Blog No. 197. The Brexit Shipwreck: Are There Lifeboats?

The polarization of political opinion in the United States has been the subject of endless comment and analysis, particularly in the aftermath of the unexpected election of Donald Trump in 2016. Preoccupied with our own problems, many have been aware of, but not paid a great deal of attention to, a parallel polarization in the United Kingdom. That polarization was also revealed by an unexpected event in 2016: a referendum mandating a UK exit from the European Union or, in the popular portmanteau, Brexit. But as Brexit is now approaching a crisis, it is beginning to draw increasing coverage in American media. It is worth considering not only from the standpoint of concern for our oldest and closest ally and the impact on Europe, but for the potential harm to our own economy.

While there was no direct connection between Brexit and the election of Donald Trump, the events did have some common elements. Many supporters of Brexit (“Brexiteers” or “Leavers”) shared with many in the Trump base concerns about income stagnation, fears of immigration and wistful hopes of returning to imagined glory of bygone days. Not surprisingly, Brexit appealed to Trump’s nationalistic instincts and resentment of the EU; he endorsed Brexit before the vote and, after the vote, he called it a “great victory,” adding:

You see it all over Europe and many other cases where they want to take their borders back. They want to take their monetary [sic] back. They want to take a lot of things back. They want to have a country again. I think you are going to have this more and more. I really believe that. And it is happening in the United States.

In the UK, the Brexit referendum came about as a tactical move by Conservative Prime Minister David Cameron to quell a revolt among Conservatives who not only worried about immigration but objected to the myriad economic rules and regulations that accompanied EU membership. Cameron, however, campaigned against leaving and, when the referendum decided the issue in favor of departure by a 52% majority, he resigned as Prime Minister. Theresa May then became Prime Minister and, although she had opposed Brexit, she pledged to implement the people’s verdict by negotiating an orderly withdrawal, promising that it would minimize any economic damage to the UK. Since then, she has struggled to do so in what has increasingly come to be seen as an impossible task.

Along the way, May suffered a self-inflicted political wound in 2017 when she called a snap election hoping to strengthen her Conservative majority. As it turned out, however, the Conservatives lost their majority and retained control of Parliament only through a coalition with the very conservative Democratic Unionist Party of Northern Ireland (“DUP”), a circumstance significantly complicating May’s current predicament.

Matters have now reached something of a head as the deadline for reaching an agreement with the EU is March 29. It has become increasingly apparent to all but the most fervent Brexiteers that if there is no agreement, a “hard Brexit” would bring chaos, disrupting the flow of travel and a wide range of goods and services. The immediate and long-range economic consequences will be severe for the UK and damaging to the EU. Beyond economics, the geopolitical impact would also be significant. As the Financial Times observed:

Britain’s woes may be self-inflicted, but a Europe that wants to hold on to its liberal democratic values in a world challenged by rising authoritarianism has a powerful self-interest in helping where it can. Populists everywhere would cheer Britain’s national collapse. So too would Russia’s Vladimir Putin.

Economically, it impossible to foresee just what the impact on the United States would be, but both the UK and the EU are major trading partners and represent countries in which American companies have significant investments. And, as we learned in 2008, the interconnections in the global financial system mean that any major failure in the system may have wide ripples.

Leading up to this point, and seeking to avoid a hard Brexit, May engaged in lengthy and laborious negotiations to reach a Withdrawal Agreement with the EU. But hardly anyone likes the resulting agreement, which satisfies neither Leavers nor Remainers. It received the grudging approval of May’s cabinet after a marathon meeting, but at the same time it led to the resignation from her government of several ministers. Some Conservative ministers are reported to be seeking to achieve a vote of no confidence within the party, but there is no declared or obvious candidate to succeed May. Nor is there any reason to believe that a different Conservative Prime Minister would be successful in persuading the EU to renegotiate the Agreement. The EU would surely like to avoid a hard Brexit, but it will go only so far to do so. Apart from any desire to punish the UK, the EU’s overriding concern is to reject any agreement so lenient that it encourages other countries to depart.

The Labor Party is divided in its views on Brexit, but is likely to oppose the May agreement in part because many in the Party, perhaps including its leader Jeremy Corbyn, believe that a defeat could lead to a parliamentary vote of no confidence triggering a general election. On the other hand, the Conservatives and the DUP, whatever their views of Brexit, will strive mightily to avoid to such a development because of intense fear and dislike of Corbyn, an old style Socialist who seeks to return his party to its days before Tony Blair. Some observers have suggested that, notwithstanding Corbyn’s position, May could possibly gain support from Labor Members sufficient to offset Conservative defections, but that is speculative at best.

The essence, and the principal weakness, of the Withdrawal Agreement is that it is in large part an agreement to agree, or try to agree. It provides for a 21 month transition period during which the parties would seek to reach a permanent trade agreement. During that period, the UK would remain a de facto part of the EU Customs Union, though not the EU Single Market (which is the source of extensive commercial regulations). The transition period may be extended by agreement, but it is not clear what will happen if there is neither agreement nor extension. Critics fear that because of a “backstop” provision relating to the Northern Ireland border with Ireland, England may be forced to remain in the EU Customs Union indefinitely.

No one wants the customs barrier of “hard border” between Northern Ireland and Ireland that would result from a hard Brexit. It is feared that such a border could, among other things, destabilize the peace that has prevailed in Northern Ireland since the Good Friday Agreement. If a permanent free trade agreement is negotiated between the UK and the EU, the Irish border will no longer be significant. Failing such an agreement, however, the backstop provision requires the UK to remain in the EU Customs Union “unless and until” the EU agrees that there is no prospect of a return to a hard border. The UK must also accept special “deeper” customs arrangements, closer to the Single Market, for Northern Ireland and, for the whole of the UK, the EU’s so-called “level playing field” conditions (regarding competition and state aid, as well as employment and environment standards and tax).

Conservative MPs who resigned from May’s government prominently included Dominic Raab, who had held the position of Brexit Secretary. Raab’s resignation letter spoke for many Brexiteers when he attacked the Agreement on two grounds:

First, I believe that the regulatory regime proposed for Northern Ireland presents a very real threat to the integrity of the United Kingdom.

Second, I cannot support the indefinite backstop arrangement, where the EU holds a veto over our ability to exit. The terms of the backstop amount to a hybrid of the EU Customs Union and Single Market obligations. No democratic nation has ever signed up to be bound by such an extensive regime, imposed externally without any democratic control over the laws to be applied, nor the ability to decide to exit the arrangement. That arrangement is now also taken as the starting point for negotiating the Future Economic Partnership. If we accept that, it will severely prejudice the second phase of negotiations against the UK.

Mr. Raab, however, did not pause to address the economic harm to the UK from a hard Brexit, let alone the risks of political instability in Northern Ireland and possibly Scotland.

Not surprisingly, the DUP is opposed to the backstop provisions or any agreement that would differentiate between Northern Ireland and the rest of the UK. In contrast, members of the Scottish National Party argue that Scotland should be entitled to treatment similar to that extended to Northern Ireland. Aggregating the various factions opposing the Agreement, it is difficult to see how approval can gain a majority in parliament. On the other hand, if it fails, reality may set in to concentrate the parliamentary minds and conceivably it could be approved in a second vote. Proponents of this theory point to the Bush administration’s TARP package for financial rescues in 2008 that was initially rejected by Congress but then approved.

If the Agreement is rejected by parliament, the other option being discussed is the possibility of a second referendum. One advocate of this course is Jo Johnson, the former Minister of Transportation who resigned in protest over the Agreement. Writing in the Financial Times, Johnson put it this way:

The democratic and politically sensible thing to do is to release us from the shackles of the referendum result and give the public the final say. Things have moved on palpably since June 2016. This would not be about re-running that referendum, but about asking people whether they want to go ahead with Brexit on these terms now that we know the exact nature of the deal that is actually avail­able to us, whether we should leave without any deal at all or whether people on balance would rather stick with the deal we already have inside the EU. To those who say that is an affront to democracy given the 2016 result, I ask this: is it more democratic to rely on a three-year-old vote based on what an idealised Brexit might offer, or to have a vote based on what we know it does actually entail?

Johnson’s argument makes a good deal of sense, but whether his solution is politically feasible may be another matter.

Finally, there is an aspect of the Agreement that has not been widely discussed, but which could be significant in either the parliamentary vote or a referendum. There is reason to believe that a major impetus of the 2016 referendum result may now be greatly diminished: the fear of immigration. To begin with, the Agreement, for all its faults, does not mandate the free movement of people required under the EU Single Market. As explained by one respected media outlet in Britain, The Conversation:

The deal addresses the status of existing EU migrants and contains some specific arrangements in Northern Ireland related to preventing a hard border on the island of Ireland – but there is little to suggest that the UK has been compelled to accept the continued free movement of labour. The seven-page political declaration outlining the future relationship with the EU, published alongside the 585-page deal, includes only 35 words on the mobility of people between the UK and EU. It emphasises that temporary mobility will be allowed “for business purposes in defined areas”, with “visa-free travel for short-term visits.”

In other words, Dutch bankers and French chefs will remain welcome. Bricklayers from eastern European accession countries: not so much.

Moreover, as reported in the Washington Post, recent polls show that immigration has become a matter of far less urgent concern to the UK public that it was in 2016.

There is little or nothing that the United States can do to influence the resolution of the Brexit crisis. In another time, we might have worked quietly behind the scenes to encourage flexibility on the part of both the EU and the UK. But that type of exercise would be not only against President Trump’s instincts but outside his skill set.