Harsh reality of Brexit finally sets in

Afew months after Britons voted to leave the European Union (EU), there was considerable apprehension across the UK. One of the major reasons for pervasive uneasiness was the post-Brexit vote ambiguity over the economic fallout of the disastrous referendum. By October 2016 when this writer visited London, the pound had slumped over 15 per cent and Britain had one quantitative easing stimulus to tide over economic uncertainty. The economy was not in great shape, growing at just 2 per cent then. The forecast for growth in 2017 and 2018 was even less encouraging. After the June 2016 referendum, Brexit was inevitable. But what was not easy to predict then was the cost of Brexit on UK.

The government’s complete silence over its exit plan from EU was another cause of a major worry for experts, economists and businesses. In absence of a clear post-Brexit roadmap, there was little clue about the political, social and economic fallout of Brexit. Therefore, in the two years since a narrow majority of Britons voted to leave EU, the government’s planning for a torturous divorce negotiations with EU of Britain’s actual departure in March 2019 has often looked like a disaster unfolding in slow motion. Instead of focusing on working out a plan that would honour the result of the referendum, garner the support of 27 European governments and minimise the collateral damage to the British economy, British Prime Minister Theresa May has spent much of the past 24 months temporising and fending off potential challenges to her leadership.

In the months following the vote, speculation centred on how Britain might cut the deal that would keep it in customs union and preserve its access to European single market. Both are contentious and highly debated issues in Britain even today. What the optimists and some of those who voted to ‘remain’ refused to see was the contradiction between keeping access to the European single market, while closing doors on free movement of people, services and goods and not subjecting Britain to EU laws. Considering a deal that leaves the UK borders

open to the free movement of EU citizens and subjecting Britain to EU laws has been a highly contentious issue. In the battle of her own survival, Mrs May chose to deflect the issue by saying that she understands what her constituents expect: that is, to reclaim the borders and laws. All else is secondary. Brexit means Brexit.

She even went a step further by stating publicly last year that ‘no deal is better than a bad deal’. Perhaps a lack of an immediate crisis had created a sense of complacency. Or, perhaps the ‘leavers’ in her Tory party thought the government could strike a sort of trade deal that the EU has negotiated over many years with Canada. But EU deal with Canada only partly covers services, which account for 75 per cent of UK’s economy. Given the sharp divide in her own party and government, Mrs May resorted to spinning wheels on Brexit, which saved the day for her. But she couldn’t have continued doing so because time is running out. Britain will leave EU in next March. For the exit not to be a complete catastrophe for Britain, the two sides have to agree on a workable trade deal covering a broad range of issues by October, which includes the terms of transition, customs arrangements and a fundamental shape of a future trade relationship. The deal also needs to be approved by the British parliament and 27 EU member nations.

With time running out, Mrs May finally decided to act by presenting the ‘best available negotiating plan’ to her cabinet. It sparked series of resignations last week, which included the high profile Brexit secretary David Davis and foreign secretary Boris Johnson. Both are proponents of a ‘hard Brexit’. Johnson had been a fierce advocate of a total break with the EU; during Brexit referendum he had spread the false claim that Britain would save more than 350 million pounds a week – called the ‘Brexit dividend’ – if it left the Union completely. During the 2016 referendum campaign, the proBrexit camp sold a fantasy to British people: that the country could somehow keep the benefits arising out of European trade by negotiating trade deals with other countries, while exaggerating the downsides of staying in the EU. Those falsehoods gave a narrow win to the ‘leave’ camp.

Notwithstanding her earlier tough position on migration, customs union and single market membership, Mrs May has to deal with the ‘practicality of Brexit’ – as she told the House of Commons last week – rather than the fantasy. The practicality of a hard Brexit is that making a clean break with the EU would inflict havoc on Britain’s economy: it would deprive businesses based in the UK of free access to the European market and disrupt their supply chains. Some of the major manufacturer and business have indicated to the government that in case of a ‘hard Brexit’, they would have no choice but to move their factories and investments out of the UK.

If the UK government has to maintain frictionless access to EU market without being member of the Union, it will have to abide by the Union’s rules and regulations. This is called the Norway model which has worked very well for decades. However, Mrs May has proposed a different arrangement. Under her plan, while British companies that do business with the EU ‘will continue to operate to the EU rule book’, the terms she is proposing would prevent free movement of European workers to UK, abolish the jurisdiction of European Court of Justice over British courts, end the annual payments that Britain makes to the EU budget and give the British parliament a veto over any new European laws that affect Britain. These demands go far beyond the Norway arrangement and may not be acceptable to EU which is obviously keen to discourage other member countries from following the Brexit example.

Talks between Britain and EU are scheduled to resume this week. It remains to be seen whether Mrs May’s proposal is realistic and workable. As the EU negotiators are quite sceptical, it is likely that the British proposal may need further pragmatic compromises, which may spark a rebellion in the Tory party. Meanwhile, to break the stalemate over Brexit and end the uncertainty over its likely parliamentary deadlock when the final deal comes for ‘meaningful vote’, the call for a second referendum is gaining ground in Britain. Clearly, the harsh reality of Brexit has finally set in.