Price of Brexit will be high for Brits – maybe too high

Elec­tion re­sults could strengthen the May gov­ern­ment’s hand to ne­go­ti­ate a soft land­ing.

Finweek English Edition - - THE WEEK IN THE NEWS - By Lu­cas de Lange editorial@fin­ Lu­cas de Lange is a for­mer editor of fin­week and an au­thor of two books on in­vest­ment.

there­are quite a num­ber of is­sues that trouble the av­er­age Bri­tish voter, such as the Na­tional Health Ser­vice and the hous­ing short­age, but it is ev­i­dent that there’s a sin­gle mat­ter that’s go­ing to dom­i­nate the elec­tions of 8 June: Bri­tain’s exit from the EU.

The elec­tions are also seen as a man­date given to Prime Minister Theresa May’s new gov­ern­ment to han­dle this ex­tremely dif­fi­cult ques­tion. Re­cently, the gov­ern­ment had a ma­jor­ity of just 17 mem­bers in par­lia­ment, while most MPs were in fact pro-EU. This means that a mere shift of 2.6% among the 650 mem­bers could lead to the car­pet be­ing re­peat­edly pulled from un­der the feet of May’s gov­ern­ment in contentious mat­ters.

The Lib­eral Demo­cratic Party is the strong­est sup­porter of con­tin­ued mem­ber­ship of the EU, but had only eight seats in the pre­vi­ous par­lia­ment. How­ever, it’s ex­pected to fare bet­ter in the com­ing elec­tions, while the UK In­de­pen­dence Party (Ukip), which is strongly op­posed to con­tin­ued mem­ber­ship, could un­der­per­form.

Polls in­di­cate that the Con­ser­va­tive Party could end up with a ma­jor­ity of 100 seats or more, mainly at the ex­pense of an in­ef­fec­tive Labour Party, which could strengthen May’s hand to push through un­pop­u­lar de­ci­sions. And in­di­ca­tions are that many such de­ci­sions are go­ing to be re­quired, rang­ing from a cri­sis in­volv­ing Scot­land and North­ern Ire­land, who wish to re­main in the EU, and jobs that will be lost.

That other ma­jor mem­bers of the EU are not at all happy about Brexit, is among other things ap­par­ent from a re­mark made by Em­manuel Macron, the des­ig­nated French pres­i­dent, that he is go­ing to be tough on Bri­tain in the Brexit ne­go­ti­a­tions. He wants to en­sure that the rest of the EU is pre­served as a unit and that the mes­sage is sent out that a mem­ber can­not sim­ply with­draw with­out there be­ing con­se­quences.

“You do not get a pass­port and ac­cess to a sin­gle mar­ket should you de­cide to leave,” he said, adding that the Bri­tish can­not have the best of both worlds. That will be too big an in­cen­tive for oth­ers to leave and kill the Euro­pean idea, which is based on shared re­spon­si­bil­i­ties.

The Ger­man Pres­i­dent Frank-Wal­ter Prime minister of the United King­dom Stein­meier in­di­cated that Ger­many re­garded it as a pri­or­ity to pre­serve the re­main­ing 27 EU mem­bers. In the mean­time, the pres­i­dent of the EU par­lia­ment has taken steps to re­place Bri­tish par­lia­men­tar­i­ans who serve in key po­si­tions in EU com­mit­tees.

A study by the Ger­man In­sti­tute for In­ter­na­tional and Se­cu­rity Af­fairs, which ad­vises the Bun­destag and the Fed­eral gov­ern­ment, reck­ons that the po­si­tions of about 3m Bri­tish de­pend on ex­ports to the other 27 EU mem­bers.

The study states that the EU will be man­aged more eas­ily and ef­fec­tively with­out the Bri­tish. Bri­tain has been re­ferred to as an “awk­ward” mem­ber.

Prime Minister May is one of the ma­jor­ity of par­lia­men­tar­i­ans who were op­posed to Brexit, al­though she was never vo­cif­er­ous in her stance. It is, how­ever, ev­i­dent that the Bri­tish es­tab­lish­ment is go­ing to fight hard to bring about a soft Brexit land­ing, which means that as many ties as pos­si­ble are (hope­fully) go­ing to be main­tained with the EU.

It’s es­pe­cially the busi­ness com­mu­nity that’s wor­ried. Bri­tish com­pa­nies have free ac­cess to the world’s largest trad­ing bloc with a pop­u­la­tion of 508m and the sec­ond-big­gest GDP, which is es­ti­mated at $16.5tr or 22% of the world to­tal. The US’s GDP is the largest at about $18tr, or 24% of the world to­tal, while the Bri­tish to­tal is $2.8tr.

Bri­tain’s exit from the EU, which will con­sist of 27 coun­tries af­ter Brexit, will be a setback for the EU. Bri­tain has a pop­u­la­tion of 65m and rep­re­sents the sec­ond-big­gest econ­omy in the EU af­ter Ger­many, with 80.6m in­hab­i­tants. The Bri­tish GDP of $2.8tr is sec­ond-big­gest af­ter Ger­many’s, which stands at $3.4tr.

Apart from the EU los­ing 12.8% of its pop­u­la­tion, Bri­tain is also im­por­tant be­cause it’s the strong­est mem­ber mil­i­tar­ily in the EU and is a nu­clear power, like France. Its con­tri­bu­tion to the EU’s bud­get is about $16.8bn.

It’s be­com­ing in­creas­ingly ev­i­dent that the price Bri­tain will pay will be very high, maybe too high. This is why there are in­flu­en­tial peo­ple in the coun­try who are talk­ing of a “soft” Brexit, or even its can­cel­la­tion, which is re­ferred to as Brex­verse or Brexre­verse.

Theresa May

Em­manuel Macron Des­ig­nated French pres­i­dent

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