Mervyn King, the former governor of Britain’s central bank, has attacked the UK government failing to have put in place a credible fallback plan if Brexit talks end with no deal, and warned that it might now be too late.
So much time has been wasted, the economist said, that he doubted that the European Union nation states would make any concessions to the UK at this point.
Speaking at a Citi investment conference in Sydney yesterday via video link, the former bank of England chief said the big problem facing the UK is that Theresa May’s government doesn’t seem to have a clear strategy.
Further, King said he is concerned the government is placing too much weight on negotiating a transition plan when it isn’t clear what it would transition to.
“It is more of a kick-the-can-down-the-road plan to put things off for a period,’’ he said.
“I can’t see the economic or political advantage either to the country or the government of going down that road.”
Worse, the former BoE head sees no obvious reason to expect any change in the next few months.
During the conference, he took the British government to task for failing to publicly spell out a clear fallback plan.
“We need to get on with it,” he told the conference.
King further slammed the Chancellor of the Exchequer for saying he was not prepared to spend any money developing a fallback plan until the very last moment.
“Well, I think is a strange position to take and said the government’s first priority should be to focus on a credible fallback plan that makes it clear to every other member country in the EU that we are capable of leaving in 2019.”
King pushed the point that if you're going to enter a negotiation, it's very important to make sure the other side knows you have a fallback position that you're capable of delivering.
“In any negotiation, if you want to persuade the other side to take the negotiations seriously you have to have an alternative fallback plan that you intend to implement if the negotiation does not produce something that you find acceptable.
“Otherwise UK will find as we approach 2019 that the time to put in place a fall back plan has run out and the UK will have little choice to give in to the position taken by the other side of the table.”
Intereestingly, King said it is possible that some of the leaders of the EU nation states will take pity on the UK and for political reason might be willing to make some concessions.
“But I don’t see why the other side would make concessions at this point except simply out of the goodness of their own heart,’’ he argued.
“It’s not very sensible for the UK to allow itself to be put in that position.
“At this stage it seems to me that the other members of the EU have very little incentive to make serious concessions to the UK for a number of reasons.”
The first reason, he went on to say, is that Brexit is not for them the biggest issue the EU is confronting.
“If I were in their shoes I don’t think I would be spending a lot of time worrying about Brexit I would delegate that as they have done to the European Commission.”
According to King, a fall back plan would say quietly and gently warn the EU that unless members are willing to discuss a free trade agreement with the UK, they will also face tariffs for exports into Britain.
He told the audience that long run economic consequences of Brexit, may not be as big as people fear, and the problem is the uncertainty about the coherence of the UK government and who will be leading it as well as the risk of the polices followed by the Labor party if they were to be elected.
“The prospect of a market unfriendly government is the real risk that faces UK economy and that in itself would be a reason for the weaker investment at the present time,” the former BoE governor said.