Why opt out of the EU? Because Britain's interests are more important than Une certaine ide de l'Europe, Bernard Connolly tells Merryn Somerset Webb.
I've met a lot of people recently who say they aren't much bothered about the EU referendum. In. Out. They can't see that the vote whichever way it goes will make much difference beyond the short term. They should meet Bernard Connolly: on this subject, the author of The Rotten Heart of Europe has enough to go around.
I ask him: what's wrong with Europe and why should we leave? "The EU is explicitly anti-democratic; it aims at eliminating the rule of law"; it is a "crony capitalist state" that will soon transmute into a "bureaucratic socialist state", he says. "It is oppressive. It is hypocritical. It has inflicted enormous misery on all its subject countries, most obviously through monetary union" and it pushes constantly for people to give up "their sovereignty, democracy, legitimacy, freedom".
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How, I ask, can it be explicitly anti-democratic, given that we all get to vote for MEPs to sit in the European Parliament? Paper democracy and real democracy are different things, says Connolly.
"Stalin's Soviet constitution of 1938 was the most perfectly democratic ever devised on paper." But it was a "nomenklatura" the Soviet Union was actually an empire run by a group of Communist party members who held all the key positions. The EU is effectively run by a "nomenklatura consisting of politicians, but even more so of bureaucrats, of bankers, of a certain number of academics, of media people".
It's Davos man with imperial ambition and power, power exercised through the European Council and the Council of the EU, neither of which "have any democratic legitimacy".
That matters because it creates social tensions. If you eliminate people's sense of national identity, they look for something else to belong to something ethnic, racial, religious or linguistic. If you can't define yourself positively as, say, Swedish then perhaps you define yourself by what you are not, instead. "That I'm not a Somali. I'm not a Muslim. I'm not white. I'm not Christian. And one can see it, one can feel it, it is happening in front of our eyes."
OK. What about the idea that the EU is against the rule of law? If there is one thing the EU is good at, surely, it is laws: it makes an awful lot of them. "Making laws and the rule of law are not quite the same thing," says Connolly. Who is supposed to uphold the rule of law in the EU? "Well, it's the European Court of Justice, so called. Which has quite explicitly said that what matters is not international law, is not domestic law, it's not constitutions. It's not even natural law. What matters is the attempt to advance Une certaine ide de l'Europe. A certain idea of Europe, decided by themselves."
Doesn't sound good does it? But still, what of the economy? An awful lot of Britons appear to be happy to trade sovereignty for the perception of economic security. Just how much risk is there in leaving? The main risk, says Connolly, is that of "ludicrous exaggeration".
The claim that three million jobs would be at risk on Brexit is about as "Goebbels like" as it gets. "The more measured estimates of the economic impact of withdrawal, such as that from Open Europe, for instance, which is a highly respected research organisation, put it in the range of plus or minus 1% of GDP. Which is well within the margin of statistical error."
There would obviously be uncertainty. But "there's uncertainty about any event which doesn't have an outcome known in advance" and that's clearly been reflected in the weakness of sterling. That said, as sterling has weakened this year, so the UK stockmarket has outperformed. "Now what is that saying to us? Well, I think it's saying that sterling was overvalued and it's a jolly good thing that it's come off."
The idea that Brexit would come with a cheap pound doesn't seem to be doing it for the UK's big exporters, I say. They seem to be mostly keen to stay in the EU. Well, they would be, wouldn't they, says Connolly (I'm paraphrasing here). The power of their lobbyists inside the EU means they can make it work for them very nicely. "Build a better mousetrap and the world will beat a path to your door. Unless the maker of the existing mark-one mousetrap has enough political clout to stop you doing it.
And that, I think, is what the lobbying, the political influence, the influence of the big Wall Street banks is doing there's a kind of crony capitalism: go to these tech conferences and you are absolutely blown away by the marvellous things that are happening. There's a golden age of scientific and technological advance. Why don't we see it in the numbers?" Because of "the ability of existing entrants to block off new competition".
Think back, says Connolly, to the first half of the 17th century. "It was an innovative time, but also one in which the early Stuarts, loath to trust parliament, were keen to rule without it. This meant they needed to raise money outside it. They did that with the sale of monopolies anything you wanted to manufacture you had to apply to the crown for the monopoly right to do so: the early Stuarts are actually a very good analogy for the European Union."
Sure, the EU isn't quite so explicit, but the way companies operate within it adds up to a variant on the same thing. So smaller, newer companies might benefit from the UK leaving the EU? Possibly.
"First of all, there would be fewer obstacles to their challenging the existing entrants. But I think the other way in which they'd find it advantageous is this: Britain exports a bit less than 30% of its GDP. Around 40% of that goes to the EU. That's 12% of GDP affected by the single market, for better or for worse, and 88% of the economy that isn't. But 100% of the economy has to abide by EU regulations. And so there would be a significant freeing of the major part of the economy." The other 12% is where the problem might come. "There are indications that our European partners might adopt a vindictive approach to Britain if we leave."
Christian Noyer, a former vice-president of the European Central Bank, suggested that if Britain were to leave the EU, the EU would not allow euro-dollar trading to be concentrated in London. Why not? Well, because if there were a financial crisis, the British authorities would look to their national interest rather than to the interests of the euro area.
"Now think about that. Euro-dollar. First of all there are two currencies involved. Is Britain part of the United States of America? Of course it isn't. Do the Americans say: Oh my goodness, you can't trade euro-dollar in London because you're not subject to our rules?" The final logic to that would be that "there is no currency trading at all anywhere". And second, the UK should be able to look to its own interests first!
There will be another financial crisis (Connolly is expecting it very soon). If the UK is in the EU when it comes, it "will not be allowed to pursue its own national interest the interests of the country which has the largest international financial sector in the world. It would be required to do whatever is required, whatever is needed to advance, again, Une certaine ide de l'Europe. And that is not our idea of how the world ought to be organised."
Can the EU survive, I ask, regardless of whether we are in or out? "As an "anti-democratic, illegitimate empire", sure, says Connolly. It can't keep going as it is right now the migration crisis is just one thing showing that a "halfway house between national legitimacy and national independence and a polity which covers the whole of Europe" doesn't work.
The problem, of course, is that the countries in the EU will keep being pushed to be more of a full political entity, something that will inevitably be "an anarcho-imperial entity" that requires Germany to transfer a good 10% of her GDP south every year. Connolly's final word on the matter: "the EU will survive, but in a form which no one in their right mind would want to be part of".
The unedited version of this interview contains more material on Brexit and also Bernard's views on the state of the UK economy and how we should invest (buy gold and bonds). I urge you to watch the videos or read the transcript here.
Fact file: Bernard Connolly
Oxford-educated economist Bernard Connolly made headlines when he lost his job at the European Commission in 1995, after writing The Rotten Heart of Europe: The Dirty War for Europe's Money.
The book (reissued in 2013 by Faber & Faber, price £14.99) attacked the European Exchange-Rate Mechanism (the euro's precursor), arguing it was part of a plan to force a greater degree of political and economic integration than popular opinion would support.
The Times's Anatole Kaletsky called the book "the most intellectually persuasive, economically coherent and politically prescient account yet published of the development of European institutions in the 1990s". In 2001, Connolly received the Frde Jakobsen prize, awarded in Denmark for "outstanding moral courage in public affairs".
Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).
After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times
Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.
Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.
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