The politics surrounding Brexit

In 1979, Greenland was granted autonomy within the Danish Realm and three years later the island’s parliament held a vote on EU membership. The main issue was control of Greenland’s fishing rights. By 53% to 47%, Greenlanders opted to leave. It took three years to formulate the island’s departure and Greenland didn’t get much. The EU kept control of fishing rights while Greenlanders still paid EU dues. “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.”

Now the UK 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. The questions still unanswered are the terms of its departure and the nature of the post-Brexit relationship between the EU and the UK. Examining the politics of Brexit helps formulate what might eventuate.

 

The analysis has three parts:

  1. what Brexit means for UK politics,
  2. what it signifies for EU politics and
  3. what it denotes for UK and EU ties post-Brexit.

The answer in short is that no benevolent exit looms. Political constraints 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 of 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 government had not planned. The most contentious issue 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 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. As this and other options fail to resolve the Irish border issue, the government could postpone Brexit, which the UK parliament set for March 29 next year. But that would set up a fight in parliament that could lead to a snap 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.     

 

By Michael Collins, Investment Specialist

 

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Magellan was formed in 2006 by Hamish Douglass and Chris Mackay, two of Australia’s leading investment professionals. The company specialises in global equity and listed infrastructure assets.

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