CNBC Transcript: Gordon Brown, Former Prime Minister of the U.K.

Below is the transcript of a CNBC Exclusive interview with Gordon Brown, Former Prime Minister of the U.K. The interview was first broadcast on CNBC's Street Signs Asia on 14 January 2019.

All references must be sourced to a "CNBC Interview'.

Interviewed by CNBC's Martin Soong

Martin Soong (Soong): We have to talk about Brexit and this upcoming vote less than 24 hours away on Theresa May's Brexit plan. If you take a look at punters, pollsters, even the markets, they are betting this vote is not going to go down well. Are you with the consensus?

Gordon Brown (Brown): I think that's probably right. I don't think she's going to win it. Then you've got a sequence of events that follows from that. If she loses the vote then undoubtedly the opposition party will put down a vote of no confidence in the government. There'll be a vote on that. Under the new constitutional arrangements that were introduced after 2010 in Britain, a vote of no confidence does not necessarily mean you have a general election and therefore she is likely to come back and try to put her proposal perhaps in an amended form a few days later and then it's possible that you'll have a whole series of indicative votes about whether you like the Norway option, the Canada option, all these different options. So there is a long way to go. And sadly this is a prolonged period of uncertainty both for investors and for the economy but also for the political system. And we're now seeing, I think around the world, we're now seeing the full impact of populism, of protectionism, of the rise of nationalism and whether it's the American shutdown, whether it's a trade war between America and China, whether it's the Italy issues or the yellow vests in France or Brexit in Britain. I think we're seeing around the world something that we've talked about really in theory for a while that we've got the rise of populism, we've got the rise of nationalism, we've got a more protectionist policies we're now seeing the effects of that in the geopolitics of the world and in the greater instability that now exists, which makes political risk one of the major fears people have about the economy in 2019.

Soong: Indeed, and we have to get to this as well. A second referendum another one another vote on this whole issue of Brexit. You are among the majority of living past British prime ministers who think that this should happen. Explain why.

Brown: I think you've got to think about what is the process, by which you reunite Britain and by which you solve what seems to be a problem where parliament is deadlocked and is unable to solve the problem it has itself created. And you've got to then ask what would it take to find a solution to this over a period of time. And my feeling is that what was missing after the referendum result was a period of nationwide consultation. So there were issues raised by the referendum. Immigration, issues of sovereignty, issues about the state of manufacturing but a wider consultation than simply a narrow parliamentary debate would have given us a sense of what could be done to solve these problems. And perhaps the options that are being discussed at the moment are too constitutional or too technical and don't actually get to the heart of the problems that people are addressing. So, I think at some stage as I've said before, there will be another referendum. I cannot say when it will be. And I would not like to predict it would be in the next few weeks. But I think at some stage you will have to resolve this issue and finally come to a conclusion about the details and not just the principle of Britain's relationship with Europe.

Soong: So at the second and another referendum if it were to come to pass - three years on - would the outcome likely be different? Britain's three years on, more aware? More informed? Would they make a different decision?

Brown: But what I would say to you is the situation has changed. What's happening in Europe is quite different from where we were in 2016. Every European country, France, Belgium, Germany, they're all having to look at new ways of dealing with this issue of freedom of movement. They all have different ways that they are doing this within freedom of movement. Equally on sovereignty, you go to German courts and the Spanish courts and the Italian and the French courts, they're interpreting the role of the European court of justice quite differently from what was really happening in 2016. So, the situation has actually changed in Europe and that means that I think people would want to look again at some of these issues and what you could do to resolve them in the future. Now, this is also an issue about the unity of our country and I have not seen Britain more fractured than it is now. We lived through the three day week in the 70's. We lived through a very poisonous set of events with the poll tax and in the 1990's we had the Iraq war which was very contentious. But I have not seen Britain more divided and so it will need more than a one off initiative or a quick fix to solve this issue of unity and the integrity of the United Kingdom. And so, I think we've got to stand back look at what's not been achievable under the parliamentary process we've got. And think again about how we can actually resolve this issue in the future.

Soong: And what about the U.K. economy? How fragile or not is it right now? You're of course former Chancellor of the Exchequer as well.

Brown: Well the British economy is not growing as fast as people would have wanted it to do but so too is the European economy in some difficulty. Look, we had two years ago, convergence with synchronized growth in every continent of the world. Last year America took a different path and had a high speed of growth partly because of the fiscal stimulus, which of course is temporary. This year we're seeing a synchronized slowing in almost every continent. And I think everybody suffers from the fallout from that. So, China suffers, America suffers, Europe suffers and Britain of course is still part of the European economy. And I think we have got to look at what would actually happen if there was a bigger downturn. Do we have the weapons available to us that we had in 2008 and 2009?

Soong: Do we?

Brown: Well I chaired the G20 in 2009 and we were able to mount a level of intergovernmental cooperation that we had not previously seen. We had central bank cooperation. We had moves against protectionism because we all agreed that that would be damaging to the recovery. We had a huge fiscal stimulus about 2 trillion partly as a result of China. Now ask yourself. Is the scope for monetary flexibility, room for manoeuvre there? No. Is there scope for fiscal activism? Not in the same way as in 2008 and 2009 because debt is high in Europe. Deficits are high in the state. Is there likely to be central bank cooperation in the way that we have in the past? Again, unlikely because of the American position on these things. And then is our country's more likely to blame each other for what's gone wrong, which has been the tenor of the debate in the last year. Then get down round the table to cooperate in the G20 or in any of the international organizations and so you've got to think that we have got to guard against this that if we have a downturn, it may be shallower but it may last longer because we don't have the weapons, the armory at our disposal now in the same way we have in the past. And that must make people think. This is a practical consequence of protectionism and this is the danger we have when people see trade as a zero-sum game and see that someone has got to lose if someone else is going to have to win. And I would want to emphasize that the scope for cooperation is greater than ever before. But the will for it is less than before (Soong: the political will, yes). And we have got to look at how our international institutions are capable of responding to the downturn where the domestic solutions in the monetary easing and in fiscal flexibility are not going to be there in exactly the same way as we had in 2009. And this is a problem I think the world community and IMF and the G20 and the different organisations like the global financial stability board have got to really look at it very seriously. It may be a less serious downturn because we may not have all the financial fallouts that we had in 2008/2009 but it may endure longer because we have not got the will to take the action to deal with it quickly as we did in 2009.

Soong: So let's hope you're right, that it is a shallow slowdown. Certainly I mean for trade, liberalisation wouldn't hurt. Do you believe the U.K. should be part of what is now known as CPTPP?

Brown: Well this is a very interesting point that the TPP has now extended with now Latin America and Asia. Will America come back to join is the question. Will China want to join because originally TPP was to keep China out and America in and now America's out, will China now come in? How does that affect the regional comprehensive economic partnership in Asia for trade? That's a very interesting question, and yes, if Canada joins, then other countries have got to consider from the northern hemisphere feeling that they could be part of this trade arrangement as well, but there is no substitute for the recovery of the World Trade Organisation. It's remarkable that 60 years we had world trade deals and for the last 10 years it has been impossible to sign a world trade deal. Now that is something we got to look at very seriously. Why it is in a world that is more interdependent, more interconnected, more integrated, that it's impossible to get a world trade deal? Now that is something that policymakers should be looking at very carefully at the moment.

Soong: Indeed worrying. Very quickly, just seconds away, odds of a hard Brexit, nil?

Brown: I don't think you could predict at the moment what is even going to happen next week with huge certainty so I think you've got to leave open a few options. And one of them is maybe we do not leave on March 29th.

END

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