UK political pressures: The UK has decided to respect the wishes of the 52% majority who voted to Leave the EU. Elected UK MP’s however, are largely in favour of Remain. The conservative leadership is in disarray after Cameron’s resignation. A new leader and PM must be chosen. This will either be a “Leave” campaigner, or a neutral opportunist. There is no “obvious” candidate who is considered both credible to lead the exit negotiations and an attractive profile to lead the conservatives to the next election. Neither Labour nor the Liberals have leaders of sufficient stature or credibility to map out the future of Britain, or to negotiate with the EU. Someone will step up, hopefully a new talent of exceptional ability? For now, UK political leadership is not a driving force of the future, and the dynamics are to slow decision taking as far as possible.
UK Business Pressures: Investors avoid uncertainty and seek to diminish risk. Since the New Year, boardroom decisions on significant new investments will have been hamstrung by a lack of clarity on the referendum outcome. Such reticence has been proved right. Maintenance investments, and decisions related to purely domestic businesses may proceed, but larger decisions will be shelved UFN. Urgent, long-term investment decisions will seek whatever destination that favours predictable outcomes, hence the EU-27 before the UK. As UK growth falters, pressure will grow to clarify UK’s role in the global economy – over time, this will render the need for action urgent.
UK Social pressures: The referendum has brought enormous social tensions to the surface. Scottish independence is again a topic, and repercussions amongst sectarian interests in N Ireland risk resurfacing as the umbrella of EU bonds to Eire are removed. Perhaps most important, the social split between London and the rest of England, perhaps a mirror of the haves and have-nots, and certainly disdain for the UK political elite. The UK political scene is disruptive, to say the least. The obvious, continuing passions between the 48% remain voters and the 52% Leave voters risk keeping the debate both acrimonious and heated as fear and resentment dominate the political scene. Social interest lies in re-establishing stability and allaying fears derived from uncertainty as quickly as possible. The demand for political stability and eventually a new general election will grow.
EU political pressures: This is the biggest disruption to European politics since the fall of the Berlin Wall. People in Brussels are stunned and fearful. As always in such situations, some will be angry at the UK, but the need to control nationalists and populists across the EU will focus minds quickly and speed of action will be the order of the day. It will be imperative that euro-sceptic forces cannot point to an easy divorce process for the UK, without consequences and difficult choices. At the same time, the need to understand and rethink the EU’s role and profile towards its peoples is urgent.
EU Business pressures: Less onerous than in the UK, but uncertainty will weaken the Euro and taper off enthusiasm for investments aimed at future growth. Any decline in growth will further encourage the euro-sceptic forces in France and the Netherlands, possibly elsewhere. Less of a burning platform than EU political imperatives, these concerns will none-the-less push for a speedy clarification of what post-Brexit Europe looks like. The EU have no grounds for being overly patient with the UK.
Putting it together: The UK political establishment have no idea what the “Great” in Britain is composed of outside the EU. Elected Westminster officials have largely been opposed to “Leave” and do not have a vision for the future. “Leave” campaigners have been focussed on the campaign, perhaps not entirely believing it would happen – in any event, neither Boris J, Farage or any other political figure is able to outline what the future path is. Without such a vision, the UK does not know what to negotiate towards. There is no answer to the “Leave” conundrum of satisfying the vote for freedom from Brussels and safeguarding jobs in the financial sector and access to the Single Market. The Norwegian and Swiss models, with access to the internal market, relatively free of tariffs, both require the adoption of EU level playing-field regulations. Refusal of those standards risks upsetting the balance of competition within the EU, hence the imposition of tariffs. As the saying goes, "you cannot both keep the cake, and eat it".
In the near term, UK politics will argue for delay, delay, delay. Cameron has started this process by his resignation, thereby creating a much needed breathing space. Without an effective “Leave” government in place, the UK cannot start negotiations – they do not agree with it. Hence, we must wait until the Conservatives elect a new leader and Prime Minister. This individual will no doubt have personal views, but will not be able to establish a party / government view until elected. The new PM will therefore play for time to formulate a plan and a negotiating position. Expect a further delay of at least 4-6 weeks. We are now heading towards Christmas.
Imagine now that a new plan is formulated – can this be implemented without parliamentary debate? We are not in a state of national emergency or martial law. Given the many possible views of the future, and that the decision taken at the referendum was only to leave the EU, not on what terms, there will again be turmoil in parliamentary debate as questions of alternatives and degree surface. Local constituencies will seek reassurance that Westminster will replace the withdrawal of EU funds, and exactly how much of the EU “savings” (if any) should now be used to support the NHS? How will immigration be controlled whilst balancing the economic interest of free trade within the EU single market? Will any Westminster government consider themselves mandated to make such momentous and variable decisions? Will the choice not need to be presented again to the people, in a much bigger referendum, namely a general election? Can a strategy for a future Britain outside the EU be decided by a Parliament dominated by those who stood against leaving? They may act in good faith, and seek what they believe is the best deal for Britain, but they are by definition caught in conflict between their own views and those of the 52% who unilaterally voted to Leave. Such questions need clarification, and a general election largely fought on the future vision for Britain, must take place. How long does it take to organise a general election? At least 4 months, preferably more. The UK will not want to invoke article 50 of the Lisbon Treaty until after such an election. This will be the reality confronting the British. To proceed in negotiating a deal with the EU without a popular mandate can be done, but it will have no support. Without this support, can a call for a second referendum, or a general election before the final act of signing a binding agreement with the EU in two years time be resisted? If we fear a democratic deficit, it seems that here is a UK one in the making. Surely the British electorate must be allowed to opine on the new deal for Britain before it is implemented?
In the meantime, politicians across the EU, and business leaders, will be tearing their hairs out – or become desperate enough to abandon any pretence of being “reasonable” and patient with the UK. Brexit has destabilised the EU and is an invitation to further disruption via nationalist forces seeking their own Frexit or Dutchit. Waiting three months for a new PM is at the limits of EU patience, anything longer, threatening to extend into the Q2 of 2017, will be intolerable. Working on the EU’s own future with an defensive UK “Leave” voice at the table will at best be redundant, but could surface a real conflict between UK interest as a Leaver, and EU interests to save, eventually reform the EU. The EU will feel it necessary to exert pressure on the UK to invoke article 50 as soon as possible – it might even turn to a legal fight between previous allies – not in anyone’s interests.
But the EU will also need to avoid the temptation of using a recalcitrant British as a scapegoat, and focus on why so many have lost faith in the EU establishment. Some uncomfortable truths need to be confronted and a return to the founding principles and purpose of the EU formation be sought. If this is done quickly and transparently, perhaps a second UK Brexit referendum, more informed about the future options open to the UK may be held and actually reverse the decision of the first referendum. That though, probably has very long odds at the betting shop.
To game theory the future with so many uncertainties is, admittedly, merely to speculate. However, one thing seems clear to this writer:
- It is in the UK political interest to delay invoking article 50 as long as possible.
- The longer the delay, business imperatives will increase pressure on UK politicians to outline a realistic vision for Britain.
- The UK cannot negotiate and finalise an EU exit deal without a proper mandate on a future vision for Britain. This requires a second referendum or a general election.
- The EU has to look at its mission and purpose urgently and go back to basics.
- The longer the delay of article 50 being invoked, the more relations between the UK and the EU will become acrimonious.
- Article 50 will not be triggered before November/December 2016 at the earliest, possibly as late as May/June 2017.
This is probably a good, if busy, time to be a journalist.