Brexit But Nothing Changes Until 2019

| June 25, 2016 | 1 Comment

The United Kingdom, or at least 52% of the the 72% that voted, has taken the historic step of leaving the European Union. But do not expect anything to change soon. Greenland was the only country to leave the EU, and that was in 1984 and it took 3 years of negotiation (and that was just all about fishing quotas). The United Kingdom has a lot more than fish to talk about.

Europe and Article 50 Will Just Have To Wait

Brussels wants to start the exit process now but it is just going to have to wait. And wait. And wait.

Firstly, the UK has to choose a new Prime Minister, and a new negotiating team, and that will take 3 months.

Secondly, it is not in the UK interest to initiate immediately Article 50 and start the 2 year ticking clock to exit. Maybe the UK wants to see what happens in Europe to get a better negotiating position by having more amenable, Euro-sceptic partners. There is talk about waiting for the results of various referenda and elections.

  • Possible Dutch/Netherlands referendum #nexit
  • Possible Danish referendum #dexit
  • French general election in April/May 2017 – and maybe later #frexit
  • German general election between August and October 2017

The smart move is to conduct informal bilateral negotiations to solve the high priority issues with our most important trading partners such as Germany (BMWs and Mercedes), France (cheese, wine, farming) and with those where large imminent populations are concerned: Spain (British residency/Gibraltar) and Poland (residency). Once the key issues have been resolved then the 2 year clock can be started. Not that the EU will tolerate this but what can they do? It is uncharted territory. From the UK standpoint Brexit needs to have been completed before the next election which is 2020 hence an exit date in 2019 would suffice.

French Nationalism Triumphs?

Who knows what a Marine Le Pen victory in 2017 in France could bring? I think it is a real possibility. Having mostly distanced herself from the father’s racist, antisemitic policies, and expelled him from the Front National party, she is credible as the next leader of France. And that might even mean the end of the EU as we know it. The technocrats time could be over. Britain could not change the EU from the inside but I think France could.

EU Forced To Abandon Its Super-state Ambitions

In the best of all worlds a reincarnated EU could then revert to a European Free Trade Area that the UK overwhelmingly voted for 67%/33% back in 1975. Portugal, Italy, Greece and Spain were, and still are to a large extent, blighted by the common currency of the Euro. A European Free Trade Association can much more easily expand the market of 0.5 billion people if it is not bound to a single currency and a single interest rate. Opening borders to tariff-free trading with Albania, Bosnia and Herzogovina, Kosova, Macedonia, Montenegro, Serbia and Turkey without free movement of peoples will meet with little opposition.

Put simply, if you do not inflict austerity, lack of opportunity and poor governance on peoples, you do not FORCE them to migrate for economic reasons. Instead you get manageable flows of people between countries. This is how it worked in the 1980 and 1990s and my personal experience of this was an unequivocally positive experience.

But What If Brussels Prevails?

However, even if Brussels prevails in the medium term, and sticks with its “United States Of Europe” plan, the UK is much better placed on the fringes. I believe that the fundamental idea to meld all the varied cultures of Europe into a single legal and economic system is fundamentally flawed: economically, socially and democratically. The last time we had a single European super-state was 2000 years ago courtesy of the Roman empire and that did not come about by negotiation. The UK will be best off on the sidelines if the EU tries further expansion funded by dubious loans from German banks to moderately corrupt governments with clever accountants that make the books balance for a couple of years until reality kicks in. If the “PIGS” (Portugal, Ireland, Greece and Spain) could have their time again they would not have joined the Euro and the exchange rate and the time they did. The EU gives no indication it will not repeat the same mistakes on the next wave of expansion.

Now Cameron Is Going, What About Our Next Leader?

Somewhat bizarrely, the UK’s new Prime Minister will be elected by the 150,000 members of the Conservative Party. We were told “Vote #Brexit to get more democracy” however we have ended up having no say who our next leader is. Most Tory MPs were #remain so the field is limited: the choice will likely be the handful of “Leave” MPs: a shortlist of Boris Johnston, Michael Gove, Chris Grayling, Theresa Villiers and John Whittingdale. I know you were thinking “Who?” after the first two candidates. My preference is for Gove but doubt he will outshine Boris so as a nation we will have voted #Brexit and got #Bojo. How many thought that Boris Johnson as PM would be the outcome of the referendum? A bumbling over-educated, elitist, emotionally unintelligent but yet charming buffoon. A much classier British, (and New York-born) version of Donald Trump, yet with his heart and brain in the right place (we hope).

As far as Boris is concerned, it is all about wresting control of decision-making from Brussels to London (which is good). But don’t expect that this will do anything about total migration or improving the economic lot of the anyone not in the top 10%. Boris wants control over migration however the numbers of migrants may may in fact increase if that is what the economy requires. Boris is even less likely than Cameron to get why much of middle England voted to leave the EU.

Interesting Times

The apocryphal curse “May you live in interesting times” is where we are right now. Scotland voted to stay 68%/32% however a vote to stay in the EU is not equivalent to a vote leave the UK. Nicola Sturgeon needs to bide her time to see how things pan out. Staying in the UK may well be a better choice. Since Cameron did the ship/captain metaphor I will follow suit: better a small ship (the UK), then a larger sinking one (the EU). Let’s see where we are in 2018 before deciding on the next step. The political and economic landscape then may be very different, and the oil price will dictate what is possible. Scotland’s short to medium term economic future may well be better served by staying the UK.

Everything Is In The Timing

One thing life has taught me is that there are essentially no good or bad economic decisions; it is all in the timing. When to buy, when to sell, when to stay, when to leave.

And I think the UK has got its timing bang on in the leaving the EU at this precise point in time. Its member states are in recession or flatlining, and it is without ideas on handling mass migrations. It will be negotiating from a position of weakness so the UK should be able to call the shots.

We can only hope that the voices for reform inside the EU seize the opportunity and lead in a direction that is more democratic, less centralist and less dogmatic. Let’s hope the EU grasps that nettle. The sooner it does, the more likely it is to survive, and that just might be the best possible outcome.

Category: Economics

Comments (1)

Trackback URL | Comments RSS Feed

  1. Your article on the Brexit result and possible developments is most informative. Keep me posted.

Leave a Reply