Brexit enthusiasts and the indefinite exit scenario
- Written by Victor Lupu
The UK voted to leave the EU by 52% to 48% in the referendum on June 23. The referendum saw 17.4 million (51.9%) votes cast to leave the EU, compared with 16.1 million (48.1%) for remain, with a turnout of 72.2%. So where does that leave the UK? A petition signed by 4.1 million for a new referendum was turned down by the government but, on the other hand, British government does not seem eager to trigger the article 50 of the Lisbon Treaty to leave the EU.
The new British Prime Minister Theresa May (who has taken over after Davis Cameron’s resignation) plays down the idea of an immediate action. “I have already said that I won’t be triggering Article 50 until I think that we have a UK approach and objectives for negotiations - I think it is important that we establish that before we trigger Article 50,” she said after meeting Scottish First Minister Nicola Sturgeon on July 15. May is willing to listen to options on Scotland’s future with the EU, but rejects the idea of a new referendum, as people in Scotland sent a ‘very clear message’ in 2014.
However, nothing is quite clear in British politics after the Brexit vote. The Brexit enthusiasts’ voices have faded, leaving room for turmoil and uncertainty. UKIP leader Nigel Farage has resigned from the helm of the party, completely satisfied with his achievement of getting ‘independence’ for the UK. He has other priorities now, such as taking part to the Republican National Convention in Cleveland! “I am not about to endorse nobody,” he says, denied being invited by Donald Trump. But Trump was the one who enthusiastically praised the referendum vote saying the British ‘took their country back’.
The other important campaigner for Brexit, former London mayor Boris Johnson, is now in Theresa May’s cabinet as Foreign Secretary. Was this a reward or a punishment for him? He is now to negotiate with the EU leaders and bring the best for his country. Will he? One of the important US newspapers commented recently on the issue: “Boris Johnson, the former London mayor and member of Parliament who helped orchestrate the Brexit, will be Britain’s foreign secretary. It seems like an odd role for someone who spent the last months campaigning against internationalism, someone who wrote a limerick (for a 1,000 pound prize) about the Turkish president having sex with a goat, someone who said President Obama had an ‘ancestral dislike’ of Britain because he was ‘part-Kenyan’ and compared Hillary Clinton to ‘a sadistic nurse in a mental hospital’.”
The British political scene is in turmoil since June 23. Labour Party leader Jeremy Corbin was to stand the test of the National Executive Committee for another term during July 25-27, but opponents claim he has failed as a ‘remain’ supporter and argue strongly that the main factors dividing them from him aren’t so much policies but competence.
The only winners seem to be the Liberal Democrats. Leader Tim Farron vows to restore EU membership and is attracting the disillusioned after the referendum. No less than 15,000 people have joined his party following the Brexit vote!
The Brexiteers may be optimistic, but the Europeans don’t see things quite the same. A recent survey shows people in Germany, France, Sweden and Finland say the UK should not get a ‘generous’ agreement after leaving the EU. No less than 53% of Germans and the French say the British should not expect favours from the EU. If London targets a free trade agreement, then it should keep the free movement of EU citizens. As EU leaders and German Chancellor Angela Merkel press for a fast exit, there is a mood of ‘revenge’ in continental Europe. Merkel told ZDF that Britain would not be allowed to ‘cherry pick’ what it wanted from the relationship while jettisoning aspects it did not like. Voicing discontent with the referendum’s results, European Council President Donald Tusk said a tough stance is needed during the upcoming Brexit negotiations, so that other states should think more than twice before intending to leave the block. “No one should be seething with desire to punish, humiliate (the British) for what they have done to us,” Donald Tusk told Polish weekly Polityka. “We cannot push them away from us, but we cannot let them profit from Brexit, as that would be lethal for the EU,” Tusk said.
Incertitude about the future has tensioned relations in the UK. Three million EU citizens live in Britain, i.e. 5% of the population. “The main problem is that foreign employees feel they are not welcome anymore,” a businessman said. British companies have started recruiting lawyers to offer judicial counselling for employees aiming at getting residence rights. On the other hand, British farmers face the possibility of losing the seasonal workers (some 50-60,000).
Ethnical tensions have risen by some 50%. One of the victims was a Romanian shop owner in Norwich, whose shop was set on fire on July 7. Although no one was hurt, locals were shocked and raised more than GBP 25,000 in donations to support the victims. Romanian Foreign Ministry condemned the incident.
Meanwhile, sources in Bucharest have revealed that an analysis conducted by the Ciolos government shows that the advantage of tough negotiations, with London paying high costs, will increase the EU cohesion, in other words similar initiatives would be deterred. In an analysis about Brexit the government shows that Romania must maintain the strategic partnership with the UK, but also it does not rule out supporting the EU leaders pressing for a quick Brexit if London vetoes various European initiatives. The government makes a tough radiography on the EU and of the European leaders and says that Romania should quickly position itself so that the EU transformation process is not seized by Eurozone countries.
According to political sources, the government analysis is part of a document presented by Prime Minister Ciolos during the meeting at Cotroceni Palace on July 4 with President Klaus Iohannis, party leaders and BNR board, but also during the meetings with Romanian MEPs.
In this document, the government warns that the EU transformation after Brexit could be seized by the Eurozone states and says that “Romania will have to position itself quickly in the transformational process that is to begin. The founding Member States and, in a larger sense, the Eurozone countries will be inclined to take control of this process.”
Among the major risks taken into account by the Government after Brexit are lower EU funds (10-15%), reduced remittances from Romanian citizens living in the UK, short-term declines in exports, Romania’s decoupling from the EU tough core.
The government presented the opportunities brought by Brexit: becoming the sixth largest country in the EU, Romania “has the chance to become a strategic negotiator and a major player”, provided “it has and promotes a strong pro-European stand, critic but constructive”.
Hopefully, economic relations with the UK will remain strong. It’s the same desiderate expressed by the recently elected head of the British Romanian Chamber of Commerce, Charles Crocker. He reminded British investments in Romania amount to EUR 6.5 billion, bilateral trade reached EUR 3 billion in 2014, there are some 5,000 businesses with British capital in Romania and about 2,000 companies with Romanian capital in the UK, many of them in the IT field.
Economic uncertainties, oil markets
Meanwhile, confidence is falling among British consumers, the largest fall in the last 22 years. According to a GfK survey, the most depressed are those who voted ‘remain’ – minus 13 points, while the ‘leave’ supporters are anyhow less optimistic – minus 5 points. 60% of the British people believe economy will go down, while 33% believe prices will increase. Even the Bank of England Governor Mark Carney warned British economy will face significant slowdown.
Immediate results of the Brexit vote was the fall of GBP to the lowest level in 31 years (some 20%) and the stock exchanges fell by 12% in one day. Some USD 2,000 thousand were lost in the listed companies’ capitalization. A week after the referendum Euro Stoxx 50 had a loss of 7.4% and a fall of 17.1% for the past 12 months. FTSE 100 was minus 2.5% for the past year.
As forecasts for British economy vary from pessimistic to moderate, the IMF has reduced the economic prospects for EU too, cutting the growth outlook to 1.6% in 2016 and 1.4% in 2017.
As EU is the destination of some half of British goods exports, trade will much depend on the negotiations between London and Brussels. But optimists say Brexit would give Britain a crucial opportunity by allowing it to broker its own trade deals with non-EU countries and could have a unilateral free trade policy. In terms of financial services, they’d have more to lose immediately after an EU exit than most other sectors of the economy. Cutting a long story short, main concerns target foreign investments and the possible relocation of large companies to continental Europe or Ireland.
As far as the oil market is concerned, calm seems to reign for the moment, although uncertainty looms. According to JPMorgan, its Brent and WTI price forecasts for Q3 of and Q4 of 2016 are now USD 53 a barrel and USD 55 a barrel. Another US analyst said ‘for the oil market, Brexit is important in the near term, but not so much in the long term unless a global recession is the result.’ OPEC already looks at next year’s developments. It said the UK’s vote to leave the EU could curb global economic growth next year, notably in Europe, where the risk is that demand for oil could fall. European oil demand “faces substantial downside risks… as a result of uncertainties related to the region’s economy, resulting from the UK referendum, among other challenges,” OPEC’s research department said. As the European oil demand is about 14.5% of the global one, the risks could be regarded as moderate on world scale, analysts say.
Meanwhile, it is said Royal Dutch Shell plc might face delays in the completion of its USD 30 billion asset divestiture plan after Brexit. It could stall for the next three years, some say. Shell boss Ben van Beurden reportedly told investors recently that the UK’s decision to leave the EU would make it more difficult to complete deals in the region. Efforts to sell North Sea assets could be complicated by the GBP fall.
As PM Theresa May vowed, after the talks with Scottish First Minister Nicola Sturgeon, not to trigger article 50 until she had agreed a ‘UK approach’ with leaders in Scotland, Wales and Northern Ireland, this might just mean a rather long time. On the other hand, pressures from fellow Tories aim at triggering it immediately. “No region of the UK should be allowed to hold the rest of the country to ransom,” a conservative MP said. Another source said Scotland would not be allowed to block Brexit, saying Theresa May’s comments had been ‘over-interpreted’.
And yet, more than ever uncertainty is most pregnant for the UK future. Drawing the line, we could say pressure for a quick EU leave want to avoid centrifugal steps and, last but not least, the shifting of Brexit into an indefinite decision that would maintain the ambiguity further on for a long time. In this context, will the parliament have a decisive say to turn things upside down? Although improbable, it may also contribute to the indefinite deadlines ahead.