Frozen like a rabbit in G20 headlights: Britain struggles to deal with Brexit

Raising more questions than answers. EPA/How Hwee Young

So “Brexit means Brexit” according to the UK’s new prime minister, who has repeated this rhetoric for the benefit of world leaders at the G20. But Theresa May’s government seems frozen like a rabbit in headlights, desperately seeking ways out of the mess created by a result that not even campaigners to leave the EU expected.

The “taking back control” that Leave voters were promised is far from simple and the government appears clueless about how the details of extrication from the EU will work. Meanwhile, it is strategically focused on adjusting economic policy to mitigate risks linked to the referendum result, while cushioning its voter base from the ill effects of economic uncertainty.

That the UK is in uncharted waters is widely recognised. No member state has ever left the European Union and the UK, a member for more than 40 years, has been deprived of trade negotiation skills through trade policy that has more recently been determined and negotiated mostly at EU level.

The constitutional unknowns also now present lawyers and academics with a bone to chew over for months, if not years. Arguments over how and when to trigger Article 50, the law that governs leaving the EU, are not resolved.

The latest cabinet meeting on Brexit suggests the government is inclined towards a speedy exit and backs the notion of prime ministerial privilege, meaning May can trigger the exit process without a vote in the House of Commons. Others argue a debate and vote in parliament is needed. The House of Lords and the Supreme Court may settle the argument, but surely our apparently sovereign parliament must be involved if a referendum that was merely “advisory” is to be interpreted as a decision.

Bargaining positions

Government nervousness is understandable. EU treaties, which govern the legal relationship between states, make clear that there can be no formal negotiations until after a departing member state has triggered Article 50. The European Commission and several member states have reiterated this view, undermining the prospects for even informal discussions, which Downing Street had hoped for. So the government must first decide what its bargaining position will be and what relationship it wants with the EU.

Leave campaigners argue that the UK will forge a bespoke deal that reflects the UK’s unique position as a major global economy and a destination for 17% of EU exports, as if this alone gives the UK ultimate bargaining power. But the commission and member states are strongly opposed to compromise on freedom of movement, including labour.

This is a sine qua non for single market access, as both Norway and Switzerland will attest. Both have a far higher number of EU immigrants per capita than the UK.

Access to the single market also requires full acceptance of EU law, so there is no way Britain will be able to “take back control” in the way implied by the Leave campaign, unless of course it chooses to abandon the single market, by far the largest destination for UK exports in both goods and services. The US and Japan have warned that such a step risks serious consequences for UK trade, for their investment in Britain, and for the world economy.

These challenges, coupled with ministerial and civil service lack of expertise in negotiating trade agreements, make a rapid triggering of Article 50 high risk. Within two years of doing so, the EU can simply expel the UK from the union, leaving it to sort out the mess, no matter whether any trade agreements have been agreed.

Signs of strategy

The uncertainty for UK businesses, both in manufacturing and services, for the higher education sector, and for prospective inward foreign investment, will surely wreak havoc on domestic markets, on sterling, and on the cost of imported goods and services to UK consumers.

The government’s strategic response is to mitigate the worst economic consequences of the referendum vote. Austerity has been abandoned and a fiscal stimulus is on the cards, which should encourage a feel good factor in the economy. Indeed May’s predecessors were already moving in this direction pre-referendum, conscious that austerity was not working.

Egged on by the popular press, the government is talking up the economy and giving a boost to public expenditure, while the Bank of England engages in more quantitative easing, just as the Federal Reserve did in the United States in response to the 2008-09 financial crisis.

Steady hand? Bank of England governor Mark Carney works to keep the economy stable. EPA/Andy Rain

By forging ahead with big infrastructural projects such as HS2 and Crossrail 2 railway projects, expanding London City Airport, committing to road improvements and energy generation projects, the government can stoke domestic optimism that will drive up personal borrowing, consumption and property prices. This may bring some better news on employment and economic growth before a general election. The prime minister could expect a credibility boost to help see off a weak opposition.

So the strategy is damage limitation, benign economic data, and offending as few people as possible up to the next general election. The home front could be secure, but favourable international relations with Europe and beyond are much less certain.

The response from the remaining 27 EU states will shape future relationships. Germany is prepared for a long game while others may be more impatient. The UK chose to abandon an EU struggling with multiple critical challenges for which its full engagement would have been welcome. It can expect few favours.

Other EU crises may intervene but the impasse on Brexit is likely to continue for a while yet. The three ministers tasked with negotiating the terms of Brexit, dubbed the three Brexiteers, Boris Johnson, David Davis, and Liam Fox, will struggle to deliver on promises made during a spectacularly mendacious campaign. They might reflect on Shakespeare’s “didst thou never hear that things ill got had ever bad success?”.