The title of this blog captures how I would summarize Brexit, the U.K. Referendum to leave the European Union. After watching the story unfold intently from afar, the visiting and immersing myself in local dialog over the last three weeks, the tittle of this blog captures the essence of the situation.
The reality is much worse, again for the wrong reasons. Let’s first look at the decision.
- Technically the process and the method by which the UK will leave the EU has not even started and won’t until October.
- How the divorce will shape up will be subject to protracted negotiation. Clause 50 has never been tested. Also the UK is a large economy, with several advantages, namely its own currency and exchange rate (to buffer any risks) and the city of London financial center.
- There are numerous related dominoes that make scenario planning more useful than predicting one single outcome. This includes the foolish attempt by the leader of the SNP who wants to turn Brexit, a UK referendum, into something about Scotland.
Now let’s look at the pre-Brexit political, or should I say marketing, spin:
- Neither those for Remain or Leave debated honestly. They could not even agree common terms of reference; how much money the UK gave to the EU versus how much was given back in terms of subsidies, could not be agreed.
- There was significant scaremongering from the Remain campaign, led by the generally liberal or progressive establishment, supported by economic groups including the IMF. Yet a minority of smart investors who have continually beaten the pundits like the IMF identified great opportunity for the UK. One wonders if much of the ‘economic advice’ was more political than practical. No act by the EU to penalize the UK would be countenanced long since a) it penalizes both sides, and b) the very arguments used by the EU for open, friendly, collaboration would be exposed for what they really are- unelected dictatorial bureaucrats.
- The Leave campaign led their supporters in the belief that immigration would stop with a vote for Brexit, as if humanitarian aid were an EU and not a national or moral concern. There are significant immigration challenges for all countries; remaining or leaving the EU is not central to the real issue.
The bottom line is therefore the Brexit vote was more an emotional vote, and nor a rational vote.
Finally let’s look at the post-Brexit situation on the ground. In no particular order:
- The leader of the Scottish National Party wants to reposition the UK referendum as if it was a Scottish referendum. Since the majority of scots voted ‘remain’, and since the UK voted ‘leave’, surely it means Scotland is being forced against its wishes? Utter rubbish. London also voted to ‘remain’- does London cede from the Union?
- The Prime Minister, David Cameron, is to step down. This is a great shame as he is a good negotiator and politician. He has fallen in his own sword, a rare political act these days. By comparison, the socialist leader of the Labour Party, equally culpable in losing the ‘remain’ vote, has no idea where his sword is. I am not so sure he has one. But 24 hours later he is being stalked by his own resigning front and back benchers.
- The pound has taken a beating. This was to be expected. It will recover soon, though it may take time. The recovery against the euro will be dependent on the stability of the euro, not the fragility of the U.K. economy. Spanish and other elections in the next 12-24 months will sort this out.
- U.K. stocks took a beating but already they are recovering, whereas continental markets are suffering more pressure. This is a leading indicator of sentiment that will again show up in currency values in the next year or so.
And to top it all off you have to understand the irony of Brexit. In the 1960s France vetoed the UK (twice!) and prevented it from joining the Common Market. And this was only 20 odd years after the close collaboration during the Second World War. De Gaulle felt that the UK’s demands for joining would weaken France’s position, and they would have. The result was that aspects of the Common Market and EEC developed without direct UK input and one could argue therefore that the groundwork of the EU was therefore weakened, and the UK never felt central to the initiative. This was to haunt the experiment as Britain never really forgave France this veto.
More recently dissatisfaction with ever closer European integration was rejected. Initially countries would vote “no” and reject the the EU Constitution changes. Then those same countries were pressured to re-vote in order to get a “yes”. Finally the Dutch and French rejected the Constitution and it was killed off. However the EU continued. Fifty years after De Gaulle’s unfortunately selfish veto hobbled Europe, it is the UK that triggers what could be the straw that breaks the EU. Fair play, and what irony.
The divorce won’t be clean. There will be much acrimony and hard, complex negotiation. The City of London will be diminished initially, until the cracks in euro fracture and break open. The U.K. economy will reflect increased short-term uncertainty across the global economy, yet will bounce back towards more positive UK growth within a year. Again, as the euro struggles, so the pound will benefit.
But in truth no one wins with Brexit. The U.K. will suffer more short term; europe, the EU and euro zone in the longer term. Everyone will be poorer for Brexit. The reality is that we need a rethink for how Europe wants to live and work together. An unelected bureaucracy is not the answer. We need a new model. The real valuable question is not what happens to the EU now; the visionary question should be “who will document, discuss and lead the ideal EU II framework?” Let’s demand our moribund politicians work for us and work for a future, not argue over the trappings of an idea that died years ago.