BREXIT – A BREMAINER’€™S PERSPECTIVE PAST AND PRESENT

Luke Conner
General Director, Conner & Company LLC

During the U.K.’s referendum on whether to leave the European Union, I found myself becoming an increasingly committed member of the “Bremain” camp, a group also now affectionately referred to as the “Remoaners”. I understand that the EU is an inherently flawed institution. I agree that the U.K. might not ultimately need the EU in order to prosper. I comprehend (although I don’t necessarily agree with) voter concern about migration and a loss of sovereignty. And I certainly don’t think that David Cameron’s newly proposed deal with the EU was a viable solution to any of these problems. It wasn’t, and in fact it really just ended up irritating both sides of the campaign. So why then oppose Brexit?
The overriding reason for my opposition was that there wasn’t, and still isn’t, any clear concept of what Brexit was supposed to mean. The Great British public was never even presented with a basic road map of how the exit process would be managed. Admittedly, this was because the government was pushing for a “remain” vote. However, it is also fair to say that the Brexit campaigners themselves did very little to set out a cohesive plan as to how their dream objective would be achieved in practice. Consequently, we are now left in the position where a majority of voters has voted for something, but where nobody seems to be quite sure what that something actually is, or how the process of disentanglement will pan out.

There are various options available to the U.K. when the time comes to exercise its right to leave the EU under Article 50 of the Lisbon Treaty. The first option has to be out and out Brexit, and, to my knowledge, is what most of the voters voting “leave” actually wanted. This would entail the U.K. completely disengaging from the EU political process and repealing those laws that are deemed distasteful to a true British palate. Freedom of movement and labour within the U.K. would be completely off the agenda for EU countries. Her Majesty’s government would then negotiate a separate bilateral free trade deal with the bloc.

Most sane commentators, including those of a Brexit persuasion, will realise that this is completely unworkable in the real world. Firstly, any free trade deal the U.K. agrees with the EU, will need the approval of all 27 remaining members. Each of these other nations will come to the table with their own separate conditions. For instance, most countries have already indicated that they will make ongoing British access to the single market conditional upon freedom of movement for their citizens in the U.K. France and Denmark also want to assure rights for their fishermen in U.K. waters, whilst Spain has said that it will try to strike a deal for joint sovereignty of Gibraltar, and Malta is keen to maintain access rights for its students to British Universities. This is merely the start of it. Keeping everybody happy, will be by no means easy.

This leads to what are known as the soft Brexit alternatives: for example, negotiation of an EU deal similar to that which Norway has. This solution allows market access and many of the benefits of the EU, whilst not requiring the UK to be a member. Instead, it would be a member of the European Economic Area. This solution, along with the Swiss model (Switzerland is not a member of the EEA, but has its own separately negotiated deal), is a far cry from the true Brexit, which the majority of the voting public were asking for. Both models still require payments to be made to the EU in return for access to the single market. Both systems would leave the U.K. unrepresented in the EU itself, but would still require the UK to follow EU regulation. Crucially, both options would guarantee free movement of people, services, capital and goods. That Boris Johnson seems to favour this soft Brexit cop-out, seems highly hypocritical and indicative of the fact that the Brexiteers knowingly offered more than they could ever have hoped to deliver.

Lack of procedural clarity was not my only concern with Brexit. There was compelling and (now it would appear) accurate advice about a resultant short to medium term economic fall-out. At the time of writing, the pound buys a meagre US$ 1.30 and EUR 1.15. This represents a significant devaluation since sterling’s strongest moments during the night of the referendum, before the “leave” result began to become clear. In fact, at its peak, in the early hours of 24 June, the pound/dollar rate was above 1.48, and the sterling/Euro rate above 1.30. This roughly represents a 13 per cent. devaluation of the pound, taking a starting valuation that had already been devalued significantly by the uncertainty surrounding the referendum debate itself. Let’s also not forget that the pound was already running way off its long term high as a result of the huge damage caused by the financial crisis of 2008. The Brexiteers argue that this will aid the U.K.’s export efforts and is a blip that will be rectified. But hardly any analysts are forecasting a recovery in the pound’s prospects any time soon, and the British government has an extremely poor record in improving export figures to anything like where they really need to be.

There are other economic headwinds. At the time of writing, inflation has started to spike. This is exacerbated by the weakness in sterling, which makes imports in everything from oil to tobacco, more expensive. Reliable industry purchasing surveys are already pointing to contraction, from previously positive territory. Further, foreign banks in the City of London are already preparing contingency plans to move their European headquarters if they cannot secure EU passporting rights via the UK. None of this is the scaremongering or hyperbole of so-called “Project Fear”. It is real and documented.

Perhaps the greatest irony of Brexit is that, rather than reducing bureaucracy, at least for a few years (and maybe more), it very much looks like there will be a significant increase. We even have a new government department (the Department for Exiting the EU) to manage this process for us. Then there are the constitutional claims, which are to be heard by the Supreme Court. My view is that these are doomed to failure. They are, however, along with the huge amounts of ministerial and governmental time which need to be allocated to Brexit, a completely unnecessary burden.

In summary then, a significant amount of economic damage has already been done. Further, in all likelihood, any Brexit solution will not be a true Brexit solution at all, but instead a soft-option that will try to appease both the leave and the remain camps, but will end up disappointing both of them, resulting in some form of quasi-EU membership, but with no ability for the UK to shape EU regulation. This unfortunate ensemble, leaves me wondering why Brexit is at all appealing. To me it looks more like an economic, political and constitutional mess for the U.K. And what is worse, it is completely self-inflicted at a time when things were going along quite nicely. Notwithstanding all of the above, this is time for the U.K. government to get moving to try to achieve the best possible Brexit outcome, and it is no time to try to reset the referendum result.
(Sources: Bloomberg; The Telegraph; The Economist)