demands including restrictions on migration. The EC agreed to some, but accommodated none of the substantive ones. Mr Cameron had to either admit that the Europeans had outflanked him and get emasculated, or do something to preserve his political space. He chose the referendum. In effect he said, "Britons, you must vote what is good for you, though I believe we should remain in the EU."

Mr Cameron forgot a simple maxim: let sleeping dogs lie. When he unleashed the genie, he also unleashed his far more articulate Oxford chum, Boris Johnson, ex-editor of The Spectator, ex-mayor of London, a blonde, chubby icon of the Eurosceptic Tories who was dying to be the leader of the Conservatives. As far as Mr Johnson was concerned, it had to be a fight to the finish.

Worse was Mr Cameron's consistently undemonstrative and 'crying wolf' defence of remaining in the EU. In an emotionally charged campaign about 'being British', you can't win by being measured. Mr Johnson went flat out. Mr Cameron had neither his chutzpah nor his energy.

The worst was the outcome: 51.9% of Britain voted for Brexit. Interestingly, all of Scotland voted against leaving, as did most of Northern Ireland. Expectedly, much of Wales voted to leave. Most damning was England. Barring the Greater London area, almost all of England voted to exit - the wealthy boroughs of the south east, south west and the Midlands, as did the economically worse off ones of northern England. Mr Johnson's siren song hit the right chords. As a British Airways steward said when I was moaning about Brexit, "You don't understand, sir. We will finally chart our own path." Only if it were true.

Let me give you a few examples of some terrible outcomes. First, assume that the sterling will eventually settle six per cent lower. The consequence of leaving the EU will be an average hike in European tariffs of 10 per cent. Who will foot the residual four per cent? British productivity gains? Or pipe dreams? Second, what will happen to corporate tax revenue when major companies headquartered in Britain leave? Third, what will Britain do when Scotland demands another referendum to exit the UK in favour of the EU? Or when Northern Ireland demands to dissociate with Britain in favour of Ireland?

Mr Cameron has proved himself politically naive. He is history. Mr Johnson will have his pyrrhic victory. But what of Britain?

Finally, I can't resist two observations. The first Brexit occurred when Henry VIII chose to break with Rome to divorce Catharine and marry Ann Boleyn. Britain was a power then. Even so, it took two centuries for a turnaround. For the second, I go back to my Oxford days when Mrs Thatcher invaded the Falklands. I met Nirad Chaudhuri, in a tweed suit and bowler hat. "The English are lions now. Lions!", he said with glee. If he were alive today, he would call the Brexiters St. George's dragon. Full of sound and fury, signifying nothing.

The writer is chairman, CERG Advisory

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Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper

First Published: Jun 25 2016 | 9:50 PM IST

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