Was Brexit Inevitable?

by Nov 17, 2017

The Brexit vote was a shock but in many ways it was inevitable. At the end of the Second World War when European leaders decided to form a union to bind the continent together, ironically, the UK, the country that had played the leading role in bringing down the Nazis was not welcomed. True to form, France reverted to its centuries old rivalry with the UK and did not welcome Britain to the new club. The UK on its part has always had ambivalence towards the continent, making forays into continental wars and projects but steadfastly guarding its status as an island nation and marine time power with a global focus. In many ways the seeds of the divorce had been planted and germinating for a long time. Negotiations are proceeding at snail’s pace and the likely outcome is uncertain.

Brexit was a shock that pundits and the political and economic establishments failed to foresee. All the national parties, with exception of the United Kingdom Independence Party (UKIP) and most business groups opposed and campaigned against Brexit, predicting dire consequences which voters ignored. It was a bitter fight, with both sides spending significant time and millions of pounds making their case in all forums, but at the end of the day the public decided it had had enough of the European Union (EU) and wanted powers brought back to the UK. Scotland and Northern Ireland voted to stay but England and Wales voted to get out. The shock reverberated across the UK, other EU countries and globally. The British Prime Minister, who was on the Remain side and had initiated the process resigned. The Scottish National Party (SNP), which had been licking its wounds after a failed independence referendum, tried to reassert its call for an independent Scotland because Scots had narrowly voted to remain. Mrs Theresa May, the new Conservative Party Prime Minister decided to call an election to secure a strong mandate in the negotiations with the EU. The British public decided that they could not trust her party to call all the shots and she lost the slim majority her party had and now has to depend on the Unionist Northern Ireland party to form a government. In Scotland, the public decided to reign in the SNP which lost seats to other parties.

The seeds of the divorce go a long way and are implanted in the British psychic. Britons say they are going to Europe when they decide to cross the channel. Over the centuries the Island nation has often been embroiled in military campaigns against continental partners, including the Dutch, Germans, Spanish, Portuguese, Austrians and French as well as in pan-European wars and projects, often reluctantly. For centuries, it focussed on its global outreach, acquiring colonies in all continents and was proud of the fact that by the end of Queen Victoria’s reign, its vast empire included over a quarter of the world’s population, excluding its rebellious child, the United States. The British public, while playing pivotal roles in both world wars was not too enamoured with the European Economic Community (EEC as it was then called) that France and Germany spearheaded after the Second World War. The new club was designed to integrate the economies of Europe, largely to forestall major conflicts like the two world wars that had ravaged the continent in the twentieth century. The UK held out for many years and eventually joined the club in 1973.

At the birth of the union, the British economy, heavily reliant on trade with its colonies and the world in general, did not fit well with the new club. The focus of the group was initially steel and coat, but subsequently, agriculture became the dominant focus in terms of budgetary outlays. The economies of the new club members were much more integrated, reliant on heavy industry and agriculture employed up to a quarter of some of its members, compared to less than three percent in the UK. When the UK joined, half of the EEC’s budget was spent on agriculture (down to 40% in 2012) and a large proportion of the budget went to poorer south European countries which also had large agricultural economies. Britain, with a very small agricultural sector and a relatively high per capita income was a net payer into the group’s budget. The UK, which proudly boasts of not having a written constitution, was suddenly inundated with regulations from Brussels on a myriad of areas. It had joined the organisation on the basis of trade but it found that the union was encroaching on a host of political, economic and social areas. Much effort was made to harmonise standards to facilitate trade among members, with detailed regulations. The group aligned the currencies of its members and subsequently adopted a common currency. It initiated a growing diplomatic corps and there have been moves towards a military alliance which some of its members would like to supplant NATO. It increasingly made use of a separate but closely linked European Court of Justice as an arbiter of disputes. The Schengen agreement allowed citizens to travel throughout the Union without passports. The straw that broke the camel’s back was the mass migration of three million EU citizens into the UK over the last decade as the EU allowed its citizens to move and work in all states within the union. Many workers in new, poorer East European countries took advantage of this clause and moved into the UK – other richer EU states had applied a clause that limited this free flow but Britain did not because it had wrongly assumed that a much smaller number of migrants would come to the UK. Another cause of this migration is because other EU states have taken much longer than the UK to recover from the recent great recession.

These developments were viewed with alarm by Euro sceptics, mostly in the Conservative party but also in the Labour party, notably among working class members who faced increased competition for jobs and depressed wages as a result of the migration. The pushback however started much earlier. Margaret Thatcher secured the famous rebate, reducing Britain’s contribution to the EU budget significantly. Politicians and the tabloids railed against new regulations and detailed product standards, which they argued were costly to businesses and consumers. The UK withdrew from the arrangement which pegged the pound to other European currencies and refused to join the common currency and the Schengen agreement. Politicians and the tabloids railed against the European Court. Britain has been very opposed to the idea of an EU military unit supplanting NATO. In the European Commission and the European parliament, the UK has often been in the forefront of what it labels “common sense” approach to new regulations and the enforcement of regulations.

In unravelling the UK’s rift with its EU partners we need to look at the legal and political frameworks which are markedly different. As a policy adviser for British farmers my colleagues in Brussels were often perplexed about the UK’s concerns with new regulations. The continental approach was to simply transcribe new regulations into their national statutes. The British government’s approach was usually to refer new regulations to its lawyers to check on how they fit in with existing statutes but even more important, to check whether the government would be open to legal challenge in the courts. In one notable case (paying growers to grub apple trees because of EU-wide overproduction) that I was involved with, but which no doubt applied to other cases, the government used force majeure. This meant that that regulation was one-off and could not be used as a precedent in the future. This is partly because the lack of a written constitution means that policies are often based on precedents set in legal outcomes. On the political front, most EU countries, largely because of the use of proportional representation, cobble together groups of parties to form coalition governments, whereas in Britain, because of the electoral process and tradition, coalition governments are rare. In industry, notably in Europe’s powerhouse, Germany, there is a tradition of owners, management and workers setting councils to formulate strategy and policy, markedly different from the UK where each of those stakeholders is entirely beholden to its members and very partisan in relationships with other stakeholders. Indeed this adversarial legal, political and economic tradition is viewed by Anglo-Saxon countries as healthy for politics and business but for continentals as unnecessarily confrontational.

The clock is ticking fast but the negotiation between the UK and its EU partners is crawling at snail’s pace. Britain wants a comprehensive approach while EU partners want to settle key issues first, notably, the divorce settlement (UK payment for what the EU considers as current commitments), the status of EU/British nationals in Britain and other EU states respectively and the Irish/Northern Ireland border, the only land border between the EU and Britain, before the most important issue to the UK, trade arrangements can be discussed. The UK has suggested Twenty billion pounds divorce settlement, a far cry from the fifty billion pounds that the EU has suggested. Developments within both camps complicate matters. In the UK, the two major (UK-wide) parties emboldened by gains in the recent general election and the SNP, which were in the Remain camp, want a soft Brexit and are clamouring for a significant input in the negotiations. The UK government is weak, partly because it lacks an outright majority but also because the Conservative party is sharply divided between the Leave and Remain camps. In the EU, Angela Merkel, whose party lost significant ground in the recent German election, is still cobbling together a coalition and until that process is completed, the most powerful country in the EU cannot be fully engaged in the negotiation.

The last two weeks have been tumultuous, with the British government buffeted from all sides. The weakness of the government was demonstrated when Mrs May refrained from sacking government ministers that have been accused of serious transgressions; two have resigned, not sacked as they would have been in a strong government. Two other senior Ministers that opposition parties feel should be sacked because of transgressions and allegation of impropriety remain in the cabinet. The Financial Times reported last week that executives of major American companies have expressed frustration with the lack of progress and clarity in the Brexit negotiation, suggesting that they would be forced to relocate to other EU states from the UK. Michel Barnier, the EU chief negotiator has given the UK government two weeks to state how much it will pay for the divorce bill before negotiations can move on to trade and other arrangements. Business Europe, the pan-European grouping met with the Prime Minister seeking clarity and expressing serious concerns about the uncertainty generated by what it sees as lack of clarity on the part of the British government and slow pace of the negotiation process. A letter spearheaded by Boris Johnson, the Foreign Secretary and Michael Gove, signed by other Conservative Members of Parliament (MP) exhorted the Prime minister to follow the mandate it was given in the referendum, which for the group, suggests a hard stand in the negotiations and hard Brexit. The UK chief negotiator announced that MPs will have a vote on the deal negotiated, a statement that pacifies MPs but which may be meaningless as Britain would not be able to amend the deal without the agreement of the 27 other EU members states.

The final outcome of Brexit is still uncertain but there are a few broad scenarios. The EU needs to make Britain pay a price for its decision for two reasons. As a net contributor to the EU Britain’s departure will leave a big hole in the budget, hence the demands for a hefty divorce settlement and we should expect Britain’s divorce bill to be significantly higher than its initial offer. The EU has to impose punitive action in trade terms as a warning to other members who might want to follow the UK’s example. However Britain is a major economic, political and military player and that is something that the EU has to accept and factor in the negotiation. The UK buys more from other EU member states than it sells to them so EU exporters will be wary of measures that would disrupt this lucrative market. Businesses are concerned about disruptions to supply chains that have been developed over many years if hefty tariffs and other trade restrictions are imposed. The UK is a major investor in many EU states who would like to maintain such investment flows; other EU countries also have major investments in the UK. There are far more EU citizens in the UK than there are UK citizens in the EU. These factors, combined with the size of the UK market, suggest that the UK should be able to negotiate better terms than arrangements with other non-EU countries like Norway and Switzerland.

My predictions are that the UK will increase its divorce settlement significantly higher than its initial offer and negotiations will continue after the formal Brexit deadline of March 2019, into the two year extension that the UK has proposed. The UK will continue to play a significant economic, political and military role in the continent, albeit at a less engaged capacity. In the short run, many experts are predicting that the economy will take a hit and indeed many global brands have indicated that they would shift some operations to the continent, no doubt looking at the much bigger EU market and egged on by governments in those countries. In the long run though one should never underestimate the Brits, who initiated the industrial revolution and were the chief architects of globalisation. Britain, through conquests, alliances and plain skulduggery established its presence in all continents and moved people, products and services around the globe. Brexit may be another opportunity to play a more global role and in a way, history tells us that it was inevitable.

J Boima Rogers is Principal Consultant at Media and Event Management Oxford (MEMO), www.oxfordmemo.co.uk