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Feb. 19, 2019 - Sargon of Akkad - Carl Benjamin
01:00:04
The Upside of Brexit ｜ Dr Gerard Lyons
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Hello everyone, I'm interviewing Gerard Lyons, an international economist and co-founder for Economists for Brexit.
Gerard, how are you doing?
Very well, thank you, and great to speak to you.
Thank you.
Right, so would you like to give people a quick rundown on your background so they can get an impression of the kind of very short...
Yep, well.
Born in London, Kilburn, Irish parents, 1961, long time ago, six years of university.
I went into the city October 1985.
So I had a successful career in the city working for international banks, Chase, Swiss Bank Corporation, where I was chief UK economist, Standard Charter, global research, chief economist, very international.
I think my son worked out once that I went to 82 countries on business.
So I'm very good at giving a global perspective.
I've testified to US Senate banking, US congressional committees, as well as committees here, and to the EU-UK-China summit in the Great Hall of the People in Beijing.
And over the years, given that we're talking about Brexit, I've had interrelations with the EU.
I was on the EU panel of China experts.
Then I went to work for Boris Johnson.
It was supposed to be a non-political role, but I was there for about 10 minutes before I realised I was the only person who viewed it as a non-political role.
I was his economic and financial advisor from the beginning of 2013 until he finished as mayor in May 2016.
The Brexit debate came to the fore then.
I advised him and did a big report on London and the global and EU picture.
Since then, I now do portfolio roles across the financial sector at NetWealth.
I'm on the Border Bank of China here in the UK.
I'm naturally speaking in the personal capacity.
But also, just to finish, I'm on the advisory board of the Grantham Institute on Climate Change and the Environment.
I do believe climate change is a very important issue.
And then the advisory board of Warwick University Business School.
So the nucleus of what I do is economics and finance.
And I keep my hand in lots of different areas.
So great to talk to you on this topic.
Yeah, no, it's fantastic.
It's great to speak to someone who is a professional at these things because so often I find that I'm being told a lot about economics by people who have degrees in English or something like that and write for the Guardian.
So let's talk about the global context for Brexit then because as I understand it, the European Union is going to become a smaller and less important component of the global economy just in the indefinite future.
So could you tell me more about just what's happening with the world economy?
Well I think that's right.
Just in terms of your question, even the European Commission admits that over the next couple of decades, 90%, 9-0% of global growth is going to come from outside of the European Union.
And the key issue is the world economy is changing.
It's changing in a positive way, but change naturally has winners and losers in the short term at least.
I think we should be positive about the global outlook.
I don't want to bombard you with any statistics, but let me just quote three.
326287.
Size of the world economy in trillions of dollars.
Very difficult to picture.
But the reason for mentioning it is that in the last decade, sitting here in London in the UK, we've been hit by a constant barrage of negative news.
But while we're talking about all the issues that do confront us and we should be aware of, the world economy has continued to grow.
Beginning of this century, the year 2000, the world economy was $32 trillion in size.
The day the financial crisis started just over a decade ago, it was $62 trillion in size.
At the end of last year, it had grown to $87 trillion in size.
So the world economy is growing.
And the key issue for Britain and basically for the EU as well is how we position ourselves in this changing and growing global economy.
And two key words, inspiration and perspiration.
Perspiration is more people doing more things, buying more stuff.
Africa's working age population is going to increase by twice that of India and China combined in the next 15 years.
People already born.
Great positive.
It should be a demographic dividend.
Also means we in the UK and in Western Europe need to be thinking more about global issues about Africa.
Naturally, in terms of critical issues, it's immigration, etc.
But population growth and demographic change is a big aspect, a great opportunity, and also challenges within that to make sure that poverty, as has continued to happen this century, continues to fall globally and more people come out of poverty.
In addition to perspiration, inspiration is basically the scale of the world economy and what's happening is changing.
We are on the verge of what's called the fourth industrial revolution.
Not everyone is in agreement, it has to be said that we've only had three, but the fourth industrial revolution reflects the fact that there are dramatic changes happening.
We've seen technological changes already, stem cell research, where Britain leads as well as Northeast America.
You've got tech revolution, green tech, fintech, financial technology.
You're seeing lots of different aspects in terms of the fourth industrial revolution.
So when you add perspiration and inspiration together, I think we should be very positive about what lies ahead.
We should embrace change, but also at the same time, we need to position for it.
And in my view, Britain undoubtedly will be better positioned, making our own laws, determining our own future outside of the European Union.
Clearly, you cannot control everything yourself within a global economy, but you can certainly have better influence over the sense and direction you want to take.
Yeah, I mean, is it fair to say that it's almost like dealing with the weather?
You might know there's going to be a thunderstorm coming, so if you've got control of what you can wear out, then...
Yeah, weather and climate, people get into this.
So we're going into the world.
I wasn't trying to go into agriculture.
But there are quick wins, there are short-term influences, but at the same time, it's the longer-term direction of travel as well.
I often think Britain's biggest export is its pessimism.
We are always downbeat.
Certainly, we need to be critical.
I think the UK is an incredibly imbalanced economy.
And the imbalances are seen in so many ways.
We're all aware of the London versus the rest, but it's London versus the rest.
It's urban versus rural.
It's homeowners versus renters.
It's skilled workers versus unskilled.
And in recent years, it's also become old versus young.
You can also take it into other areas.
But the UK economy has many things going for it, but at the same time, it has big challenges.
And I think often we don't face up to those challenges.
I would argue, if you look back to the previous coalition government, they were pro-the EU.
And they produced what was called a series of competency reports, can hardly say the words, about our relationship with the EU.
And I read most of them.
In fact, I practically read all of them in detail.
And they were really interesting, given it was a pro-EU coalition government.
And if you delved into them, what was really very significant was the way in which the EU was intruding so many different aspects of our domestic life and constraining our ability to address domestic issues.
There's no doubt in my mind that in the over four decades that we've been in the EU, we could have done lots of things better.
But we tended to blame Brussels.
But I certainly think our domestic agenda has been constrained in the past, and we need to address that in the future as well as many other factors.
Well, in terms of those imbalances, well, let's put it in this context.
To make a success of leaving the EU, I think we need to get three things right.
Our domestic economic and financial agenda, our relationship with the EU, and our relationship and positioning with the rest of the world.
All three are interlinked.
All three are important.
But I tend to feel in the last couple of years, naturally maybe, because we've triggered Article 50, that the focus has been, I won't say solely, but almost wholly on that relationship with the EU.
Our domestic economic and financial agenda has been largely overlooked.
But the challenge in where we are in the current debate about whether we have May's deal or no deal, et cetera, is how that relationship with the EU is potentially going to influence our ability in those other areas, whether it ties our hands on domestic economic financial issues and whether it ties our hands on our relationship with the rest of the world.
But coming back to your question, in terms of the specifics, it's about addressing those imbalances.
And I tend to say we need all the eyes.
We need more investment.
UK firms have underinvested, under-invested for decade, decade after decade after decade when we were in the EU.
Underinvested in planting machinery, under-invested in their own workers, their own staff.
We need more infrastructure spending.
Infrastructure is the buzzword at the moment everywhere.
But we do need better infrastructure to better connect the country.
High speed two, waste of money, but maybe high speed three, connecting northern cities would make more sense.
We need more innovation.
It's often overlooked in the UK that when you look at universities, and I was staggered a few weeks ago listening on Radio 4 to hear vice-chancellors complaining about how the UK university sector may fare in the future outside the EU.
And I thought, goodness, if you look at the two surveys of top 100 universities, there are only two countries that dominate.
America, which is in the lead by a long way, and then Britain.
Depending on which survey you look at, we have around 14 universities in the top 100, which is pretty impressive.
Germany has one.
Switzerland, I think, is two.
France has one, roughly.
We are, just as we dominate Western Europe in global finance with the City of London, in terms of universities, we are very important.
Clearly, we want to have a good future relationship with the EU in terms of having staff, access to EU experts.
But take the EU science budget.
44 countries are in the EU science budget.
One third of those are outside the EU.
So where you are geographically should not, does not, and will not constrain your ability to interact in those areas where you need to.
So coming back, it's investment, it's infrastructure, it's innovation, and also getting the incentives right.
We need to set our own tax and regulatory system to actually encourage and incentivise people and firms.
And in terms of the EU debate, take the single market.
People hear about the single market all the time.
Six percent, just six percent of UK firms sell directly into the single market.
They account for 12, 13 percent of the economy.
So that's important.
Let's not ignore them.
But they are the big firms.
But yes, being a member of the single market does come with other constraints.
It means 100% of UK firms have to abide by EU rules and regulations.
This particularly impacts small and medium-sized firms.
The UK has to abide by free movement of people.
I tend to think migration is good for an economy, but it mustn't be unlimited migration.
It needs to suit your domestic needs and what you want to achieve in the future.
So things like incentives do come into the debate.
And obviously there's lots of nuances to all this.
Lots of areas are intertwined.
There is no economic debate in the world that does not have arguments on both sides of it.
But I think within the Brexit debate, and one of the reasons I co-founded Economist for Brexit was that within about three or four days of the Brexit campaign starting that four-month campaign, it became clear that the Leave side had decided not to fight on the economy.
And I thought, goodness, this is crazy.
And therefore, a group of us met.
We were outside the Leave official LEAD campaign, and we basically were here, we thought, just to provide a counter-argument.
And we were pleased to see that over the course of that four-month campaign, at the beginning of it, Remain was 23 points ahead on the economy.
By the end of it on referendum day, it was only one point ahead, which maybe was down to us, or more likely was down to Project Fear and how that clearly was seen through by many people.
So, I mean, I think that's a really interesting point that most people chose not to fight the battle on social media and the public square on the economy.
And I think, I mean, from my personal perspective, I think it would be a lot more difficult for me as a layman to say, oh, I think that we're going to do great outside of the European Union in comparison to the counter-argument of leaving the European Union is going to be an economic hit.
Because I think everyone accepts that there will be an economic hit.
But what was the way you described it?
A kick in the groin and before we were on.
I was explaining on the way here on the tube.
I was thinking an analogy to explain no deal versus the Prime Minister's deal without getting into all the nitty-gritty detail.
And I said, yeah, it's like a kick in the groin versus slow strangulation that might bring you close to death.
No deal is like a kick in the groin.
It partly depends on how vicious the other side wants to be, but it also partly depends on how clever you are in manoeuvring yourself and positioning yourself.
And basically, no deal is about how much prep work you have done to prepare for it.
And therefore, if we don't do it right and the other side is vicious, we're going to be left with a real kick in the groin and feel the pain.
But it will be temporary, but it will hit us for a while.
If we do it really well, then it might just be a passing pain.
But there will be some dislocation.
In contrast, the Prime Minister's deal, and what the House of Commons appears to want us to be bound into, is something close to strangulation, slow strangulation, where the EU is allowed to put its hands round our neck.
When they decide to take their hands off, it's up to them, not up to us.
And they will be squeezing the life out of parts of the country.
So can you tell people how the EU will be doing that if we go with Make's Deal?
Yeah, well, at the moment, obviously it's raw politics at the moment.
So quite frankly, it's very difficult to determine how it will play out.
But the Prime Minister's deal, and it's not really a deal, it's a departure agreement.
It has, but let's call it deal because that's what the narrative is.
It has the backstop on the Northern Ireland Republic of Ireland backstop and the withdrawal agreement, and then a political statement.
So it's all about getting us over the 29th of March into a transition period.
And in that transition period, then we determine our future trading relationship.
But effectively, nothing changes in the transition period.
And nothing changing in the transmission period makes sense for businesses to be able to adjust.
But the problem is the backstop, which was aimed effectively at some people would say addressing the border issue, but effectively it's about keeping Northern Ireland in the customs union and implication the rest of the UK in the customs union.
If we're kept in the customs union, that starts to tie our hands.
And coming back to my earlier point, to get make a success, we need to have a domestic relationship with the EU and our relationship with the rest of the world.
In that context, it's basically our relationship with the EU isn't necessarily a great one for us, but it ties our hands in the other areas.
So coming back to your question, the challenge with the backstop and the withdrawal agreement is because of the backstop, it has constraints on the withdrawal agreement and in turn will have constraints on our ability to have a trade deal that's really in our own interests in the next few years.
So it ties our hands too much.
And the reason it ties our hands is because of this issue about the customs union and the backstop.
And to put that in context...
Just to be clear, wouldn't it be something like...
It's been a while since I've read it, actually, but wasn't it something like it would require us to harmonise with the rest of the world the trading deals we have to EU standards and we wouldn't have an input on the EU standards?
Yeah, well there's lots of different facets to it and all the devils in the detail.
But in the current context, because we're in the EU and naturally, therefore we're in the EU's customs union, we don't have our own trading relationship.
We don't have our own trade policy.
The EU sets policy.
And EU sets policy for all 28 countries.
Britain's demands are one of 28.
Often they're low down the list.
Agriculture is normally number one issue.
But when we leave, if we left in the terms of the Prime Minister's deal, because it effectively ties us into a customs union, the worry is that that will limit our ability to cut trade deals in the future.
Now, the Prime Minister says that we will have a new way of doing it.
Now, she may believe that, but I think it's wrong.
Because coming back to your question, because we're effectively agreeing to stay within the customs union or parts of it, the rules and regulations of the EU will not be set by us.
Therefore, in a trade relationship, we can't be offering these ups in terms of future negotiations.
But it's important to stress that you don't need a trade deal to trade.
Trade deals do help and they help address barriers, etc.
There are many countries much smaller than Britain who have less diplomatic clout, less economic prowess, who cut trade deals far bigger in size than any cut by the European Union.
Singapore, South Korea, Chile are examples.
When you cut trade deals to suit your own interests, then you actually can focus on the key issues and they become iterative in the sense that you can start repeating them with other countries.
So the trade issue is a complex area.
People are watching, how many of you say have an iPhone?
How many of you actually don't have a trade deal with the states, yet many people are able to have iPhones?
Somehow we've imported them anyway.
Yeah.
So it's important to put this in context.
Now, Britain is a very different country to others within Western Europe in economic terms.
We're a second biggest economy in Western Europe.
Obviously, because currencies go up and down, that can change with France and etc.
I would say in 30 years' time, we will be the biggest economy in Western Europe based on population and also if we just continue trend rates of growth.
But more particularly in terms of a big difference is we're a service sector economy, roughly four-fifths of the economy of services.
Financial services are particularly important.
So this becomes more complex within trade deals because often trade deals don't focus on services.
But tariffs are important for goods.
Tariffs are a tax on imports.
And within the European Union, there's a tariff wall.
And the best way to, it's quite complex, but the best way to think about it is that EU is a political project.
Initially, on the economic side, it was there to protect French farmers and German car makers.
Hence, the tariffs are highest around food and autos.
Add in the fact that the Italian footwear industry was important.
You then also have other aspects.
So the highest tariffs are clothes, food and footwear, and also autos.
And actually, poor people spend a disproportionate amount of their income on food, clothing and footwear.
So the tariff wall is highest around those.
But in services, it's what's called non-tariff barriers, not linked to the price, but rules and regulations.
So if you've tied yourself in the future in some way, shape and form to EU rules and regulations, that clearly will limit your ability in the service sector to be cutting trade deals.
Right.
So it's about tying your hands.
But the important thing is the world economy is changing.
Look, people in the past did things very much next door.
So many economists will point out this geo gravity idea that you trade more with countries you live next to, particularly if they're bigger.
And that makes sense.
But over time, as non-tariff barriers change, also as services become more important, the world economy changes, China also becomes important, India becomes important.
Those factors are important, but they start to change in terms of the importance and significance for the UK in the future.
We need to position ourselves in the changing, growing globe economy, coming back to those earlier points about perspiration and inspiration, where the markets are in the future, and recognising that the way in which the world economy works is changing.
So I think we should be a lot more positive about what lies ahead.
Yeah, it does seem to be kind of myopic.
I honestly don't think the Romainers are really arguing about economics at all.
Yeah.
When they complain about the damage that Brexit will do, I think they're talking on a moral and almost spiritual level.
That's right.
Before Christmas, I went back to give a talk at my old school, Cardinal Vaughan.
It's in West London.
She's the number one comprehensive school in the country in terms of education.
But I was asked to go back and talk about Brexit.
So I thought I'll go back to the 70s.
I was at the school in the 70s.
I was too young to vote in the 75 referendum.
But I said, what's interesting is if you go back to the 70s, then the political parties were differently aligned.
While Labour was in government and was, in theory, supporting being in the EU, the key heavyweights, and many of the key heavyweights, apart from the Prime Minister, in the Labour government, were opposed to being a member of the EC.
And it comes back to your question, hence I think it's relevant.
And I looked back at the two key issues that they were talking about then.
And they said basically sovereignty, lawmaking.
Once you allow lawmaking to go, you lose control.
It's about sovereignty and who's accountable.
Is it your ability, as they were saying, to kick out MPs in London, or how is your ability to influence bureaucrats in Brussels?
They were spot on.
And the second issue is that they said it was a big business corporatist group.
Companies are important.
Obviously, business is vital, but it's about status quo.
And when you look at, I've often done debates on the EU on Brexit with the CBI.
And I've never ever come off thinking, gosh, they're visionary forward-looking.
It's always about defending the status quo, defending big business, pressurizing workers, pressurizing voters to accept the clout of the big firms.
And if you go back to the debate in the mid-70s, it's very interesting and very relevant for the Labour Party now.
And maybe it helps explain why their leader, Jeremy Corbyn, is known to be more of a Eurosceptic.
Back in the 70s, it was about sovereignty and your ability as a voter.
Fantastic arguments.
So I find it very interesting.
You say the European Union is essentially about the SAS quote, because at the moment they're currently in a war with Silicon Valley over copyright, which is what the Article 13 legislation is about.
And it is exactly as you say.
I mean, one of the things that it's going to unintentionally do is effectively lock out competition by making access to the market exceptionally difficult for small entrepreneurs.
And it's going to confirm Silicon Valley as the status quo because they're the only people who are going to be able to technically and financially meet the barrier to entry to become a social media platform.
It's just an example.
It's quite interesting.
Obviously, I'm not sure when your video is going to go about.
The week and a half ago, there were two interesting developments on the continent that Hardy mentioned in the media here.
The German economic minister, one of the people apparently likely to become chance or possibly, talking about how anti-trust legislation needs to be tightened to protect basically current incumbents.
And then the Dutch also linked to the Unilever debate in dual-listed firms last year was about making it more difficult or harder for takeovers.
Now, naturally, you tend to think if you're working for a firm, you don't want someone to come along and take you over.
But the reality is that you do need to have that dynamism.
You do need to allow new players to come along.
The most interesting thing I thought here in London since the referendum result was when the big Silicon Valley companies decided to go ahead and proceed with their investment in London.
London is effectively going to be seen as the Silicon Valley or the tech centre outside of Silicon Valley.
So I was going to say the Silicon Valley Alps.
Yeah, outside of Silicon Valley, yeah.
London's ability to attract skilled workers.
And this is the challenge in the Brexit debate because there's a domestic agenda we need to get right.
And but there's also the ability to make sure that we have the right messaging globally because we don't want to draw up the drawbridge, but we want to be having sensible policies.
Act in our own interest.
Yeah.
And so London is number one skilled city in the world in terms of number of skilled workers.
And in the global trends, it's quite amazing.
Cities are becoming more important.
Currently, half of global growth comes from the top 600 cities in the world.
Most of those who analyse this are in agreement that in about 20, 25 years' time, two-thirds of global growth will come from the top 600 cities.
But I think it's 137, 157 of those top 600 now are in the West.
In 25 years' time, only 20 are expected to be in the West.
So you've got to be competing, but you've got to be playing to your best interests.
But part of that is it's not just wealthy skilled workers.
To succeed, I always say you need one of the three C's.
Cash, commodities, or creativity as a country.
Cash, financial resources.
Commodity, being natural resources.
It can be your people.
Or creativity, it's your human resources.
So you need to get those right.
And the creative side is big in London.
I've been to the Vaults Festival twice in the last week down underneath Waterloo.
And it's a vibrant, dynamic part of the London economy.
We need to remember it's about skilled workers, not just based on high-wage skilled workers.
So one of the key challenges in the Brexit debate is really how we articulate our migration policy and we need to base it on sensible policy.
And I think the Prime Minister and also her then Home Secretary Hamburg Rubb should be heavily criticised for the way they made citizens a bargaining chip in this process.
And I think that's misconceived in terms of people thinking Britain is going to be a shrinking buyer or putting back.
But we need at the same time to be thinking about our domestic agenda.
It's not just London that needs to do well.
And it comes back to some of the key issues.
At the end of the day, people vote for all sorts of reasons.
But most of the data after the referendum showed that people voted first on sovereignty, second on migration.
Not that people were anti-migration, but they thought we needed a migration policy.
And third, on the economy.
And we need to be addressing these issues.
I completely agree.
Okay, so let's talk about the immediate media narrative about no deal.
So, I mean, I've heard that the sky is going to fall, we're all going to starve to death, and the Queen's going to have to be evacuated from the rioting, starving mobs who will eat her by breaking down the gates of Buckingham Palace.
I've also heard from the head of the World Trade Organization that it won't be the end of the world.
Which one of these is true?
Yeah, it will not be the end of the world.
No deal.
Let's break it down into two parts.
There's the trade part and the non-trade part.
And the non-trade part is things like aviation, security, our defence capability.
Remember, UK as a defence group is going to be bigger than the EU27 when we've left.
We have a huge defence capability.
There's only two nuclear powers in France and the UK.
So those non-trade issues, it makes sense for us to have collaboration, work together, and that makes sense.
On the trade component, the important thing, we use that analogy of kicking the groin, slow strangulation, and hopefully that got the point across.
But in terms of no deal, at the end of the day, it's not the end state no deal.
It will be a stepping stone.
It makes sense to have a future trading relationship in key sectors.
Now, regardless of whether we have no deal or don't have a deal, it's very difficult to leave something you've been in for over 40 years.
It becomes even harder naturally if you don't have a future agreement.
The three sectors that are most negatively impacted by no deal are the auto sector, the chemical sector, and the farming sector.
So it's not that we should ignore the consequences, but at the same time, it's about how much preparation has been done across different companies.
Without giving secrets away, I'm on the board of a company where, like other international companies in the city, we were advised in April 2017 it was by the head of the PRA to make preparations for what might be deemed your worst case.
And so that preparatory work has carried out.
And as far as I can make out, across the city of London, the financial sector, that prep work has been done.
And most of the city is prepared for a so-called no deal.
It depends on your business model, how you are impacted.
But a no-deal, at the end of the day, we have a future relationship with the EU in trade terms.
That will be worked out.
I think it makes more sense to have a trading relationship where it works for both sides and with a transition period where we can dot the I's and cross the T's.
But if it was a force to a no-deal, then you go on to World Trade Organization terms.
Now, this has different facets to it.
We do trade with lots of countries around the world on World Trade Organization terms.
It's normally the fallback position.
It's topped up with what's called mutual recognition agreements.
So there are bits that you have world trade, but then you do a bit extra.
So there is uncertainty and we shouldn't ignore that.
But on tariffs, we then have the ability to decide what to do on tariffs.
Tariffs are a tax on imports.
Now, it would make sense to me to get rid of tariffs on any areas where we do not have domestic production.
We shouldn't have a tariff on oranges, for instance, because we don't have to produce any oranges.
But on the areas where we do produce things, we would likely want to keep the tariffs in place to protect our own domestic.
And then use that as a bargaining chip.
In terms of the actual WTO, though, we can trade on WTO terms.
But as I say, I think no deal is a stepping stone for a future relationship.
But it all comes down to how much prep work you've done, how flexible you've been.
And also depends on the other side.
In the last few weeks, Calais and the other ports have all said that they will not want to stop goods coming into the world.
Yeah, they're going to wave them through that chapter.
This is a business world where the law does the rule of law at the end of the day does matter.
I mean, the intransigent position of the European Union on all of this is, I mean, it seems to be weakening as the days come, as we get closer to 29th.
Well, this question is such a key question and should almost be upfront in the sense that when we look at the EU, we should not forget it's a political project.
Yes.
27 of the 28 countries view it from a political perspective.
I remember doing Regio 4 Start the Week with Varafarkis, the Greek finance man, a few years ago.
Where he was so negative.
And I said to him, Well, why didn't you leave the Euro then?
And he basically said that politically, he affected not his words exactly, but they were too scared.
Yeah.
And they were tied in, they felt.
But Britain has always viewed this as an economic-financial relationship.
Now, I think part of the challenge in the last couple of years is we keep thinking we can go to the Germans and knock on their door and say, you do something.
But the Commission, the Puritans, they see it as a political project.
The Zealots.
Yeah, the Zealots.
They approach it that way.
Now, as we get closer to the end date at the end of March, I think there's a realization in economic and financial terms on the continent that, gosh, this might not have been the best approach.
I think it should have been a more consiliatory approach on both sides.
I think the UK, we are where we are.
I wrote a book called Clean Brexit, there you go, with Liam Halligan, about how we should, half of it is about how we should have left, and half of it is about what we should do in the future.
I think we could have been in a far better position than we are in now.
But we are where we are, but it's been the end of the world.
And look, Lord Salisbury, I was at an event a couple of years ago, and I'm going to quote him.
I'm not sure if he realised that I was going to quote it publicly, but he did say, We must remember this.
The first Brexit took a long time.
I was thinking, goodness, what does he mean, first Brexit?
And he said, 1533 to 1588.
And I've spoken to a few historians.
It's Robert Holmes up at Cambridge, who's a great historian who's pro-Brexit and has started brains for Brexit, academics who support Brexit.
But the point is that in a historical context, the first time we left Europe was on religion.
Henry VIII, 1533, and it was only over when we defeated the Armada, Drake, in 1588.
And the point being, similar to the point I make in economic terms, he was making historic terms.
It's difficult to leave something that you've been in for a long period of time.
And therefore, the future relationship becomes key.
Some people think we should remain, ignoring the diplomatic vote, ignoring the opportunities now thrown up, but also thinking we would go back in the way we were.
In the last year and a half, President Macron of France, I think, put the cat amongst the pigeons.
He basically said the Europe of the future or EU of the future, and I keep saying Europe is not the EU.
But they use them interchangeably as if they're synonyms.
Absolutely.
The best person on this is David Owen, Lord David Owen, because he was pro us joining in the 70s, co-founded the SDP, but he is a strong Brexiteer and always points out that the EU is not Europe and the institutions are very different to everything else.
But coming back to where we were, I'm not sure where we were now in terms of the thread of direction.
Yeah, about we need to actually effectively be outside the EU framework because it's going to, oh, Macron's point, sorry.
It was going to be a core of a political union tied to the Euro and then outer periphery.
Now, we in the UK would never want to be in that core political union, and we certainly wouldn't want to be in the periphery where we have no influence over what goes on.
We need a sensible future relationship and centric circle to use some of the people's terms in the House of Commons.
We're not geographically going to have to move out of it.
We can't do that.
So it's sensible to have a relationship with the EU.
But the Euro is key to this because the Euro is the most unquite frankly, it's the most stupid economic idea ever thought up by anyone at any time, anywhere.
It's fundamentally unstable.
Tell me why.
The Greek economy is not the German economy.
The Italian economy. is not the German economy.
The Spanish economy is not the German economy.
You can't start to tie economies together if they are not similar.
And if you do, then the only way they survive is by being a political union.
The first article I published in the FT was back in 1997.
And whilst it's a long time ago, it's still relevant.
It showed that the history of monetary unions from around the world showed that monetary or currency unions only survive if they become political unions.
Like Britain, UK, England and Scotland is a political currency union.
And the gist of it is the euro is unstable.
And when you build something on something that's unstable, not that I build many things, it's naturally not going to be...
If you've got poor foundations, you can't...
And so that's the challenge you see.
And at the moment, this is why you have problems on the continent.
The Germans feel they are going to have to bail out the rest.
The rest, so to speak, feel they are going to have to abide by German rules and direction of travel.
There's something called target to imbalances.
It's a bit technical, but people might want to go and look at it.
Imbalances within central banks of the EU or the Euro area are at an all-time high, reflecting the instability in the system.
Right, because this is something I had to look into the Grexit crisis a couple of years back.
And I was amazed to find that there's no provision legally to leave the Euro.
And I saw assessments by a bunch of economists who are saying, effectively, Greece needs to leave the Euro and readopt the Drachma and slash it so they can encourage investment.
Because at the moment, what they're doing is basically trying to out-compete Germany by being in the Euro, which obviously Greece can't do.
So, I mean, I'm no expert, but the future of essentially the south of Europe looks really dire.
And apparently, there was no particular way of predicting an improvement.
Yeah.
In recent years, I've been invited to something called the Athens Seminar, and it takes place every June or July.
And it really is quite depressing when you go to such a vibrant, dynamic, important country and you see how over the years it's been squeezed, that slow strangulation almost that I talked about earlier.
Young people have left.
Well, I think that's the great example of strangulation.
Because, I mean, they had when I visited in 2012, and they had something like 55% youth unemployment, and it's insane.
Youth unemployment.
I always used to joke that EMU, it's not a joke in some respects, EMU, European monetary union, stands for even more unemployment.
Now, thankfully, European unemployment has started to come down in recent years, but it's very high.
But in the narrative in the UK, we're told how badly the economy is doing, but we are growing at a faster rate than Germany, France and Italy recently in the last three quarters.
Wasn't that all combined as well?
Yeah, over the Eurozone in the last three quarters.
But you see, in the wake of the global financial crisis, central banks became the sort of safety valve.
They pumped in money.
And so the European Central Bank tried to take out some of that money they pumped in back in 2012, 13 and it came back.
Eurozone went back into recession.
Over the last year, they've started to try and withdraw some of that money they've pumped in and the Euro area economy has slowed sharply.
In some respects, the Bank of England has done the same here, and that's often ignored.
We've had significant monetary tightening, in my view, in the last 18 months, but everyone blames the slowdown on Brexit.
Brexit naturally has had an impact because it's dampened investment plans.
It's made every uncertainty.
Certainly, yeah.
But in the Euro area, they haven't really addressed some of the fundamental flaws and the imbalances there because of the Euro still persist.
Financial imbalances because they've not sorted out their banking sector really properly.
And you've got deep-rooted challenges.
So the Euro area, really, we should be not only having a good relationship, but distancing ourselves from the inevitable problems that will befall.
Because on the continent, we're seeing political tensions come to the fore in many countries.
That's the safety valve now.
And it's not a nice safety valve, political tensions.
No, I mean, and I want to ask you about what you thought the future of the Euro and I suppose the European Union connected to it is going to be.
Because one of the things I noticed is that the Romainers are never making a positive case for staying in Europe.
And I've obviously done a bit of research into it myself.
And the more I learn about the way that the European Union operates, the more I think that we should have Brexited quite a long time ago.
Yeah.
Well, in life, you can only control the things under your own control and you can try and influence the debate and the other things.
So we need to be getting our own house in order, recognising there are big challenges in the UK economy, the imbalances we mentioned earlier.
But yeah, the Euro area and the EU.
If we look over the last 20, 30 years, there's been four big developments.
Two, Britain was driving behind the expansion of the EU to the east and the single market.
The two things that the Brits really didn't like were the Euro and the ever closer union that's come from the latest treaties.
And it's the latter bit that's the real challenge.
Now, if the Euro is to survive, then it has to become a political union.
And if it becomes a political union, that means a combination of fiscal policies, tying together more and more policies, and that means greater sacrifice by all the players involved.
They're quite open that that's going to be the case, aren't they?
I've seen many European leaders essentially demand greater sovereignty for the European Union.
Yeah.
Well, back in before the referendum took place, I was on the advisory board of Open Europe, which was looking to reform the EU.
And people now say, oh, we should stay in and reform it.
And it's there was no desire to reform it then.
And that was reflected also in the then Prime Minister David Cameron's deal.
Now, he had an opportunity, and he I don't think the media really picked him up on this because at that time, some of the European countries, the Visegrad countries in the East, certainly Netherlands, certainly Sweden, Portugal as well, were reaching out, I would say, to Britain for Britain to push an EU-wide reform package.
I think the Dutch talked about red cards and yellow cards.
Rather than Brussels dictating everything, we can put up a red card if we don't like it or a yellow card if we're mildly irritated.
But Cameron went in with a very, he went in with a very UK rather than the EU-wide approach.
He asked for very, very, very little, and he got even less in return.
And the French and the Germans in particular made that clear that survival of the Euro was key to the project.
It's often forgotten now that at that time, one of the key things that Cameron, the Prime Minister Nosborne, the then Chancellor, wanted, was the guarantee that the non-Euro countries, those countries in the EU, but not the Euro, like Britain, would not be constrained and would still have their veto over Euro policy, i.e. the Euro countries couldn't decide what everyone would do.
And they couldn't get that.
So the direct, when people think about the current debate, they should not be worried about any near-term uncertainty about leaving.
They should be worried about the direction of travel.
If we were to have stayed in the EU, people forget the direction of travel.
The direction of travel is for a system that has fundamental flaws.
It's really run by the Germans.
The French like to think they run it too.
But it's built on a very unstable economic foundation and it has to become more and more of a political union.
And at the moment, as we're seeing, that means a loss of sovereignty, a loss of accountability for voters and countries across the zone.
We will be far better off.
Britain often ignores its potential.
Fifth biggest economy in the world.
One of the biggest, one or two financial centres in the world.
Number two, global universities.
We're on the United Nations Security Council.
We're in the IMF big wig.
We're at the World Bank a big week.
We actually have clout.
We're a member of the Five Eyes group in terms of global defence and security policy.
There are many other errors.
The Commonwealth, frowned upon.
Now, if you go back to the debate in the 70s, people were worried that we were losing those Commonwealth times.
I go to Nigeria, I go to other countries.
The potential of these countries cement our relationship with those.
We need to be actually thinking globally as well as domestically, and they reinforce each other.
I think we have a very positive future.
Unfortunately, I think we are slightly leaderless.
I can think of no other example where the top two people in the government don't seem to view the main policy of the government as an opportunity.
It's interesting that you say leaderless, because this is something I've noticed for quite a while, and I didn't really think about what it meant.
But every time I am in a discussion with Romaina, and I get them to even accept the idea that perhaps maybe it could be a good thing that we leave and become a self-governing country again, they instantly point to someone like Boris Johnson or Theresa May or Jacob Riesmark and, well, just frankly, ridicule the idea of having them as a leader.
And I mean, I just point to them: what's the alternative?
I mean, what are you proud of Jean-Claude Juncker?
And it's never about them.
It's about the ideal of Europe, I think.
They've got some, I don't know, wacky idea that it's going to be some perfect future there, and we're foolish to leave it.
But they've got absolutely no confidence in our own country.
Yeah, we touched on some of these issues earlier.
I think that question really brings it to the fore.
It is, look, it's not a case of the 52% clubbing the 48% down, saying you have to accept it.
We have to look at all the arguments, but the argument that you're articulating based on us being part of a political union is not how we've had the debate here in the UK.
And I don't think people in the UK would like to be part of a political union.
They like to.
We've had the vote.
Yeah, we want to stand our own two feet.
We want to have accountability.
The parliamentary system is important.
The idea of you can kick people out.
And I don't think the EU is democratic.
I've unironically been using the argument, no taxation without representation, about the European Union.
Because, I mean, I saw James O'Brien on LBC the other day saying, well, Theresa May voted for Jean-Claude Juncker.
It's like, I don't care.
You know, that's not what I consider democratic.
Well, actually, it comes back to another point on the no deal that we didn't talk about earlier, the cost, actually, the 39 billion that we've offered to pay.
I still find this quite bizarre, actually, because the House of Lords was advised legally that we didn't have to pay anything.
The Chancellor Philip Hammond has said, even if we leave with no deal, we'll have to pay a big chunk of it.
Clearly, you pay for things you want to be a part of, the science budget, etc.
But also, tariffs, obviously, we would set our own tariffs, but currently four-fifths of the tariffs we charge, the tax on imports, goes to the EU as well.
So we have a great ability on fiscal policy.
We need to get our own house in order naturally on that.
But I do think we've got lots more room for manoeuvre.
And taxation, yes, get the incentives right.
I do favour lower taxes and more sensible regulation.
But the race to the bottom issue has also come into this debate.
So there's multiple sort of pushes back.
And I think it's not always acknowledged.
And we mentioned this in Clean Brexit, Liam Halligan and I, that the UK has been at the forefront of pushing workers' rights.
We don't need to be in the EU to guarantee workers' rights.
And in fact, workers' rights should be...
This drives me crazy.
This is...
This whole thing, whether, I mean, like, almost all of the things that they are concerned about us losing are things that we invented.
And things that we would be accountable for in the future.
If British voters wanted to ensure workers' rights are strengthened, they just need to make sure that's how they vote.
And I think if you look at when we did the book, I remember looking at annual leave.
I think we had 5.6 weeks.
The average in Europe was four weeks.
Maternity pay.
There was no minimum maternity pay.
The UK has a minimum maternity pay.
It's 90% for the first week, six weeks when we did the book.
It might have changed since.
And I think then there was a nominal amount thereafter.
But there were rules, regulations, minimum wage, we have one of the highest minimum wages.
I remember meeting a whole delegation of German parliamentarians six, seven, eight years ago to discuss minimum wages with them.
When I worked at City Hall for Boris Johnson, I was the advocate of the London living wage at City Hall.
And I'm a big advocate of having sensible minimums.
But people often overlook how much the UK has done on this in the past.
And clearly, outside the EU, we have the ability ourselves.
They think that we're going to scrap the idea of human rights and things like this.
It is project fear.
It's project fear.
It's project fear, one, two, three, four, five, six.
Yeah.
So look, you can't be in something for 40 years, leave easily, that's sensible.
But you do need leadership.
I think the challenge is, we keep saying Channel, from a political perspective, context and vision.
Well, it's not illegitimate to use the term challenge.
I'm very tired of this kind of opportunity.
Challenges are there to be overcome.
You don't have any kind of candidate growth without one.
The UK should be really taking the lead in so many areas.
And I do believe, and maybe what will happen is that we will start to elect different politicians.
I hope so.
Yeah.
Some of them are very good.
There's no doubt about that.
That's a short list though.
So what do you think will happen to the European Union if we don't pay them £39 billion?
Well, whichever it was.
Yeah.
Well, actually, answering that, obviously, predictions about the future people can always question.
But let's just go back last couple of years.
Before we agreed the first phase of Article 50, where it was about citizens, money, and then the backstop came in.
It was quite clear in that period, was it nine months now?
When that was going on, that money was the most important issue, it seemed, for the EU.
Yes.
Citizens, I didn't think, should have been in there.
We should have guaranteed those straight away.
But money, it's because financially they see us, some would say as a cash cow, but others might question that.
I mean, we're the second biggest net contributor, yeah.
So of course they see us as a cash cow.
So I think financially they are in difficulty.
I think we are offering them a phenomenal deal in some respects in terms of not just the one-off payment, but clearly in the transition period paying money now.
I do believe in a transition period just because it helps the easer process and you need to take on some of the concerns of business where those concerns are very relevant.
Therefore, in terms of what would happen, yeah, they would have a budget hole they would need to fill.
Yes, and where's that going to have to come from?
Well, it would have to come from their domestic countries.
And so it poses the challenge.
And it probably will reinforce the direction of travel of President Macron and Chancellor Merkel to concentrate more of the decision making and the putting an extra tax burden on the citizens of countries that are barely receiving any economic growth, wouldn't it?
Yes.
So it's kind of a bad situation for them to be in.
Yes.
We might think we're Eurosceptic, but just go to Italy.
And they see these challenges at first hand.
So the financial aspect is very important, but also the direction of travel of the EU.
Britain, I think, is an important country for the EU in terms of its future direction of travel globally.
But of course, the EU is looking so domestically in terms of shoring up the problems.
So we need to, coming back to the sort of domestic agenda, we need to focus more time on that and better using our fiscal resources at home.
For instance, if we didn't pay that 39 billion, I think it's been said that we could cut corporation tax, income tax, and a few other sort of injections of fiscal money into infrastructure.
So we could better use the money, but it is what it is because of the raw politics.
Right, okay.
And so what is it you think that Britain should do in the next, say, 10 years or something to really maximise the benefits of Brexit?
Yeah, okay.
To make a success, we have that sensible future relationship with the EU where we're not bound by it, but we're a sensible partner or outside influence.
But we have a sensible relationship, however you want to define it.
We then need to position ourselves globally and address our domestic issues.
Globally, the world economy of the future can compete on price or quality.
But obviously, you need to be competitive.
But if someone somewhere is going to do it cheaper than you, then that's always a challenge.
You need to improve quality.
You need to invest more.
We haven't invested enough in our people.
We need to invest more in upskilling.
Skills and training.
Yeah, but there's nothing wrong with having a job that is sort of, shall we say, not...
Look, my dad worked for London Transport.
He was a skilled engineer, and then his factory shut down and went to London Transport.
But I think that you might say that's not a skilled job standing at Baker Street Station, but a very important job.
There's lots of jobs that we need to not look down on, that we need to take crucially.
We need to change our whole mantra, but we need to actually make sure we are competing more, we're investing more in our people, more in our future.
But it's about having context, understanding the challenges impacting us domestically, regionally, and globally, but having a vision, a direction of travel.
And the vision needs to be very important.
The UK can really play.
I don't like using the phrase punch its weight because people who punch above their weight tend to be weaklings.
We're not a weakling.
So we need to actually make sure that we influence where we can, we produce things.
And the domestic agenda is vitally important.
Coming back, addressing those imbalances.
Lots of things we should have done in the EU we didn't do, but lots of things we will be better able to do in the future.
And lots of things that we need to actually really recognize is not just quick wins, it's a longer-term vision and strategy.
No, I completely agree.
And this leads us quite nicely onto the media narrative surrounding Brexit, which I guess is how we'll finish your opinion on it.
But it dovetails nicely with investing in our own people, because one of the things I've, I mean, it didn't start this way, but the narrative that I hear often now is that the NHS can't even survive without people from Europe, as in doctors, nurses, etc.
And I mean, it's genuinely hard to believe how like the fifth or sixth biggest economy in the world can't manage the NHS.
I mean, if we can't do it, who can?
There's something morally wrong about steering the best medical talent from other countries.
It's colonialism.
I have to say that.
But the challenge is, naturally, you have to get great grades to become doctors or train to be a doctor.
But the number who want to be, and also we're losing some at the end because they go off to become manager concerns, we should actually invest more in training more homegrown doctors.
Absolutely.
It drives me crazy.
I have this argument with, I guess I would broadly turn globalists all the time.
I mean, if India trains up, you know, however many doctors at the expense of India, and then we simply offer them more money and they come over.
How is that just?
How is that decent?
Doesn't tend to tie in a blind eye to that.
Absolutely.
Does India not need their own doctors?
Absolutely.
And are we not let our own people down?
And the way economically for it to be addressed in the future is for them to be paying higher wages and then they will stay.
But, yeah, we need to be training more at home.
Also, I'm not an expert on the nursing side, but it's been explained to me that we changed the dynamic around that in terms of...
But some of the issues have been self-made.
Naturally, we recognize that those who come and work in the NHS do a great job.
But it comes back to the whole issue about migration.
Migration is good, but unlimited migration creates challenges.
Particularly, there was a very good report by Bob Rothorne, King's College, sorry, yeah, King's Cambridge, for Civitas, end of 2015-16, about migration.
And he gave some testimony to the House of Lords and others.
And it's about we can meet our migration needs with tens of thousands.
And so I think it's about having a sensible migration policy and how you address that.
Obviously, London's needs might be different to the rest of the country.
Hence, people talk about regional policy.
But we need to just recognise these are debates we need to have.
But coming back to the future, it's about really positioning ourselves and actually addressing these objectives.
And your question was linked to the media narrative, actually.
The media narrative, yeah.
Because the media narrative is Project Fear.
You could break it up in stages, but frankly, I think it's just been constant.
Do you think that it is in any way an accurate reflection of what you think as an economist the future holds?
No, absolutely nonsense.
But it touches on we need to learn from the past as well as recognise the future.
In the 70s, reading back on it and also speaking to someone involved at the time, Heath, Ted Heath, who was then the Tory Prime Minister 70 to 74, he initially, when he started the project to join, he wanted to make it a conservative-led proposal.
And I think it was Lord Whitelaw, Willie Whitelaw, as he was then, told him it had to be cross-party and it did become a cross-party.
Leaving the EU, we haven't moved on from this remainers versus leavers.
This is about we've left, let's get on with it.
And also the other thing, and it should therefore not be party political.
Some of the papers take party political lines.
This should be national.
Also, the other thing in the 70s that was really quite clear was those heavyweights, and they really were heavyweights, Ben, Peter Shaw, etc.
Brian Gould arguing we shouldn't join the EEC, European Economic Community, the day after that referendum in 75, they almost to a person said, well, we're in, we're going to work to make it a success.
We have had the referendum and people haven't moved on.
It's about we've left, we're leaving, let's work together as a country.
We shouldn't, another referendum, I cannot stand this argument for another referendum.
It would be even more divisive than the first.
I think it will probably have a bigger majority to leave, but let's not even need to go there.
Yeah, I mean, I actually agree.
I mean, Diane Abbott said this on question time the other day.
He's saying, be careful what you wish for.
And I thought, well, I've never been in agreement with Diane Abbott before, but here we are.
Yeah, I mean, I think that it'll be indignation at the very least.
But I think that people will be really blooming angry at first.
And also, people forget that in Parliament, Parliament voted overwhelmingly to have the referendum, overwhelmingly to actually acknowledge the result, overwhelmingly to trigger Article 50.
And it was crystal clear in the way it was: we are leaving the European Union.
That's right.
No, ifs and buts.
And Chukker and Numa even had a vote on we should be in the single market, and that was resoundly beaten.
So the direction of travel has taken us to where we are.
So Parliament should actually, rather than actually shooting us ourselves and sort of the foot, whatever analogy you want to use, should actually be learning the lessons of the 70s.
This should be cross-party, and this is about moving on and fulfilling the will of the people and actually recognising the huge potential opportunity for Britain both now and in the future.
Gerald, thank you very much.
Thank you.
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