For months, as negotiations on the UK’s relationship with the European Union have become increasingly fraught, our political classes have assumed – asserted even – that the upcoming referendum will be held in the middle of this year.
I’ve never been convinced. I’m not saying an early vote won’t happen, but I do think there’s a high probability this near-ubiquitous mid-2016 assumption will be proved wrong. And that has significant implications, of course, for investment and our broader economy.
David Cameron is legally obliged to give the UK electorate its first say on our relationship with Europe in over 40 years by the end of 2017 – almost two years away. It strikes me this EU referendum could end up being held far closer to this hard deadline than is commonly understood.
Yes, I know Downing Street wants an early plebiscite, and that the spin-doctors are punting June 2016 like crazy. That’s because getting the vote over with sooner rather than later is seen to offer the best chance of the UK voting to stay in the EU – which, unfortunately, is the Prime Minister’s stated aim.
I say “unfortunately” not because I’m an “outer”. I’m not. I may well vote out – and, having long been skeptical of the lack of democracy and scourge of bureaucracy in Brussels, plus the grave macroeconomic dangers posed by the euro, that’s the way I’m leaning. But my final decision depends on the outcome of Cameron’s negotiations with Europe. As such, it would have been far better for Britain had the Prime Minister remained on the fence, rather than declaring his preference to stay in so early. A good deal can only be achieved if you can credibly claim, until the final moment, that you’re prepared to walk away.
For those who want the UK to stay in the EU, or are neutral, it clearly makes sense to hold the referendum early. French Presidential elections scheduled for April and May 2017, and the German Parliamentary ballot due a few months later, will complicate any UK vote on Europe held around the same time. Governments in Berlin or Paris will be in no mood, after all, to give London concessions while facing their own electorates. French and German politicians, in the heat of domestic campaigning, could even engage in anti-UK rhetoric, encouraging wavering Brits to reject membership of the EU.
Cameron himself could also be less popular next year than now, given the increasing severity of upcoming spending cuts, as well as the usual “mid-term blues”, making a “No vote” more likely. And the more the referendum is delayed, the longer the period of uncertainty about the UK’s future status – uncertainty which, it must be said, will hamper investment, not least from abroad, undermining the UK’s broader recovery.
So, for Downing Street, an early vote is overwhelmingly preferable. The trouble is, though, that no negotiation is going to look real, and hard-fought, unless it goes to the wire. That’s a major reason why, in my view, Cameron’s haggling with his EU counterparts will drag on, delaying a mid-June vote. It strikes me that the political stakes are simply too high, and the issues involved too important, for these negotiations not to continue right up to the very last minute.
The Prime Minister can try claiming over the coming weeks that he’s done his best, bargained hard with rival EU governments, and now we must proceed to a vote in June. But if there’s still 18 months before the legal deadline, he could be met with widespread incredulity – especially if a realization takes hold across the general public that the main reason he’s pushing for an early vote is to get the result he wants. Under those circumstances, a mid-June referendum would look like a political stitch-up.
On the surface, the great Brexit debate stepped up a gear last week. The publication of the draft EU referendum ballot paper was a symbolic moment. Voters will decide between two options: Should the UK “Remain a member of the European Union” or “Leave the European Union”. In addition, Mark Carney weighed in. A vote to leave the EU could expose Britain to more financial instability, higher interest rates and capital flight, the Bank of England Governor warned. The UK cannot depend on “the kindness of strangers” to fund our deficit, he said, highlighting our yawning external deficit account.
The UK, as this column has often pointed out, has a vast excess of imports over exports, equivalent to almost 5pc of national income – a peace-time record. In recent months, speculation about Britain leaving the EU has put huge pressure on sterling, bringing that trade shortfall into focus.
Since mid-November, as Brexit has loomed into view, the pound has fallen over 7pc on a trade-weighted basis. While barely commented upon, we haven’t seen such a sharp depreciation for almost 20 years. In some ways, weaker sterling is helpful, making our exports more competitive. The danger is, though, that concerns over the size of our external deficit crystallize, turning a gradual fall into a rout – which could drive a spike in prices and interest rates.
My view is that, while our external deficit is worrying, its very existence – derived as it is in part from our large deficit with the rest of the EU – is a reason not to fear Brexit. Over the last 15 years, UK imports of EU goods have grown, on average, by 4.9pc a year, generating a stonking £77bn deficit. Yes, if we leave, there will be jutting chins and macho political posturing from the continent. But powerful French and German car producers and Italian furniture makers won’t accept anything less than free trade with a non-EU Britain. They simply have too much to lose.
Some 41pc of the British electorate want to remain in the EU, while 42pc want to leave, the latest polls suggest. “Business leaders” in large companies largely want to stay in, with opinions more evenly matched among the more numerous small- and medium-sized firms.
That’s the backdrop – the clock ticking, an electorate spilt – against which David Cameron is trying to conduct his make-or-break negotiation. And last week the Prime Minister made “a last-ditch appeal” to Jean-Claude Juncker, the European Commission President whose appointment he once tried to block, to help break the negotiation deadlock.
Yet Cameron’s claim to be “fighting hard for Britain” may not be believed when there’s another 18 months or so to go before he has to call the referendum. British officials argue to their EU counterparts, meanwhile, that unless the UK gets concessions very soon – and, crucially, by the European leaders’ summit on February 18-19 – then all hope of a quick referendum is gone. That then raises the prospect of talks dragging into the summer, when a new wave of migrants will hit Europe’s shores, turning more British voters away from the EU.
While that’s true, migration will anyway loom large in this EU debate, whenever it is held. Since the beginning of 2016, an estimated 45,361 migrants and refugees have arrived in Greece by sea – 30-times more than in January 2015. This migration crisis is escalating, in a manner that has little regard for the seasons.
“Getting the right deal with Europe is more important than getting a quick deal,” said Philip Hammond last week. Was the Foreign Secretary trying to feign indifference to his EU counterparts? Or was the government actually signaling that a mid-June referendum is now unlikely?