Britain has written a cheque it cannot cash

June 24, 2016

The author is a Reuters Breakingviews columnist.  The opinions expressed are his own.

Britain’s public wants to leave Europe. Whether the decision is rational or not doesn’t matter. Now, a smooth process requires three things: managing political uncertainty, uniting a deeply divided population, and ensuring the UK enters negotiations feeling economically strong rather than weak.

It could be months before talks actually begin on how the UK will deal with its 27 jilted bloc-members. In that time a lot can happen. First up is a likely reshuffling among Britain’s leaders. Prime Minister David Cameron, who publicly backed a “Remain” vote, can’t easily stay. A logical replacement for him is former London mayor Boris Johnson. But a pro-leave leader won’t play well with the 48 percent of Brits who wanted to remain. The new government will have a small majority and could prove unstable.

Second is the effect on Britain’s short-term prosperity. This matters because the “Leave” camp argued Brexit would not damage the economy. Even if the immediate effects fade over time, the conditions following the vote will decide whether Britons want their leaders to head to Europe seeking divorce, or entreating their peers for a deal. If what follows is deeply traumatic, the narrow win for the “Leave” camp leaves scope for a new prime minister to refrain from pushing the button.

Investment into the UK, half of which comes from Europe, is likely to hang in the balance. Why buy assets in a country throwing away access to its biggest export market, and riven by discord? That could in turn affect employment. Foreign investment projects created 42,336 British jobs in 2015, according to Ernst & Young. There’s small comfort in the fact that consumer confidence, as measured by research firm GfK, is still far above where it was for most of the past decade – albeit on a negative trend.

The central bank can help contain the damage. Cutting rates might increase consumer confidence and encourage investment, but it could also worsen the effect of a weakening currency. The Bank may have to intervene to prop sterling up. Troublingly, Mark Carney, the head of the Bank of England, advocated staying in the European Union. Over half of the country has publicly disagreed with him.

The biggest danger is that those promoting an EU exit have entered into a contract with voters that they may be unable to honour. The pro-leave side said that following Brexit there would be more control over immigration – which is deliverable – and more prosperity – which probably isn’t, unless the UK can persuade its jilted European partners to offer a comparable trade deal that might encourage other EU nations to depart.

Leave was also supposed to offer a return of control to the British public. Yet what the country’s next leaders inherit is a country profoundly split along regional and class lines, heading into a period of prolonged uncertainty. That doesn’t sound like the kind of control worth having.


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I find the assertion that the government of the UK to be unstable due the 52/48 voter split to be specious. That very 52/48 split has existed before this vote and on so many other different important issues and yet the UK has continued to have a very stable government. How long has the UK been a ” country profoundly split along regional and class lines, heading into a period of prolonged uncertainty”? How many countries on the face of this planet are not divided by those lines and have no uncertainty about their future?

Posted by NiellChase | Report as abusive

Historically Britons were accustomed to telling other countries and peoples what to do. They are not used to working with other countries on the same level. Brexit is an attempt to return to the political arrangements prior to 1939. It’s not going to work. Sovereign and patriotism are code words for wars. Brexit or Auxit increase probability of the WWIII. The issues in the coming American election are similar to those in Brexit. Common peoples in developed countries just don’t like the conditions for a global economy that they must endure despite cheap prices they pay for those imported goods. However the 1% just love the global economy because that is how they make money. So the bottom line of the conflict is a conflict between the elite and the other 99% (or the wealthy and the poor).

Posted by jlpeng | Report as abusive

A long process will mean tanking markets every time there is some exit event that can have negative uncertain effect on some sector or major firm.

Since Britain buys and sells many things including services there are many trade things to do. All the regulations imposed by the EU needs to be reviewed. EU boards have to superseded by English bodies. If same lack of representation is to be avoided elected officials must govern them and direction must clear to the public.

Posted by SamuelReich | Report as abusive

In all things affecting a major economy: a definite maybe or we will think what to do, will mean tanking security prices.

Posted by SamuelReich | Report as abusive

“But a pro-leave leader won’t play well with the 48 percent of Brits who wanted to remain. The new government will have a small majority and could prove unstable.” By that same logic, a pro-remain leader would not get along with the 52% who voted to leave, and will be even worse.

Posted by Xendock | Report as abusive

Describing Britain as “a country throwing away access to its biggest export market” is utter nonsense – a country does not have to be a member of the EU to sell to EU countries. Chile sells wine in the EU, China sells manufactured goods in the EU. Most world trade takes place under WTO agreements, to which all EU countries are signatories in their own right.

All that Britain loses by leaving the EU is the right to sell goods in the EU without going through the same customs formalities that Chile and China and the USA have to go through.

Posted by ytowner | Report as abusive

“Why buy assets in a country throwing away access to its biggest export market” It’s not as if Britain is relocating to Mars. Obviously, trade deals will have to be reworked and there will be changes in the way she deals with her European neighbors, but Britain will continue to trade with Europe, and do so without having to submit to the political dictates of Brussels.

Posted by rbilleaud | Report as abusive