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three years of haggling over fish

Kitty Miv, Editor
25 April, 2016

Kitty's Country Rankings are below, with a description of how they are compiled. This week, as every week, I give out Encomiums to countries which have done Good Things, and award Execrations for countries which according to my highly personal and partial views have done Bad Things.

After having considered both sides of the Brexit debate, I've come to the rather depressing conclusion that the United Kingdom is in a no-win situation.

I agree with those campaigning for Brexit that the Remain campaign is preying on voters' fears about the economic impact of Britain leaving the EU. I also agree that most of these doomy scenarios are based on highly questionable economic assumptions, including those on tax and spending.

Yet, I simply can't see how Brexit won't have negative repercussions for the British economy, at least in the short-term. It's just that we don't know what those ramifications will be (although we can have a good guess: tanking pound, financial turmoil, plummeting foreign investment, etc.), or how severe they will be and how long they will last. I think the "out" campaigners are being disingenuous to suggest otherwise. I certainly can't accept the notion that once detached from the EU, the UK will happily set sail into the sunset towards some North Atlantic utopia of self-rule to the strains of Rule Britannia.

There is no precedent for a country leaving the EU, so there would be hardly any rules for the negotiators to follow if Britain votes out, apart from Article 50 of the Lisbon Treaty, which is vague at best (probably because its authors thought it would never happen). But as "ever-closer union" has drawn the UK deeper and deeper into the European project, its laws and regulations are now tightly bound with those of the EU. Unravelling them, and reaching a divorce settlement that is acceptable to both sides, isn't going to happen overnight (the EU is a large family with 27 other members, plus the Commission, and the European Parliament).

There is a sort of precedent for a country exit. It involves Greenland, which joined the then-European Community as a part of Denmark in 1972, but left in the mid-1980s after a dispute over fishing rights. Following Greenland's referendum in 1982, the treaty allowing it to cede from the EC wasn't finalized until 1985. That's three years of haggling over fish. As the world's sixth-biggest economy, the UK has an almost infinitely more complex legal and economic relationship with the EU. So the idea that it's going to make a clean break after two years of negotiations, as some believe, is fanciful at best. I've heard some legal experts say the process could take a decade to complete. That's 10 years of companies in the UK not really knowing what the rules are going to be. That is, if there are any large companies left by then.

On the other hand, I also perfectly understand the reasons why some British people want shot of the EU. Because, for an institution that preaches democracy and tolerance, it's become fundamentally undemocratic and unwilling to budge on some matters. As the aforementioned phrase "ever-closer union," which is enshrined in the EU Treaty, implies, national sovereignty will inexorably continue to be subsumed by an unelected Brussels elite, so the situation is only going to get worse. The tragedy is, some key EU figures do know the machinery is flawed. Commission President Jean Claude Juncker acknowledged recently that the EU tends to "interfere" too much in people's lives, which is why it is falling in the public's estimation. But from my viewpoint, the EU seems incapable of change. For sure, nothing will change if the UK votes to stay in. Brussels will see that as proof positive that everyone is happy, and everything is hunky-dory. So you could say that the UK quite literally finds itself between the devil and the deep blue sea.

Things could be worse for the UK. It could switch to the dreaded "Norwegian arrangement." This would leave it in the European Economic Area, but deprive it of the voice it has now at the EU's top table. What's more, because it would benefit from privileged access to the single market, it would be forced to accept most of the regulations it is now railing against. And to cap it off, it would have to pay handsomely to do so.

Still, the Norwegians don't seem to mind paying through the nose for things, so long as they see a return on their money. Indeed, if there's one thing that the Nordic governments in general excel at, it's taxing people. The tradeoff is that the Government provides its citizens a comprehensive cradle-to-grave welfare state and first-class infrastructure, or so we are led to believe. It's an economic model, as the Scandinavians like to call it, that is anathema to people in some other countries. Especially the more laissez-faire ones like the United States; too much government, not enough individual freedom and responsibility, those on the right would say. Bernie Sanders isn't one of them, of course. He thinks America should be more like Denmark, and less like, well, America, where the onus is on the individual to provide for themselves. I'd lay a bet though that the majority of Danes, Swedes, Finns, and Norwegians wouldn't swap their system with the American one for all the herring in the Baltic.

To continue this Scandinavian theme, I jokingly proposed when considering the Panama Papers episode in last week's entry that we all follow the Norwegian way, and make available our tax returns to be scrutinized by all and sundry in order to put a stop to tax avoidance. However, it turns out that total tax transparency is not the goal after all, at least as far as some governments are concerned. France, for instance, has refused to comment on allegations that it has billed McDonalds EUR300m (USD340m) in back taxes citing "tax secrecy." What it really means is, tax cases, as in most places, are confidential. And so they should be. But it does smack of double standards. France is one of five countries to soon begin sharing beneficial ownership data. Yet is uses confidentiality rules to duck awkward questions. What's the French Government got to hide I wonder?


Kitty's Encomiums and Execrations

Methodology: each week (this is the 147th) one or more countries are given encomiums and one or more are given execrations. Those are the entries below with descriptive links. In the following week, each encomium counts as + 1 for that country, and each execration counts as – 1, being added to that country's existing score. Over time, therefore, a ranking will build up for each country, and further countries will join the listing. Germany is at minus 2, since in the second week it had an execration and in the first week it had an encomium, leaving it at neutral; then it had an execration in week four, thus dropping to – 1, and another one in week six, dropping to – 2; finally in week 13 it got something right, so it went back up to – 1; then in week 16 it gained a further star, so then it was in neutral territory until week 23 when it dropped back to minus one, but reverting to neutral territory in the following week, then dropping to minus one in week 50, and back up to plus one in week 51, then to plus two in week 52. Some weeks ago it dropped a place, but then quickly recovered one step. Etc etc.

The rankings are intended to be a proxy for business friendliness; evidently they are highly partisan, but as time goes by they are becoming useful for decision-making. For any country in negative territory, you should think carefully before starting a business there.

Kitty's Execrations

United Kingdom between a rock and a hard place

France double standards




About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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