Brexit takes effect — sort of
“Fog in channel, Continent cut off,” is a very old joke about an alleged British newspaper headline regarding weather over the waterway separating them from Europe. Even a brief visit to the British Isles can confirm this sense of distance.
At the end of January, the United Kingdom formally departed from the European Union. This ends the formal relationship between the nation and the regional economic organization on the Continent, but not abruptly.
The year ahead is formally a transition period, during which the new relationship will be negotiated in detail. This is of vital importance to businesses, but also the population as a whole. Ideally, this period provides opportunities for the departure to occur without abrupt shocks disrupting trade and investment, tourism, legal and other professional licensing, and the many other dimensions of life that will be affected — reaching far beyond the business world.
The 2016 referendum vote to leave the European Union (EU) — known as “Brexit” for short — is important confirmation of this deep ambivalence. The close but clear vote in the referendum that year to leave the EU was a startling surprise. As with the 2016 presidential election in the United States, the majority of opinion polls predicted the opposite outcome.
The European Union was the product of World War II, not trade and investment per se. Early in that conflict, insightful leaders in Britain and the U.S. concluded that new international organizations were essential to avert a third world war.
One result was the United Nations. Another was the European Union, which grew out of a limited European Coal and Steel Community. Those two industries were tangible, essential and already tied France and Germany together.
Restraining Germany was essential. Today, German Chancellor Angela Merkel is an especially influential leader in international as well as European terms. She personifies a positive as well as powerful Germany.
Geography has been a factor defining the international outlooks of both Germany and the United Kingdom, which includes Northern Ireland, Scotland and Wales along with England. All but the first comprise Britain. The United Kingdom’s island status facilitates wide ranging trade. Many analysts, including Henry Kissinger, have underscored Germany’s vulnerability to invasion from both east and west.
Britain’s withdrawal from the common European commercial market would bring some new barriers to trade. Since World War II, the nation’s trade has become heavily concentrated within the Continent, moving away from the global British Commonwealth. However, the EU’s external trade barriers have gradually been reduced as globalization has grown.
Britain already provides a relatively open market environment. The general deregulation of Prime Minister Margaret Thatcher’s government in the1980s made the island nation a relatively attractive base for investment by foreign firms anxious to penetrate the more difficult and bureaucratic economic environment of the Continent.
Moreover, Britain along with a substantial minority of the EU members has retained the national currency, avoiding participation in the euro. London is a principal global financial center, reflecting historical strengths in insurance, investment and trade along with geography.
Scotland voted overwhelmingly to remain in the EU, and is pressing for greater independence from London. Scotland’s Parliament has limited tax adjustment and borrowing powers. The Liberal Democrats, part of the earlier coalition government with the Conservatives, have done worthwhile policy analysis.
Britain’s history reflects pragmatism and realism. U.S. Vice President Mike Pence and other American leaders have demonstrated the same qualities in confirming commitment to the EU and NATO.