Dan Hannan: what we need from Europe is free trade, not a common government

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Merryn: Hello, I'm Merryn Somerset Webb, editor-in-chief of MoneyWeek. I'm here today with Daniel Hannan, MEP and author of How We Invented Freedom and Why it Matters. Today we're going to talk about a few things, but we're going to start off with a little chat about 'Brexit'. Now, one of the things I wanted to ask you today Dan, was exactly how you see Europe developing. Let's say we stay in Europe and nothing changes, there is no huge reform; what does it look like in 20 years?

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Daniel: Well, listen to what the leaders of it are saying , they're very clear that they want more integration, they want common taxes; they want a common foreign policy; a common army; a common police force. They're not being coy about this, they're spelling it out in the clearest possible terms. And so the option of staying in and staying where we are doesn't exist. It's a bit like when you're on a bus, you can literally stay still but then you stay on the bus. And on the front of the bus it tells you that you're heading for a United States of Europe because, as I say, they're being very explicit about this.

Merryn: Although there has been some pull back recently?

Daniel: News has been slow to reach Brussels if there has been any pullback. The president of France, just two weeks ago, said, either you leave the EU or you accept a political union. And that was very honest of him. The leader of the biggest group in the European Parliament, the day before we conducted this interview, said, we're moving to a European army quicker than anybody has realised. So the idea that the status quo can be achieved by staying in, I just don't think is right. You have to step off the bus to stay put and we know the people on the bus well, these are our friends and allies in all circumstances. So obviously we're going to want a good, amicable relationship based on open markets, and a military alliance and all the rest of it. But we shouldn't have to surrender our own legal supremacy to do that.

Merryn: OK, so your main concern about our staying on this bus, is our sovereignty?

Daniel: Yes, or our democracy, if you prefer. The right to hire and fire the people who pass our laws, we fought a civil war in this country to establish that principle. We exported all over the world this sublime idea that laws shouldn't be passed, taxes shouldn't be raised, except by our own elected representatives. Our parents defended that right with force of arms. It says little good about us if we toss it away in peace time without a shot being fired in anger.

Merryn: OK, now let's say that the bus keeps moving but it doesn't go to exactly where it is planned to go at the moment. Let's say there is massive EU reform. What are the major reforms that you think would make it reasonable for us to stay inside the EU?

Daniel: I'd say three things. First UK law should be supreme on our own territory.

Merryn: Now, could I just stop you there on that one? I understand that that is possible without treaty changes isn't it?

Daniel: It would be a change in the 1972 European Communities Act. And yes, I mean, it would mean that effectively the European Court's rulings and the European's Commission's decisions came into effect in this country only following implementing decision by our own parliament. In other words it would bring the Treaty of Rome into line with every other treaty in the world. So I think that's the first one.

Freedom to trade. The EU is collapsing as a share of the world economy and our exports to the EU are collapsing as a share of our total exports. But we gave away 100% of our trade policy to the European Commission on 1 January 1973 when we joined. So we can't sign a free trade agreement with China or Australia, or India. That's a huge issue and an increasingly huge issue as the EU continues to shrink as a share of the world economy. So, we don't sit on great natural resources in this damp, green, beautiful island home of ours. We have to make our way by what we buy and sell and that means we have to be where the customers are. With every year that passes there are fewer and fewer customers in Europe. We're the only country in Europe that sells more outside the EU than to it and, even as we conduct this interview, that discrepancy is growing because it's happening so quickly.

And then the third thing I would say is opting out of the non-economic, non-market bits of membership. You won't find any British Eurosceptic, or very few, I've yet to meet one, who is against the common market, right? There is a common market that stretches right across Europe from Iceland to Turkey, has maybe 45 participants, you don't have to be part of a political union to be part of that. Norway does it, Macedonia does it, Turkey does it, the Channel Islands ...

Merryn: Yes, but this is just the trade union that... sorry... the free trade area that everyone thought they were signing up to in the beginning.

Daniel: Nobody is talking about withdrawing from that but that doesn't mean that you have to accept common policies on agriculture, fisheries, foreign affairs, defence, immigration, justice and home affairs, employment, social policy, the environment. So if we can get those changes I would gladly support it. But frankly, it's pretty clear that the only way to get those changes is to vote to leave and then negotiate some kind of associate status.

Merryn: But all those changes really would just bring us back to being a free trade area inside Europe?

Daniel: Something along the lines of what the Swiss are doing now and you know what, I can't help noticing that they're managing pretty well. Richest country in the world, the UN says they're the best place in the world to be born, second only to Norway, spot the connection there. I think some miserable half-life is plainly possible in the shadows out there outside the EU.

Merryn: OK, but you clearly don't think these reforms are going to happen? There is no way that we can negotiate a position with Europe that takes us back to that?

Daniel: There is a way that it could happen, I think they are on offer but for whatever reason the British government, British officials and ministers don't want to ask for them. Which is fine, they've never pretended that they were going to, I mean, they've got every right to push for whatever deal they want. I think we will get them... we will get that kind of a deal, that trade based deal free market, not common government, after we leave.

Merryn: And do you think we will vote to leave?

Daniel: I have no way of knowing that. That's the beautiful thing about referendums; they remind us politicians that we work for everybody else. Anybody that tells you now, with Olympian certainty, which way that referendum is going to go, is deceiving you or deluding himself, or herself.

Merryn: OK, moving away from the UK for a moment. Europe as it stands now, whether we're in it or out of it, is it sustainable?

Daniel: Well, it's sustainable; it's just not really going anywhere. If you...

Merryn: Is it sustainable when the last couple of years have shown us that having a common monetary policy without a common fiscal policy doesn't work, we know this.

We also know that there are large protest groups in pretty much every country in Europe against the idea of a fiscal and political union.

Daniel: There's a deal of ruin in a nation or a union, as Adam Smith nearly said. We all said that the Soviet system couldn't work, and we were right, right? But it took quite a long time for it not to work. The EU can survive in the sense that if it's prepared to pay a high enough price it will keep the single currency together, it will keep the Schengen zone together. But is that a success if it means that it's falling further and further behind every other region on the planet? I wouldn't say so.

Merryn: Is there a possibility that the current migration crisis, refugee crisis, will change the way people are allowed to move around Europe? And that may be part of the beginning of the end? Without free movement of people you are running into some trouble.

Daniel: It's a good question. I mean, there were two great pillars of integration, one was the monetary union, and the other was the border-free zone, the Schengen deal, OK? Both of them have turned out to be fair-weather schemes. Both of them collapsed the moment that the bad weather came. Monetary union was supposed to make its participating countries much richer. We were told at the start it would add one percent of GDP to the economy of every participating country, every year in perpetuity. Well, yes, how did that work out, right?

And then the Schengen zone, the free movement area was supposed to make us all get on much better. I think it is hard to dispute that it is stoking rather than soothing, national antagonisms in Europe. So where we had these two pillars that were supposed to sustain the thing, now we have two vast and trunkless legs of stone stand in the desert. So infer from it...

Merryn: So, without these two things, what is the European Union?

Daniel: Well, I would say extrapolate from what we can see? We were told that these would be such huge successes. They've turned out to make people more quarrelsome and poorer. Why do we now want to remain part of this union? Or, put it another way, stand back and ask it like this if we were not now in the EU, if our parents had had the sense to negotiate what the Swiss did, or the Norwegians, a free trade, or the Channel Islands, a free trade only deal, would any mainstream party in Britain now seriously be arguing that we should join it? No, you only have to put the question. So what's holding us in? It's what Nelson Friedman called tyranny of the status quo. A corpus of interests has grown up around the established dispensation. There are all sorts of people who are benefiting personally from the EU, not just as eurocrats, but as NGOs, charities, big corporations that have lobbied to get the rule that suit them and hurt their rivals. That's where the real strength of the pro EU campaign is. It's people who have direct vested interests in it.

Merryn: OK, well, let's accept that because I entirely agree with you, these things are held up by vested interest. But nonetheless, if you pull out of something that has so many vested interests built into it, you have a pretty ropey transition phase. Not to say that everything won't be fine in a decade but once you pull out of something like that, the transition phase has got to be nasty, right? There has to be pain in leaving somewhere?

Daniel: I'm not sure that's right, I mean, of course, there is some pain and some gain in everything we do. Every choice we make in life and there is a lot of pain in staying in. But actually a lot of the institutional deals, the, sort of, reciprocal movement of people and so on, I... actually that would change less than people imagine... be my guest.

Think about this, when Ireland, or the bulk of Ireland, broke away from the UK, that was not an amicable process, far from it. It didn't come about as a result of a democratic referendum; it came about as the result of a bloody insurrection that was then followed by nasty civil wars on both sides of the border. And yet, here we are, nearly 100 years on; we still have a common free movement zone, common social security claims, common voting rights because it didn't suit either party to unpick that deal. It was much easier to leave the bulk of things in place bilaterally. And I suspect that it would be very similar.

Now the idea that the day after we leave we're going to start chasing every Polish barmaid out of London or that the Brits will all leave Spain, I mean, no one actually thinks that . That is a fantasy that will exist in the press releases of the remain in campaign, but no one really believes it.

Merryn: This is what the Scottish referendum campaign has said as well. You can vote out and nothing will change.

Daniel: Well, do you know, I didn't get involved in that because I didn't have a vote. But my strong sense at the time, and since, is that if Scotland had voted to leave, it would have kept the pound. It would have kept its EU membership because these things are not negotiated on the basis of spite or resentments. They're negotiated on the basis of present and future interest.

The EU is selling much more to the UK than it buys from the UK. We're running massive trade deficit with the EU, which we partially offset by our surplus with the rest of the world. But, nonetheless, here you are the editor of this magazine; I don't need to tell you, of all people, it's not normal in any commercial transaction for the salesman to bully the customer. Ultimately it's the customer who has the upper hand and the customer here is us.

Merryn: OK, so as far as you can see we're pretty safe to leave. We'll lose very little and we'll regain our democracy?

Daniel: Let's look at exactly what we will lose and what we will gain. It is true that we will lose our minority voice in the framing of future regulations; I accept that, in the way that Switzerland doesn't have it now, OK? Look at the flip side, Switzerland has to obey EU standards only when it sells to the EU, in the same way that it has to meet Japanese regulations when it sells to Japan or Korea... and when it sells to Korea. That would be our situation; so yes, we wouldn't have our say over the banking rules on the continent, but they wouldn't apply to us. We wouldn't have these malevolent rules that are aimed often viciously at the city of London; we'd be able to opt out of them all. And I think we would be able to do pretty well.

I mean, Switzerland exports four and a half times as much per capita to the EU from outside as we do. And as I say, they're doing pretty well. Are we really supposed to believe that if little Switzerland with, what, eight million people; Norway with five million people; Iceland with 330,000. That if these countries relying on free trade arrangements are able to furnish their people with the highest standard of living in the world... This country 64 million, trading maritime nation connected to every continent and archipelago. The most widely spoken language in the world, fifth largest economy, the fourth largest military budget, one of five permanent seat holders in the UN Security Council that we wouldn't be able to make a go of things trading with our friends and allies on the continent, but living under our own laws.

Merryn: Thank you Dan.

Daniel: Thank you.