A HARD BREXIT MAY BE BEST THING FOR EVERYONE
Wouldn’t it be nice to just write down the whole mess to experience, Joe Chidley says.
David Cameron doesn’t regret calling the referendum that ended his political career and tossed his country into chaos.
Or at least so Britain’s former prime minister-cum-private citizen said, when reporters caught up with him going for his morning run on the day after his successor, Theresa May, and her latest deal to withdraw the U.K. from the European Union went down to crushing defeat in the House of Commons.
Sure, Cameron (in slimming black running gear) admitted, he regretted losing the referendum, and regretted the hard time politicians are having in coming up with something that satisfies the will of the people. But no, he said, “I don’t regret calling the referendum.” And off he jogged into the figurative sunset.
Oh well, at least that’s one person on the planet who doesn’t regret the Brexit vote and all the palaver of the ensuing two-anda-half years. No doubt, anyone who’s been watching the “drama” unfold has become inured to the enduring sense of crisis, the stumbling path from setback to setback, the panoply of insurmountable obstacles (for example, the Ireland “backstop”) that all boil down to a truth that can’t be run away from: No one faction in British politics has enough clout to see its vision of Brexit become reality. The fact that each faction sees the opportunity for political gain in the defeat of the other’s vision only perpetuates the impasse.
Markets, which have been jolted on and off since June 2016 like a death-row inmate suffering a botched execution, seem to have become immune to the shocks. After the defeat of the latest May agreement this week, European stocks gained marginally, as did the S&P 500 and the Dow, while Japan’s Nikkei 225 went sideways. In Britain, the pound actually gained against the U.S. dollar after the agreement’s Commons defeat on Tuesday, and consolidated its gains after May’s government survived a vote of no confidence on Wednesday. (It’s still down more than 10 per cent since its April high, however.) In London, the FTSE 100 index, heavily weighted in multinationals, looks headed toward a more or less flat week, while the more domestic FTSE 250 has actually gained — perhaps on expectations that any further rate hikes from the Bank of England are now firmly off the table.
Given the scale of May’s loss this week — 432 against and only 202 for — you might wonder where the shock and awe have gone off to. No doubt, markets had already priced in the defeat of the agreement, which was widely expected. But there’s another read: Markets might be betting on the upside of no deal. Not the disastrous “no deal” whose impact the Bank of England has forecast at around an eight per cent hit to GDP, but the “no deal” that leads to “no Brexit,” in one form or another.
Here’s the possible thinking: After surviving the no-confidence vote, May promised to work with other parliamentary leaders to cobble together another agreement. Well, good luck with that. Before he even talks with her, Labour leader Jeremy Corbyn has demanded May promise there won’t be a hard Brexit — chances are, given the strong hard Brexiteers in her own party, she won’t do that. Even if Labour and May do agree, then the deal and/or May herself could go down in defeat at the hands of her own Conservatives. If, on the other hand, she comes up with something that satisfies all of her own party as well as the allied Democratic Unionist Party, and the agreement wins parliamentary support — well, that “something” would likely include demands the EU would not be of a mind to agree to. So the upshot is, there’s not going to be a deal.
The big question, of course, is what happens when there isn’t a deal. There could be a hard Brexit, which means the economic relationship between Britain and the EU reverts to World Trade Organization rules and all hell would break loose (how much depends on which side you listen to) at the borders, at the drug stores, at the supermarkets and the ports. And time is running out: The deadline for an agreement, triggered when the May government invoked Article 50 in March 2017, is now just two months away.
There are still a few alternatives, however. The U.K. could try to get an extension to keep working at it, which would at least punt the problem down the road, but that would be complicated; the EU might not agree. Or the U.K. could try to repeal Article 50 — it’s not clear it can without European support — and just re-invoke once it gets closer to a deal. Meanwhile, political and popular support for a second referendum appears to be growing — but would be difficult for politicians like May to justify, since they’ve been prattling on about obeying the will of the people as expressed in the 2016 referendum. Since Corbyn isn’t going to get a chance to form the next government (Labour’s default option on Brexit), he might now switch to the “people’s vote” movement. But who knows?
Any of those outcomes would be better than a hard exit, but the big ray of sunshine that emerges from no deal is no Brexit at all. All sides admit defeat, hang their heads in shame at failing the British people, and say “Sorry, we know 51.89 per cent of those of you who voted in that referendum two and a half years ago might still want this, but it’s just not on.”
For investors and for the rest of the world, that would certainly be a happy ending, insofar as happiness is possible after such a long, useless and dreary saga. I’m not betting on it happening, and think a hard Brexit is still the most likely scenario. But wouldn’t it be nice to just write down the whole mess to experience, and get back to jogging along on our merry way?
We should all be so lucky.