Britain’s public wants to leave Europe.
Whether the decision is rational or not doesn’t matter. Now, a smooth process
requires three things: managing political uncertainty, uniting a deeply divided
population, and ensuring the UK enters negotiations feeling economically strong
rather than weak.
It could be months
before talks actually begin on how the UK will deal with its 27 jilted
bloc-members. In that time a lot can happen. First up is a likely reshuffling
among Britain’s leaders. Prime Minister David Cameron, who publicly backed a
“Remain” vote, can’t easily stay. A logical replacement for him is former
London mayor Boris Johnson. But a pro-leave leader won’t play well with the 48
percent of Brits who wanted to remain. The new government will have a small
majority and could prove unstable.
Second is the effect
on Britain’s short-term prosperity. This matters because the “Leave” camp
argued Brexit would not damage the economy. Even if the immediate effects fade
over time, the conditions following the vote will decide whether Britons want
their leaders to head to Europe seeking divorce, or entreating their peers for
a deal. If what follows is deeply traumatic, the narrow win for the “Leave”
camp leaves scope for a new prime minister to refrain from pushing the button.
Investment into the
UK, half of which comes from Europe, is likely to hang in the balance. Why buy
assets in a country throwing away access to its biggest export market, and
riven by discord? That could in turn affect employment. Foreign investment
projects created 42,336 British jobs in 2015, according to Ernst & Young.
There’s small comfort in the fact that consumer confidence, as measured by
research firm GfK, is still far above where it was for most of the past decade –
albeit on a negative trend.
The central bank can
help contain the damage. Cutting rates might increase consumer confidence and
encourage investment, but it could also worsen the effect of a weakening
currency. The Bank may have to intervene to prop sterling up. Troublingly, Mark
Carney, the head of the Bank of England, advocated staying in the European
Union. Over half of the country has publicly disagreed with him.
The biggest danger is
that those promoting an EU exit have entered into a contract with voters that
they may be unable to honour. The pro-leave side said that following Brexit
there would be more control over immigration – which is deliverable – and more
prosperity – which probably isn’t, unless the UK can persuade its jilted
European partners to offer a comparable trade deal that might encourage other
EU nations to depart.
Leave was also
supposed to offer a return of control to the British public. Yet what the
country’s next leaders inherit is a country profoundly split along regional and
class lines, heading into a period of prolonged uncertainty. That doesn’t sound
like the kind of control worth having.
Representative
Image
Source:
Reuters by John Foney
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