Brexit’s Doldrums before the Storm

By Roy C. Smith

This past week I have been reading email comments from a group of establishment Brits who have been discussing a recent petitioning for a second referendum on Brexit by the Independent newspaper. Though the idea was proposed a year ago by former prime minister Tony Blair (because of the poor quality of the Brexit debate prior to the vote), Blair has been sufficiently discredited by his endorsement of George W. Bush’s Iraq war that the thought never went very far. But after a year of Brexit gridlock, a dramatic slowdown in the UK growth rate to 1.3%, one of the EU’s lowest, and fear that achieving no agreement by March 2019 would make it all worse, has moved public concern over Brexit to the point of entertaining radical moves, which a second referendum would be.

Why radical? Because Teresa May has said “Brexit means Brexit,” and there is no going back. The people voted, so that’s it. That and the fact that agreeing to a second referendum would almost certainly result in May being replaced as Conservative leader or losing a vote of confidence in Parliament that would bring in Labour.

Comments from the email group have been erudite, diverse, and witty. All express frustration that an event as important to the future of the UK as Brexit should be hostage to entrenched political stalemate. May’s dilemma is that whatever both sides of her Conservative Party might accept would not be acceptable to the EU. The public too remains sharply divided over whether Brexit would be good for them or not. No matter what happens, several emailers have noted, half the country will still be unhappy. And yet, say some who have been summering outside the UK, as important as the matter is to the Brits, no one in the US or Europe seems to care very much about it.  

The Independent’s editorial that proposed the second referendum was accompanied by a petition to be submitted to the government. In a week, over 400,000 signatures in favor of a second referendum were gathered. A Reuters poll on July 30, showed two-thirds of Britons now believe that Brexit will be a “bad deal” for the UK, and 50% support a second referendum. The poll also reported that 48% said if there was another vote they would choose to remain in the EU, 27% said they preferred to leave the EU even without a deal, and only 13% supported the Prime Minister’s plan announced after a cabinet meeting ultimatum at Chequers last month.

In June, the governor of the Bank of England, Mark Carney, said that the cost of Brexit so far was about £900 per household, as GDP had shrunk by 2.1% over what had been forecast two years earlier. Another report in July by consultants Oliver Wyman and law firm Clifford Chance estimated tariffs of £31 billion per annum on goods imported from the EU and £27 billion on UK exports would adversely affect the supply chains of both UK and EU manufacturers. The IMF said it was worried about inflationary pressures in an economy with near full employment, bringing back memories of the painful period of “stagflation” in the 1970s. These realizations have caused new capital investment plans in the UK to be cancelled or deferred.

Ms. May has also said UK taxpayers would be obliged to pay the EU approximately £35 billion for past unfulfilled commitments as part of the “divorce settlement.” The net financial effect of all this is to lower growth over an extended time and reduce funds available for health and other public services. None of this was known or expected by voters at the time of the original referendum in 2016. British voters, concerned about their own futures, apparently are now starting to pay attention to the economic forecasts, which the die-hard Brexiters brush aside as “fake news.”

The Economist and some other commentators, probably including most of the email group, have come out for a “soft Brexit,” which means staying inside the common market and accepting EU immigration and some other policies. This would mean avoiding tariffs on “goods,” but also keeping an open border with Ireland. “Services” could be outside the EU rules, which the City of London would like. Immigration is a contentious issue but overblown for political purposes. In 2017, 311,000 non-EU immigrants arrived in the UK (0.5% of the population), though net immigration from all countries was 227,000.  Even so, the hardcore, deeply resistant to the notion of a dominating European political union that would swallow British sovereignty, won’t buy the soft version. Rather than compromise they are willing to end up with no deal at all.  

The Independent’s second referendum idea is gathering support from former political big wigs from both sides. Even though it might be the best and most responsible road to take now that information about the real Brexit has been circulating for a couple of years, the May government seems unlikely to undertake it. If she should fall in a vote of no-confidence a new election would result, which likely would place socialist Jeremy Corbyn in charge of the next government. There is no indication yet that Corbyn would initiate a second referendum either, but the Independent’s move may create grass-root political pressure that could force his hand.

American’s observing all this should have some sympathy for the email group and the rest of the British public concerned about a suicidal course of action set in motion by a minority of true believers. We face mid-term elections that are thought to be a second referendum on Donald Trump and his commitment to tariff wars, retreating from international agreements, and immigration policies that harm the economy and are greatly disproportionate to the illegal entry volumes that currently exist.  Recent US polls show that only about a third of “independent” voters currently support the president, and nearly half of American registered voters now claim to be independent. Polls also find that 88% of Republican voters still solidly support Mr. Trump, suggesting that he totally controls his party, but there are plenty of silent dissidents. In mid-term elections, first term presidents usually lose seats in the House of representatives. Republicans will have to lose 23 seats to lose control of the House, something Democrats regard as more than likely. But, it will be a test of grass root support across the country for the Trump persona and agenda.

Trump’s election was the second of two shocks in 2016, the other being the Brexit vote. In both cases the polls had it wrong, and an underlying sense of anxiety and anger shaped both outcomes.  Now we are about to test the waters in the US after two years of Mr. Trump, and in the UK as to whether the government can deliver an acceptable Brexit outcome. In both cases, we can anticipate stormy times after the summer doldrums.