Global Equities

The politics surrounding Brexit

The analysis has three prongs. Only one would console the UK – but with a twist.

The politics surrounding Brexit

October 2018

In 1972, about 70% of Greenlanders voted against joining the six-member EU.[1] But the voters of Greenland, which was and remains part of the Danish Realm, were on the losing side of a nationwide verdict to join the bloc, which happened the next year.

In 1979, Copenhagen granted Greenland autonomy and in 1982 the island’s parliament engineered another vote on EU membership. The main issue was control of Greenland’s fishing rights. By 53% to 47%, Greenlanders opted to become the second territory to leave the bloc[2] – French Algeria had quit on gaining independence from France in 1962.

Holding a vote seems to have been the easy part. It took over three years and more than 100 meetings with the EU to formulate the island’s departure.[3] Greenland, home now to about 56,000 people, didn’t get much. The ‘Greenland Treaty of 1985’ left the EU in control of fishing rights while Greenlanders still paid EU dues.[4] “The negotiations were a surprisingly unpleasant job,” Lars Vesterbirk, who led Greenland’s team, recalled in 2016. “EU member states … were not willing to accept that you should or could leave.”[5]

Now another island and a part of a nearby island it governs is finding how hard it is to quit the EU. The UK is leaving the bloc it joined in 1973 after a vote in 2016, where control of immigration was a central issue, split 52% to 48% for Brexit.[6] The questions still unanswered before the UK becomes the fourth territory and first full member to leave the EU are the terms of its departure and the nature of the post-Brexit relationship between the EU and the UK. Examining the politics surrounding Brexit helps formulate what the answers might be.

The analysis has three components: what Brexit means for UK politics, what it signifies for EU politics and what it denotes for UK and EU ties after the UK departs. The answer in short is that no benevolent exit looms. Political constraints in the UK and EU make nasty all exit options for a UK that insists on control of immigration, the supremacy of its parliament and courts and remaining a unified trading zone.

The UK’s problem is that the EU’s political dynamics make it inflexible and unified on Brexit, which cements its domination in negotiations. For an EU hosting a populist backlash against immigration that warns of a fight over its supranational nature, Brexit falls below an existential threat as long as it stays united and unbudging. This is because UK, even as Europe’s second-biggest economy, is geographically peripheral and is not part of the eurozone. Brexit places three political demands on the bloc to ensure its unity. The first is the EU cannot make concessions on its ‘four freedoms’ of movement for goods, capital, services and labour. Another is to make the UK’s departure as joyless as possible to discourage others from doing likewise. The third is that the UK must gain no durable economic advantages from its departure.

In the UK, the politics surrounding Brexit are roiling because the country is in the weaker position and the political class is divided over the self-harm it must inflict to follow an unexpected result for which the Conservative government of David Cameron had not planned.[7] The most contentious problem was unforeseen; namely, EU intransigence on policing the UK’s land border with the EU that will bisect Ireland. Keeping the Northern Irish border invisible so as not to inflame sectarian passions is proving so intractable that the UK is struggling to nail down a way out that doesn’t weaken the country. As a result, the country is likely to depart via a ‘hard exit’; that is to say, without any agreement with the EU into legal uncertainty that ends its freedom of movements with the bloc. Or it could depart legally under a last-minute fudge but without resolving its economic relationship with EU. Since both options would fail to resolve the Irish border issue, the minority Conservative government of Theresa May could postpone Brexit, which the UK parliament set for next year. But that would set up a fight in parliament that could lead to a snap general election. A delayed Brexit would intensify calls for a second referendum that could leave the country more divided no matter the result. While a ‘hard Brexit’ looks more likely every week, what eventuates is still anyone’s guess.

The politics surrounding the EU-UK relationship post-Brexit are perhaps more encouraging for the UK. It could easily transpire that the UK, post the Brexit trauma, will have much in common with an EU where rising nationalism crimps the power of Brussels in favour of national governments. ‘Leavers’ might have been happy to stay with such an EU. Such is the folly of Brexit.

To be sure, sovereignty is a worthy goal for which people are prepared to pay a price, even if Brexit was more fuelled by anti-immigration sentiments. Brexit is less of a threat to the UK than would be another systemic financial crisis, the breakup of the euro, or such like. Perhaps policymakers can conjure some last-minute comprises that allows for a smooth-enough Brexit. Maybe the gloom about Brexit is misplaced and an unshackled UK will become ‘the Singapore of Europe’. In time, perhaps. The politics of Brexit, however, dictate plenty of trouble for the UK in the meantime.     

Fanning the exit

Ask members of the UK public to name the person most responsible for Brexit and they might say Nigel Farage, the former leader of the UK Independence Party. Veteran EU watchers and journalists are more likely to answer Boris Johnson, a UK journalist who was the Brussels correspondent from 1989 to 1994 for The Telegraph, a conservative UK paper.

Johnson spent his years in Brussels fanning EU scepticism that was rising on talk of greater EU powers and a common currency. Johnson did this by writing stories that ridiculed the EU or painted it as petty authoritarian. Martin Fletcher, a reporter for The Times in Brussels with Johnson, recalls: “He revealed European Commission plans to introduce harmonised ‘euro-coffins’, ban prawn cocktail crisps and establish a ‘banana police force’. He wrote stories headlined ‘Brussels recruits sniffers to ensure that euro-manure smells the same’ and ‘Threat to British pink sausages’.” [8] Other UK reporters copied – or were forced to copy – the eurosceptic style of Johnson, who targeted the EU during the rest of his career in journalism.

This is the same Johnson who, as an MP and popular mayor of London, campaigned for Brexit and who in July resigned as UK foreign minister to protest against May’s now EU-condemned Brexit plan known as ‘Chequers’.[9] Johnson is a prominent Leaver in May’s Brexit-torn Conservative government that, despite no need for urgency, set March 29 next year as Brexit day.

Under the Lisbon Treaty, the UK needed to give two years’ notice of its departure, which May did in 2017 with parliamentary approval. While this deadline can be extended with unanimous EU member approval, May put this date into UK law in June to appease Leaver MPs. This means it would take another act of parliament to postpone the Brexit deadline.[10]  

Under the treaty, the UK’s departure occurs via a still-to-be-finalised ‘withdrawal agreement’ that needs to be concluded with enough time to be approved by the UK then European parliaments and sanctioned by the European Council (where approval from 20 of the remaining 27 member states representing at least 65% of the EU population is the hurdle).[11] A failure to gain these approvals and the UK would leave without an agreement. That would mean there would be no ‘transition phase’ to 31 December 2020 when EU law would still apply in and to the UK.[12] This outcome is the ‘cliff-edge’ or ‘hard Brexit’ that rips the UK from EU laws and institutions into legal uncertainty. The UK approval is the most daunting because it requires agreement from the Conservative Party and the UK parliament, which are split over Brexit in contradictory ways. 

At EU insistence, the withdrawal agreement does not cover the future relationship between the EU and the UK. But statements about non-binding intentions will accompany a formalised UK exit and the UK parliament would need to approve the wording pre-Brexit.[13] If the UK leaves the EU in March 2019, yet the two parties fail to sign a pact on their future economic relationship before the transition phase expires 21 months later, then the UK faces uncertain Brexit.

The Irish conundrum

The European Commission in March published a 130-page draft withdrawal agreement that was colour coded to show most of the text is agreed.[14] But even as officials discuss unresolved issues that include UK compensation to the EU and the rights of citizens, one matter could torpedo all. This issue is how to police the Northern Ireland border when the UK departs the EU customs union, which allows for the free movement of goods within it. When the UK sits outside the EU, its goods will need to be inspected to enter the bloc, which promotes talk of delays, scarcities and stockpiling.[15]

The political implications of a UK outside the customs union are formidable because customs infrastructure along the Northern Irish border will visibly divide an island where the Good Friday or Belfast Agreement of 1998 ended a three-decade civil war in Northern Ireland over the province belonging to the UK. The pact ensured an end to military-style border checks on the 500-kilometre (300-mile) border. The EU and the UK say their formal relationship post-Brexit will ensure a ‘frictionless border’, a symbol of peace to the Irish.

The problem is the interim. The EU insists the border be policed, to ensure that goods of dubious standards can’t enter the bloc. The EU won UK agreement in 2017 that London devise a “backstop”[16] solution that won’t involve physical infrastructure on the border. But by conceding this, May, in effect, agreed to Northern Ireland staying in the EU’s customs union and single market while the Great Britain part of the UK left – a literal Brexit.

That’s explosive politically because it means the UK would become two economic zones with a de facto border in the Irish Sea. May’s minority government is dependent on Northern Ireland’s Democratic Unionist Party, a Protestant party that won’t allow Northern Ireland to have a separate status within the UK.

May’s solution? None so far. She rules out a ‘Canada-style’ trade agreement because it too creates a border in the Irish Sea.[17] Her Chequers plan called for England, Scotland and Wales to be placed in a temporary customs arrangement that kept the UK aligned with EU rules on goods. The EU rejected this plan as ‘cherry picking’ the four freedoms – goods could move freely but not services and EU citizens. Leavers cried surrender because a split UK would still be under EU law. Johnson said May has “wrapped a suicide vest around our constitution and handed the detonator to Brussels,” which could “crack apart” the UK whenever it wanted.[18]

Johnson was alluding to talk that a consensus could emerge in Northern Ireland that the province would be better off reunifying with the south to rejoin the EU – 56% of Northern Irish voters wanted to stay with the EU. Under the Good Friday agreement, London must hold a referendum if a majority of Northern Irish voters would vote for unification.[19] Catholic numbers are rising towards level with Protestants due to higher birth rates and some Protestant voters might one day prefer to join a less overtly Catholic south to reclaim EU membership.

Northern Ireland’s politics, however, are so dysfunctional that its parliament hasn’t sat since elections in March 2017 when the Protestant side lost its majority. While this makes a referendum an unlikely prospect any time soon, everyone remembers how close Scotland came to succeeding in 2014 when 45% voted to quit the UK.

The damage a ‘cliff edge’ untangling could inflict on the UK is fanning calls for another referendum that its proponents hope will torpedo Brexit. But May has repeatedly ruled out another vote because it will destroy faith in our democracy”.[20] Parliament would need to pass legislation to enable it and Brexit would probably need to be delayed, which would require another parliamentary vote. All when Leavers are enraged. An anti-Brussels backlash could deliver another victory for Leave anyway. Nonetheless, another referendum could happen, especially if Brexit is delayed.

The most likely way a formal exit deal could come about is that a looming ‘hard Brexit’ might cause enough commercial and financial chaos that politics demands an agreement for a legal exit even if there is no hope of resolving trade and border issues. Such an outcome is known as a ‘blind’ Brexit – the UK legally departs the EU but with only vague promises about its future trading relationship with the EU. This eventuality might only postpone much uncertainty to the end of 2020.

The German issue

In European history, the biggest political figures and regimes over the past 600 years include Charles V and Philip II from Spain, who ruled the Holy Roman Empire in the 16th century, and Suleiman the Magnificent and his successors who expanded the Ottoman Empire into central Europe around the same time. In more recent centuries, it would include Napoleon’s empire, Mitteleuropa after German unification in 1871, Germany’s Third Reich, the Soviet Bloc, NATO and the EU.

In all cases, one theme is central, says UK historian Brendan Simms, author of Europe. The struggle for supremacy. 1453 to the present. “The fundamental issue has always been whether Europe would be united – or dominated – by a single force,” he said. “In each case, the area of contention was Germany because of its strategic position at the heart of Europe.”[21]

When the politics of Brexit are viewed from this perspective, what do they mean for Europe? That Brexit is a lesser threat to European unity, especially when the UK, a glue between the US and Europe, is staying in NATO. (A French departure, for instance, would be an existential blow to the EU.) The UK’s historical advantage bestowed by geography is that the country is aloof from the fight over control of central Europe.[22]

That doesn’t make Brexit irrelevant to EU politics though. The EU needs to ensure that the UK is tortured enough that no members contemplates doing likewise. After that point, it can offer a last-minute deal to prevent an unruly Brexit. The risk is that it miscalculates and needlessly damages the UK and itself.

Brexit ranks outside the EU big political challenges. EU’s political threats are the rise of eurosceptic parties across Europe including those in power in Italy, the emergence of illiberal governments in Hungary and Poland, and the need to cement the integration the euro requires to endure – where the first two challenges act against the third. A central issue propelling the populists and illiberal governments into power is immigration, which has led to border controls across Europe.

In coming years, voters in national and European parliamentary elections might ensure that the EU evolves in such a way that national governments have more power over immigration and other sensitive areas. A post-Brexit UK would likely be in sync with such an EU. Post any UK departure, Leavers might realise they could have accomplished much of what they sought from Brexit without having followed Greenland and others out of the bloc, most likely via a hard Brexit.

By Michael Collins, Investment Specialist

 


[1] The EU was then called the European Economic Community. The name change occurred in 1993.

[2] Greenland election results are taken from Knowpedia. Greenlandic European Economic Community membership referendum, 1982.’ knowpedia.com/pages/Greenlandic_European_Economic_Community_membership_referendum, 1982.

[3] Greenland became linked to the EU under the ‘Overseas Association Decision’. EU website Europa. ‘Greenland’. ec.europa.eu/europeaid/countries/greenland_en

[4] EU internet archive. ‘The Greenland Treaty of 1985.’ web.archive.org/web/20140416110747/http://eu.nanoq.gl/Emner/EuGl/The%20Greenland%20Treaty.aspx

[5] Politico. ‘Greenland’s exit warning to Britain.’ 22 June 2016. politico.eu/article/greenland-exit-warning-to-britain-brexit-eu-referendum-europe-vote-news-denmark/

[6] The UK electorate reaffirmed EU membership in 1975 by 67% to 33%. The vote was billed as a ‘non-binding referendum’.

[7] Cameron made a referendum on EU members part of his election manifesto to quell intra-party unrest over EU ties

[8] Martin Fletcher in the NewStatesmanAmerica. ‘The joke’s over – how Boris Johnson is damaging Britain’s global stature.’ 4 November 2017. newstatesman.com/politics/uk/2017/11/joke-s-over-how-boris-johnson-damaging-britain-s-global-stature. Fletcher says Johnson boasted that his articles, especially ones that spoke of the EU abolishing national vetoes, encouraged Danish voters to reject the pivotal 1992 Maastricht Treaty, a defeat that encouraged UK eurosceptics. Other journalists have written similar accounts of Johnson’s ‘euromyths’. See Jean Quatremer in The Guardian. ‘The road to Brexit was paved with Boris Johnson’s euromyths.’ 15 July 2016. https://www.theguardian.com/commentisfree/2016/jul/15/brexit-boris-johnson-euromyths-telegraph-brussels

[9] The plan is named after the official rural retreat of UK prime ministers where it was formulated. The plan’s formal name is ‘The future relationship between the United Kingdom and the European Union.’

[10] The Brexit departure date was passed into UK law when The European Union (Withdrawal) Act 2018 was passed by the UK parliament on 20 June 2018. The bill says the UK will leave the EU at 11 pm on 29 March 2019. The UK would need to ask – and would most likely get – permission from the other 27 members to postpone its exit.

[11] The UK parliament would need to approve another bill to implement the withdrawal agreement into UK law.

[12] The withdrawal agreement proposed by the EU in March was up to 31 December 2020. If the UK parliament were to pass the withdrawal agreement, the UK would need to pass a separate withdrawal agreement bill before 29 March 2019 that enshrines the details of departure into UK law.

[13] To learn more, see” Herbert Smith Freehills (a law firm). ‘The withdrawal agreement: Brexit Q&A.’ 26 June 2018. lexology.com/library/detail.aspx?g=1ca7aa11-a572-4d69-bc16-5d621b041e86

[14] EC. ‘Draft Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community.’ 19 March 2018. ec.europa.eu/commission/sites/beta-political/files/draft_agreement_coloured.pdf

[15] The difficulty for businesses and others is that they won’t be able to assume that goods can cross the EU-UK border in a guaranteed time. Companies and others are adjusting their production processes to allow for this uncertainty amid fear campaigns that inspections will so slow the movements of goods it will lead to scarcities.

[16] EC. Op cit. Page 1

[17] The Telegraph. ‘Canada-style Brexit trade agreement with EU would be worse than no-deal, says Theresa May.’ 25 September 2018. telegraph.co.uk/politics/2018/09/25/canada-style-brexit-trade-agreement-eu-would-worse-no-deal-says/?WT.mc_id=e_DM843481&WT.tsrc=email&etype=Edi_FPM_New_AEM_Recipient&utm_source=email&utm_medium=Edi_FPM_New_AEM_Recipient_2018_09_25&utm_campaign=DM843481

[18] Daily Mail website. ‘It is a humiliation. We look like a seven-stone weakling being comically bent out of shape by a 500 lb gorilla' BORIS JOHNSON'S blistering denunciation of our Brexit strategy... and his successor JEREMY HUNT'S trenchant defence.’ 9 September 2019. dailymail.co.uk/news/article-6146853/BORIS-JOHNSON-JEREMY-HUNT-debate-Chequers-deal.html

[19] To learn more, see: POLITOCO. ‘Ireland’s political dividend.’ 20 June 2018. politico.eu/article/united-ireland-after-brexit-reunification-vote/

[20] At an EU leaders meeting on September 20, May once again ruled out another referendum. Agence-France Presse. ‘EU raises pressure as UK promises new Brexit plan.’ afp.com/en/news/205/eu-raises-pressure-uk-promises-new-brexit-plans-doc-19a1n92

[21] Brendan Simms. Europe. The struggle for supremacy. 1453 to the present. First published by Allen Lane in 2013. Page 530 in the Penguin Edition of 2014.

[22] The EU’s rejection of May’s Chequers plan at an ‘informal’ EU leaders summit in Austria in September, where Brexit was only the third item on the agenda, only highlighted its low priority for the EU. Internal security and immigration were the top two. EU release. ‘Informal summit head of state or government. EU leaders’ agenda Salzburg 2018.’ 19 September 2018. eu2018.at/calendar-events/political-events/Salzburg-Summit.html

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