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Analysis

Exit from single market closes a chapter UK did so much to write

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When Big Ben strikes 11pm on New Year’s Eve, the UK will leave Europe’s single market. It will be a moment of national catharsis — and like in Greek tragedies — a moment when the protagonist’s own triumphs of the past catch up with him.

For the roots of Britain’s rupture with Europe grow from its greatest European victory: the success in imparting to Europe a British and especially Tory economic ideology of eliminating bureaucratic barriers to trade. The single market was to a large extent created by British Conservatives.

“Just think for a moment what a prospect that is,” Margaret Thatcher told an audience of British business leaders at Lancaster House in 1988 when she was prime minister. “A single market without barriers — visible or invisible — giving you direct and unhindered access to the purchasing power of over 300 million of the world’s wealthiest and most prosperous people. Bigger than Japan. Bigger than the United States. On your doorstep. And with the Channel Tunnel to give you direct access to it.”

Thatcher was the political force behind a genuinely unified European market for goods, services, labour and capital; Arthur Cockfield, the Brussels commissioner she appointed in 1985, was its intellectual architect and bureaucratic engineer.

How UK newspapers reported Britain’s entry into the common market in 1973 © Frank Barratt/Hulton/Getty Images

The motivation was plain enough. When Britain belatedly joined what was then known as the European Economic Community in 1973, economic integration mainly took the form of a customs union, known as the bloc’s “common market” in which tariffs between members were eliminated. Those who saw economic benefits for Britain were vindicated, with membership quickly bringing to an end Britain’s long underperformance as economic growth caught up with European peers.

The common market remained, however, riddled with barriers as differing national regulations made cross-border trade costly.

And as soon as he arrived in Brussels in 1985, Cockfield set out to remove them. His white paper on “Completing the internal market”, one of the most consequential documents in EU history, set out a compromise between “harmonised” pan-European rules and “mutual recognition” of national ones. Much as the British might once have wanted a simple system of mutual recognition, Cockfield realised that politically, this would never fly without a foundation of minimum common standards. Where necessary, therefore, common rules relating to the single market would be adopted — by qualified majority of member states rather than unanimous consent, to avoid political deadlock — with national leeway to shape the detailed implementation where possible.

Cockfield was remarkably successful. The 1986 Single European Act allowed single market legislation by qualified majority. Hundreds of legislative measures were then passed at speed, and by the start of 1993 the single market was a reality, and most border controls disappeared. 

The UK began to sour on its own creation, however, even before it came into being.

An anti-euro protester campaigns against the UK adopting the currency in 2003 © Scott Barbour/Getty Images

One irritant was present from the start. For continental leaders, the elimination of capital controls meant only monetary unification could prevent currency instability that would distort trade or jeopardise cross-border investments. As the slogan had it: “One market, one money”. This link was never accepted in Britain. In the long-term this deepened a divergence of interests between the UK and the euro members, which would show up starkly after the global financial crisis and David Cameron’s ill-fated attempt to negotiate new terms for Britain’s EU membership.

But other consequences of the single market were ones the UK had not just accepted, but desired. Yet it soon had second thoughts about them.

Shortly after Lancaster House, Thatcher gave what would become known as the Bruges speech, a foundational text for British Eurosceptics. The European Commission’s ambition for a “social Europe” had woken her up to the danger, as she saw it, that she had “successfully rolled back the frontiers of the state in Britain, only to see them reimposed at a European level with a European superstate exercising a new dominance from Brussels”.

She had woken up to the danger, as she saw it, that she had “successfully rolled back the frontiers of the state in Britain, only to see them reimposed at a European level with a European superstate exercising a new dominance from Brussels”. If that had come to pass it would have been an effect of the very method Thatcher and Cockfield had championed: common rulemaking by (qualified) majority decision. The prime minister who pushed for common rules to remove trade barriers struggled to accept that a majority of others may have different ideas about what the best common rules for free trade ought to be. In parallel, the Labour party warmed to a European integration it had previously spurned. 

Boris Johnson had long supported the single market but was concerned about the role of the European Court of Justice © Carl Court/Getty Images

A further implication of the single market project was the growing role of the European Court of Justice. Where there are common rules, there must logically be a common arbiter of whether the rules have been obeyed. But this increasingly rankled the most vocal British Eurosceptics as offensive to sovereignty. Even for prime minister Boris Johnson, long a supporter of the single market, the ECJ’s final word in interpreting much of the law that regulated the UK economy seems to have been genuinely intolerable.

Then there is the most toxic part of the 2016 referendum campaign. Part of a betrayal myth about the UK’s 1973 accession is that people signed up only to free trade, not to a freedom of movement later imposed by stealth. But the ability to work anywhere in the bloc was part of the EU’s founding credo, as was well understood in the original UK membership debates.

The single market nevertheless made the aspiration of free movement for workers a reality by sweeping away bureaucratic and legal barriers to moving. Then in 2004 countries from eastern Europe joined the EU, championed by the UK, which was also one of few countries to waive a transition period before east Europeans gained full free movement rights. Millions of workers took the opportunity to come. The transformation of Britain’s labour market and demography gave Eurosceptics their most potent issue to campaign on.

It was, in all these ways, a case of willing the end but not the means. British Conservatives managed to liberalise trade across Europe, then discovered what they really wanted was a strict conception of sovereignty. Mr Johnson’s Christmas Eve trade deal gives them that — but at the price of restoring all the trade frictions Thatcher and Cockfield had managed to remove. This might settle the issue if Britain’s self-appointed “natural party of government” has now made up its mind. But with Brexit associated as much with a free-trading global Britain as with a sovereign one, no one can know whether the deal will resolve these tensions permanently.



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Analysis

Iranian TV action thriller delivers warning to Zarif

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It is hardly surprising that Mohammad Javad Zarif, Iran’s foreign minister and nuclear negotiator, is not a fan of Gando, a popular television drama that depicts an incompetent minister who scuppers nuclear talks with world powers by hiring dual nationals who turn out to be spies for MI6.

The series — made by an institute believed to be affiliated to the elite and hardline Revolutionary Guards — “is a lie from the beginning to the end” that “damages foreign policy more than me” by fuelling public mistrust, Zarif said.

By focusing on the nuclear talks, the Guards’ motive goes beyond creating compelling drama, reformist analysts say. Iran is in discussion with western powers about reviving the nuclear deal, a key reformist achievement, and hardliners want to deter the popular foreign minister from declaring his interest in the presidency in what is a crucial election year.

“I’ll be grateful to Gando-makers to let us continue our current job,” Zarif said this month, and commented that he would not run for the presidency.

The possibility of nuclear talks with the US and other powers has complicated an already fraught Iranian political scene ahead of the June election. Many reformists are pinning their hopes on Iran’s top diplomat to reinvigorate the nuclear deal and boost support at the ballot box. Hardliners might prefer to negotiate the deal themselves after the election. The polls are also seen as particularly crucial in case supreme leader Ayatollah Ali Khamenei, 81, dies during the next president’s term.

Pendar Akbari, left, and Ashkan Delavari, right, in a scene from ‘Gando’
Pendar Akbari, left, and Ashkan Delavari, right, in a scene from an episode of ‘Gando’. The series title refers to an Iranian crocodile able to distinguish its friends from its enemies © Bahar Asgari/Shahid Avini Cultural and Artistic Institute via AP

The purpose of Gando, which refers to an Iranian crocodile able to distinguish its friends from its enemies, “is to tell Zarif that should he dare to announce his candidacy, he will be destroyed immediately,” said one reformist analyst. “When the intelligence service of the Guards truly believes in the Gando plot lines, it means even if Zarif decides to defy such warnings, he will not be allowed to run.”

Centrist president Hassan Rouhani is due to step down this year after two terms and it is not yet clear who the presidential candidates will be. Politicians register as late as May and then have to be vetted by the Guardian Council, the hardline constitutional watchdog, which can disqualify nominees. Potential hardline candidates include Mohammad Bagher Ghalibaf, the parliament speaker and a former guards commander; Ebrahim Raisi, the judiciary chief; and Ali Larijani, a former speaker of parliament. On the reformist side, speculation has centred on Es’haq Jahangiri, first vice-president, Hassan Khomeini, a grandson of the founder of the Islamic republic, and Zarif.

A US-educated career diplomat widely respected in the west for his pragmatism, Zarif was instrumental in the historic deal in 2015, under which Iran curbed its nuclear activity in exchange for the lifting of sanctions. But Donald Trump abandoned the accord in 2018, imposed sanctions, including on Zarif, and said he would pursue a new accord to contain Iran’s regional and military policies. The US move emboldened hardliners, confirming to them the untrustworthiness of the US.

Zarif’s background in the US both as a university student and as Iran’s head of mission at the UN — during which he met US politicians including then senator Joe Biden — has long made him a source of suspicion for hardliners.

This wariness of both Zarif and the west is evident to viewers of Gando, as is the heroism of the Revolutionary Guards. Mohammad, the action hero protagonist, warns that western negotiators may sabotage refineries as part of nuclear talks. Mohammad works out of elaborate facilities akin to those in a James Bond film. The fictional foreign minister is advised by a media adviser, the main culprit, “to enter into direct talks with the US and accept the conditions of the leader of the global village”.

Vahid Rahbani in a scene from an episode of ‘Gando’
Vahid Rahbani in a scene from an episode of ‘Gando’. State TV abruptly stopped broadcasting the series that was less than halfway through its 30-episode run © Hassan Hendi/Shahid Avini Cultural and Artistic Institute via AP

The dramatic scenes reflect, in part, the worldview of some of Zarif’s critics. “Reformists, Mr Zarif and his lobby group in Washington [Iranian dual nationals] should be wiped out from Iran’s politics,” said an aide to a senior hardline politician who is a potential presidential candidate. “We have to get rid of this cancerous tumour once for good.”

Gholamali Jafarzadeh, a former conservative member of parliament, said Zarif “is not a good statesman and should not run for president” while “reformists should know that their choices have no chance to be allowed to run”. 

This month, state TV abruptly stopped broadcasting the series that was less than halfway through its 30-episode run. Local media said broadcasts would resume when the presidential race was over. Iran’s centrist president Hassan Rouhani, whose signature achievement is the nuclear deal — alluded to the show on Wednesday and said “people’s money” should not be spent on “fabrication of the truth” and “distortion of facts”.

After three years of sanctions, many voters are disillusioned by the infighting and the prospect of real change, whatever the outcome of the election. “Whether Zarif or a figure more senior than him runs or not, I’m not going to vote,” said Hamid, a 40-year-old engineer. “Let the Guards win the election as they are the ones who are running the country anyway. Why shall I make a fool of myself?” 



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Analysis

Rising inflation complicates Brazil’s Covid-19 crisis

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After seven months in lockdown, Michele Marques received some unwelcome news when she returned to work: while she was away the prices of almost all the products she uses as a hairdresser had soared.

“A box of gloves rose 200 per cent. Colouring products increased at least 100 per cent,” said the 37-year-old from São Paulo, underlining how costs were rising while her revenue had collapsed. “I had to raise the price of my services, too.”

It is a dynamic that is playing out across Brazil, adding an extra layer of complexity to the country’s coronavirus crisis, which has already claimed the lives of almost 350,000 individuals and pushed hospital services to the brink.

With much of Latin America’s largest economy being shuttered, inflation is surging to its highest level in years, fuelling a silent scourge of hunger among poorer citizens that has run in parallel to the Covid-19 pandemic.

“The high price of staple foods — rice and beans, for example — has led to the disappearance of these items from the table of millions of Brazilians,” said Ana Maria Segall, a researcher at the Brazilian Research Network on Food and Nutritional Sovereignty and Security. In the 12 months to the end of March, the price of rice increased 64 per cent and black beans 51 per cent.

“In Brazil currently food inflation has penalised the very poorest, preventing them from having adequate access to food and in many situations leading to hunger,” she said, adding that rising unemployment and the curtailment of social programmes were also contributing factors.

Volunteers hand out food in São Paulo © Alexandre Schneider/Getty Images

Less than half of Brazil’s population of 212m now has access to adequate food all the time, with 19m people, or 9 per cent of its inhabitants, facing hunger, according to a recent report by Segall’s group.

“I’m doing some odd jobs, but it’s not enough to keep us going,” said Jonathan, a 28-year-old who lost his job in the kitchen of a Chinese restaurant in São Paulo when the pandemic began. He said he now struggles to provide enough food for his three young children and pregnant wife.

On a 12-month basis, inflation in June is expected to surpass 8 per cent, far above earlier estimates. In the 12 months to March, food prices jumped 18.5 per cent, while the price of agricultural commodities in local currency surged 55 per cent and the cost of fuel increased almost 92 per cent.

Line chart of Percentage increase over past 12 months showing The price of rice in Brazil is soaring

The developments pose a fresh challenge to President Jair Bolsonaro, who is already under fire for his handling of the Covid-19 pandemic. Across Brazil’s biggest cities, graffiti has sprung up labelling the populist leader “Bolsocaro” — a portmanteau of his name and the Portuguese word for expensive.

The rising prices are also likely to provide useful ammunition to leftist former president Luiz Inácio Lula da Silva, who returned to the political fray last month and may challenge Bolsonaro in elections next year.

“Bolsonaro is to blame for the increase in food prices, he is to blame for everything. They have to remove this guy,” said Maria Izabel de Jesus, a retiree from São Paulo.

Armando Castelar, a researcher at the Brazilian Institute of Economics, said the government had underestimated inflation both in terms of the numbers and also “how much a concern it should be”.

He attributed the rising prices to the devaluation of the Brazilian currency, triggered in part by the stimulus packages passed by the US government — which helped to bolster the dollar and led to higher Treasury yields — and the brighter economic outlook outside Latin America.

“You have a situation where commodity prices are going up because the global economy is going to grow a lot this year. With the growth in the US, interest rates are going up and the dollar is strengthening. This puts a lot of pressure on the exchange rate in Brazil and emerging markets in general,” he said.

As the spectre of inflation loomed last month, the Brazilian central bank raised its key interest rate by 75 basis points, higher than the half-percentage point many economists had expected. A further rate rise is expected next month.

“The central bank acted correctly, but it cannot stop there. It is important not to be too lenient in dealing with this,” said Castelar.

Silvia Matos, a co-ordinator at the Brazilian Economy Institute, also pointed to Brazil’s weakening currency as a contributing factor to inflation. But she said the slide in the real was triggered by investor concerns over Brazil’s deteriorating public finances.

Following the creation of two separate stimulus packages to mitigate the impact of Covid-19, government debt has risen to about 90 per cent of gross domestic product, a high level for an emerging market economy.

The rollout of the second of these packages began this month, with 45m Brazilians set to receive $50 a month for four months.

Critics said, however, these stipends were not nearly enough to keep people both fed and at home in lockdown.

“It is essential that the emergency aid is of a greater value, so that people do not leave the house but no one also stays at home starving,” said Marcelo Freixo, a federal lawmaker with the leftwing PSOL party.

“We need to reduce the circulation of the disease. Brazil is already experiencing 4,000 deaths per day. We will reach 500,000 total deaths by the middle of the year.”

Matos says that inflation had hit poorer citizens much harder than middle-class and rich Brazilians because a larger portion of their income was dedicated to food, the price of which has increased substantially.

“The only thing that could help right now is to get out of this pandemic,” she said.

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Can CVC pull off a $20bn ‘deal of the century’ at Toshiba?

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Proposed management buyout looks like an improbable win for the Japanese conglomerate’s embattled CEO



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