Too many things are lining up
against the U.K. leaving the EU.
Barry Ritholtz
April 27, 2018, 1:18 PM CDT
Today, I will violate one of
my favorite
principles, and hereby make this prediction: No Brexit! In other words, the
U.K. will not exit the European Union. By 2023, we will look back at the entire
ridiculous affair as if it were a rediscovered lost episode of “Fawlty Towers.”
Soon after the referendum in which Brits unwisely
voted to leave the EU, I suggested there was a 33 percent chance that Brexit
wouldn’t occur. Now, I raise that to 75 percent, and with each passing day of
incompetence shown by Prime Minister Theresa May’s administration, the
probabilities move higher.
With that disclosure out of
the way, I’d like to explain the thinking behind this not-so-bold
forecast.
From the very beginning, I
have been a skeptic that a full Brexit would occur.
The concept was simply so foolish and self-destructive that the reasonable
expectation was cooler heads would prevail. But that was a modest assumption
and didn’t anticipate the feckless May government making a bad situation even
worse.
There seem to be several ways
this can, and probably will, fall apart. In order of likelihood (recognizing a
combination of any and all of these is possible):
Doing nothing
Snap parliamentary election
leading to a May loss
New referendum
Ireland/Scotland make it too
complicated
Europe makes it impossible
Let’s take a quick look at
each.
Doing nothing: Article 50 of the European Union agreement has
specific rules for how members can voluntarily exit the EU. The U.K. will lose
the membership in both the common union and its customs agreement; a negotiated
set of replacement treaties and rules would be proposed, which then would
require ratification by both the EU and the U.K. The key economic aspect
is that all of the advantages of the EU treaties covering trade relations among
members would be replaced by less-favorable covenants. How much of a
disadvantage this amounts to is the subject of debate between all concerned.
The bottom line it that whether the Brits get a full withdrawal agreement, or
only a temporary transitional agreement, it is likely to be much less friendly
to the U.K. economy then staying in the EU.
Snap election: What else could
derail Brexit? How about more cabinet memberssupporting staying? Then there is the issue of May’s popularity: a year ago she was
considered a dead woman walking. Her support is recovering among her fellow Tories, but her polling is
still underwater and an electoral loss would amount to a repudiation of
whatever it is she thinks she’s accomplishing.
New referendum: The British
public has learned much since the initial vote. About half
of Brexit voters have been supportive of a second referendum (you can guess which half), amid a chorus
of calls for another vote on Brexit. A steady drumbeat of
media reports revealed how much misinformation and outright disinformation U.K. voters were subjected to. Robert Mercer, the right-wing
billionaire formerly of giant hedge fund Renaissance Technologies, and backer
of political data firm Cambridge Analytica, wanted to bring the same level
of mass discontent to the U.K. he helped foment in the
U.S. The Guardian called it a “hijacking of the British democracy.”
Ireland/Scotland complications:
Back in 2014, Scotland voted against independence from the U.K. by 55 percent
to 45 percent. The Brexit vote was a shocker to the Scots, who also voted to
remain in the EU. Further complicating matters are reports that Northern Irelandwould be granted permission to stay in the single market. Resolving
these issues makes the entire enterprise highly problematic for England.
Europe makes leaving
impossible: I don’t see any reason why the EU would do anything other than make
this as uncomfortable for Britain as possible. Basic game theory suggests that
the EU’s interests lie in the exact opposite direction, to make exiting as
difficult as possible in order to discourage others from departing.
There is no reason to expect
the EU to reverse course.
Michael Bloomberg, owner of
Bloomberg LP which publishes Bloomberg View, referred to the choice of accepting a bad deal, or
admitting Brexit was a mistake in the first place. The only conclusion one can
draw from all of this is that the U.K.’s leaders need to make the responsible
decision and stay.
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