On June 23, 2016, the British electorate voted by a narrow margin to exit the European Union.
While markets were only briefly disturbed, British politics were thrown into complete chaos. Prime Minister David Cameron immediately resigned, thus triggering a contest for leadership of the Conservative Party – and consequently, the country.
Meantime, the opposition Labour Party is in a royal mess, with embattled leader Jeremy Corbyn refusing the resign, despite having lost the confidence of 80% of the party’s members of parliament (MPs).
All of this reflects the uncertainties surrounding Britain’s position. After all, it’s not even certain whether the public’s mandate will be followed, and it’s certainly not clear what Britain’s final destination is in terms of its political future.
Will They Stay or Will They Go?
There is a considerable number of people who backed the defeated “Remain” campaign who now want to nullify the referendum result.
In particular, one lead writer for the Financial Times supports nullification, as do cabinet minister Jeremy Hunt and the aged and inept Machiavellian former minister Michael Heseltine.
So it is by no means a sure thing that Britain’s relationship with the EU will actually change, but merely deteriorate over time, as various EU satrapies seize choice pieces of British economic flesh.
Even if Britain “exits” the EU, there are several possible destinations:
The Norway Solution: Beloved by the Remainers, the Norway solution is where Britain retains the benefits of the EU’s single market, but remains subject to EU regulations – over which it has no say. Additionally, Britain would be unable to control migrants from the rest of the EU, which could potentially include millions of refugees shunted on by the EU’s other members. In the Norway destination, Britain would also continue to pay massively towards the EU’s bloated bureaucracy and other wasteful programs that the exit vote sought to escape.
The Switzerland Solution: Under this arrangement, there would be no free movement of labor, but British banks wouldn’t be allowed full passport rights to do business in the EU either. Switzerland also still pays massively into the EU budget and, like Norway, it’s subject to EU regulations that it cannot affect.
The Full Exit: In this case, Britain would stop paying into the EU budget, would regain control of its own borders, and, most importantly, it would be able to sign its own trade treaties with countries like India – which has found it impossible to negotiate treaties with the full EU.
Personally, I find this third option to be the most attractive solution – and is what the referendum appeared to offer.
Leaders of the Revolution
Two of the most prominent leaders in the Brexit campaign were Nigel Farage, leader of the UK Independence Party (UKIP), and Daniel Hannan, a long-serving Conservative member of the European Parliament.
But Farage has since resigned and UKIP has only one seat in Parliament (though 14% of the vote at the last election). And Hannan isn’t a Westminster MP. So neither can play any significant role in Britain’s negotiation of an EU exit.
That leaves the reigning Conservative Party as the Brexit brokers.
The “official” party line was for Britain to remain in the EU, but MPs were free to campaign for whichever side they chose.
As leader, David Cameron staked his reputation on a Remain vote – and while Brexiters wanted him to stay as leader, believing he’d have implemented a technical “Brexit” as gently as possible while still respecting the referendum result, he immediately resigned when he lost.
That’s thrown the party into a leadership contest over the past two weeks.
Five candidates threw their hats into the ring – including Leave campaigners like Justice Secretary Michael Gove and Energy Minister Andrea Leadsom. Principal leader of the campaign and former London mayor Boris Johnson, widely touted as the next prime minister, surprisingly withdrew from the race after a “House of Cards”-style maneuver by Gove.
One candidate was eliminated after the first round of voting, while another quit the race. Gove was eliminated in the second round, leaving Leadsom and Home Secretary Theresa May to go head-to-head.
With May the overwhelming favorite among MPs, and the prospect of a two-month leadership battle campaign looming, Leadsom withdrew from the race yesterday, leaving May free to assume the leadership and become the next British prime minister.
Cameron will tender his official resignation to the Queen tomorrow and May will take office immediately.
May, who notoriously referred to the Conservatives as the “nasty party” some years ago, is no Margaret Thatcher, but could at best be an Angela Merkel. She’s pledged to respect the referendum result, but is a Remain supporter, who leans to the left of the party, and is someone who’s failed to cut immigration in her six years as Home Secretary.
The party has a modest overall majority in the House of Commons and has no need to call a general election until 2020. So if the Conservative Brexiters tolerate a May victory, they’ll deserve what they get – some kind of cosmetic arrangement that won’t restore British freedom, but will at best move the country to a watered-down version of the Norway position.
Even a general election won’t change matters – a May-led Conservative government would probably win the election against a rudderless and highly split Labour party that’s undergoing its own leadership nightmare.
Give the People What They Want
Most Brexiters want a full exit from the EU.
However, because of Cameron’s resignation and the Gove-Johnson fracas, they’re very unlikely to get what they voted for. It’s been clear from the start that the Remainers – despite their referendum loss – retain a very strong position to steer the EU negotiation as they see fit.
The result will likely be that Britain remains chained to an entity that – through European Central Bank bond purchases and endless bailouts of spendthrift Mediterranean governments – increasingly resembles an economic corpse.
The market cost of the Brexit referendum result has, so far, been trivial.
The political cost, however, has already been considerable, and seems likely to grow.
Although the vote to leave seemed like the first step towards Britain’s autonomy, the Brexiters’ objective – of a country free from EU costs and regulations, and that could make its own more attractive arrangements with trading partners throughout the world – looks further away than ever.
Good investing.