We need some Brexit optimism and a Norway-style route out of the EU

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Cometh the hour, cometh the man. That man may well be Raghuram Rajan, the former governor of the Reserve Bank of India, who believes that Britain can benefit from being outside the European Union. He sympathises with those who want to break free of its “profoundly undemocratic centralisation of power” and reckons the EU needs to reform.

It may seem odd to be mentioning Rajan’s hugely optimistic comments the day after Theresa May’s second crippling defeat in the House of Commons, and the prospect of more months of uncertainty if there is an extension to Article 50.

But if ever there was need of a little Indian tonic it is now. And we should listen carefully to Rajan’s words, not only because he’s such an outspoken and well-respected economist, but because some say he is being lined up to replace Mark Carney as Governor of the Bank of England.

Rajan’s interview in the The Times earlier this week may well have been a sotto voce application for the job. Who knows, but the former Indian central banker and ex-chief economist at the International Monetary Fund was crystal clear about his view that if the government gets its policy right after Brexit, the future can be brighter beyond our stay with Brussels.

He had his own codicil too: “The big Brexit debate is, can you, in a short span of time, re-engage with the world on equal terms while getting more sovereign powers?” He replied to himself, saying: “I have no doubt that there is a scenario in which that can happen and I have no doubt there are other scenarios where it flops miserably”.

Yet overall, Rajan suggests that going solo is the right path for the UK. Brussels, he says, has been a battleground between “between the community and the market” with the EU siding with the market.

Instead, he says Brussels should be overturning its federalising agenda and relax its strict harmonisation of standards so that countries should set their own rules and companies should adjust their products according to the markets it sells into. Quite. He doesn’t mince his words: “Harmonisation is another form of monopolisation that thwarts innovation. Do you need the same regulations in every locality? So what if they follow slightly different regulations in Italy than in France”.

Rajan is spot on with his observations, and gets to the heart of why the Leave campaign won. Indeed, he argues that Westminster needs to restart the devolution agenda begun under the Coalition. “I don’t think it will be resolved if power goes back to London but doesn’t get diffused to communities. This is as much a cry against London as it is a cry against the EU”.

In other words, you can’t put the genie back in the bottle. The financial markets know that, which is why the pound has been jumping around like a jack in the box over the last 48 hours and why it soared last night after the Prime Minister’s defeat. Traders now predict that leaving with no deal on March 29 has edged closer, and they are surely right. No wonder sterling became the best performing currency on the markets after believing the PM had brought about enough changes to win her vote to one of the worst in a matter of hours after the Attorney General scuppered her chances by saying the legal risk of the UK being tied to EU rules remains unchanged. But they will be hedged, betting on a lower pound if we do leave on March 29 without a deal.

As expected, there was the usual Eyeorish gloom from the CBI, which predictably warned about the dangers of a no deal and called on parliament to extend Article 50. So did the The City UK, the financial services industry trade lobbying group. It claims that a no deal Brexit “would be an own goal of historic proportions” while Dr Adam Marshall, director general of the British Chambers of Commerce, said that the UK is not ready to face the consequences of a “messy and disorderly exit from the EU”.

Yet, our exit does not need to be disorderly, and certainly may not be a disaster. There are other options which could give the UK a graceful way into what even the hardest of Brexiteers, George Eustice MP, describes as a “managed no deal”. This is what’s known as Plan B but I would prefer to call it Plan A and that’s the “Norway style” option of staying in the European Economic Area, the EEA, at least for the transition period until either asking to join Efta or negotiating other future trading agreements with the EU.

It’s a middle way supported by some of the brightest and most thoughtful in the land including Lord Owens, the former defence secretary, and Professor George Yarrow of Hertford College Oxford, and which is now backed by a growing alliance of cross-party MPs who argue either for joining Efta or for a Common Market 2.0 model of EEA plus a customs arrangement. Personally, Norway without pluses or minuses is the best route.

Since we are still contracting members of the EEA, and will remain so after March 29 even if we exit the EU, we can stay until we ask to leave. This gives us time to make it plain that we would like to stay within the EEA until parliament works out whether it wants to remain for the transition only, or for the foreseeable future.

The PM needs persuading there is another way for her to resurrect her deal, unless of course someone else takes over from her. Until then, May should ask Mr Rajan to tea over the next day or so for his view on how to best to exit and be free of Brussels. It would be an excuse to sound him out for the Old Lady’s job: Project Optimism beats Carney’s Project Fear anyday.

Maggie Pagano,
Executive Editor,
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