Political And Economic Cross-pressures Post-EUref: UK Caught Between A Rock And A Hard Place

Henning Meyer

As the shockwaves of Brexit ripple through Britain, Europe and the rest of world it becomes more and more clear that the UK is caught between a rock and a hard place – a situation in which the status quo will get worse no matter what option is drawn. That is probably also the reason why apart from meaningless and insulting bragadaccio in the European Parliament by Nigel Farage, key Leave proponents look more worried than content. They ran a campaign full of lies and will soon have to confess that their mutually exclusive claims are fantasies. The fact that some of them still repeat these claims on TV either shows that they desperately want to defer the moment of reckoning or that they are more stupid than I thought. With informal negotiations already being ruled out by EU leaders a pattern of conflicting economic and political pressure is emerging.

The political dynamic points to delaying and there is good reason for this. The Leave agenda is impossible to deliver and the triggering of Article 50 is the last aspect of the upcoming negotiations that the UK actually controls. Once the clock starts ticking the pressure is on the UK to come up with a deal that is acceptable to the EU27. A messy automatic divorce (decree nisi) with no deal after two years is not great for anybody but relatively easier to take for the EU than for the UK. A few Leavers are apparently waking up to this reality. At the moment they don’t even know what to negotiate for so it is fair to assume that Article 50 won’t be triggered anytime soon. October sounds wishful to me given that the new Prime Minister (in place by September) will have to decide what the negotiation aim is (this is when the irreconcilable claims become more obvious) and then justify it somehow (maybe even through a general election). So don’t be surprised if formal negotiations don’t start this year. Some Tory MPs have even suggested starting formal negotiations might take years (let alone concluding them!).

At the same time, the economic dynamic puts pressure on the country in exactly the opposite direction. Economic actors fundamentally dislike prolonged periods of uncertainty. And this is what is being created by current UK politics. Given that especially the all-important service sector can react quickly and move operations to circumvent business risk you can expect relocations and abandoned or diverted investment decisions to be on the rise. A few examples are already known (see here and here). Put yourself into the shoes of a business manager and assess the risk. The best long-term outcome possible would only preserve the status quo. But given the political dynamics this an unlikely scenario. It won’t be easy at all to accept freedom of movement as a price for access to the single market after a Leave campaign based on xenophobia and rejection of immigration. More likely is some worsening of the status quo (maybe even a significant worsening) plus the likelihood that the outcome of these negotiations won’t be known for several years yet (a known unknown). What do you do? If you have good alternatives and are able to move you eradicate this business risk by relocating, especially if it only means shifting jobs from one office to the other. The economic reality is this: whilst this uncertainty lasts the UK service sector is prone to being unpicked especially with competitors such as Frankfurt sniffing an opportunity and rolling out the red carpet.

So the choice is continued economic uncertainty and bleeding or speeding up the process by triggering Article 50 and giving up control over the process – remember the bit about ‘taking back control’? Did Boris, Gove and the rest even think of that unenviable and inevitable choice?

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