Brexit and The Fast Approaching Cliff

brexit problems
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We are nearing the end date for the much anticipated Brexit event. On March 29, 16 days from the time I am writing these words, the world is going to change. The extent of that change is not yet known and this is part of the problem.

brexit problems

Since June 2016 the government of Britain has wrestled with the results of the surprising referendum in which voters ordered the nation to leave the European Union.

The EU is the world’s second or third largest economy (depending upon which measurements one uses). Inclusion within that economy means a loss of national sovereignty as the values and customs of the EU must be enforced within the member nations. In 2016 British voters, by a slim margin of victory (51.9% to 48.1%), said no more.

 

The dilemma of the last three years has been determining how the exit from the European Union would take shape. There are two extreme potential outcomes that will transpire on March 29.

 

The first would have Britain still within the EU enjoying its member benefits but having no voice in representing themselves there. This would allow the financial benefits of EU membership to endure but come at the cost of even further loss of sovereignty.

 

The second potential outcome is a hard Brexit or crashing out of the European Union (both terms are frequently used) which would mean a severing of EU membership in all its forms on March 29. No one knows exactly what this means although each side of the argument has offered their opinions.

 

Pro-Brexit voices believe this is what they voted for and this is what should happen. The British economy is strong enough to stand on its own. They can negotiate their own independent trade deals separate from the EU. There may be a momentary hiccup in the economic conditions but that will pass and the British will stand strong and independent as they have for hundreds of years.

 

Opponents of Brexit and even middle of the road voices believe the view noted above is naïve at best. A hard Brexit could be potentially devastating to the British economy and that is only the beginning of new problems. Even if new trade agreements could be established to make Britain independent and strong separate from the EU, those might takes years to complete.

 

Keep in mind, it has taken three years to negotiate Brexit and they are still not there yet.

 

Any potential solution or proposal to how Britain is to leave the European Union in 16 days that is too close to either one of these positions renders the British parliament completely paralyzed. No side wants to give in and no progress is being made. To that end, as the Brexit date approaches one of the world’s proudest and oldest democracies appears shockingly incapable of managing itself and its policies.

 

The shock of the Brexit vote in June 2016 now pales in comparison to the self-destructive dysfunction being demonstrated by the leaders of Britain. Many political commentators suggest that Prime Minister Theresa May deliberately delayed these decisions close to the March 29, deadline in order to force the hands of parliament. If that is the case, it has not been effective.

 

After yesterday’s failed vote one observer noted to the New York Times: “Watching them strut around Parliament today, there are clearly a lot of people thinking about their places in history. There are very few people thinking about what happens next.” No British Prime Minister has faced a no-confidence vote since the early 1990s. Theresa May has experienced two in the last three months.

Damage Already Being Done

While the remaining time to the Brexit deadline is squandered the economy and business climate is reeling. Even without clarity on what the future holds for Britain – EU, no EU, middle of the road EU – business plans and strategies cannot be built or carried in an environment of such extensive uncertainty. Business plans and economics require stability in order to plan and work. This is not currently available in Britain.

 

Prior to the Brexit vote in 2016 the UK was the fastest growing economy among advanced industrialized countries – now it is the slowest. In the event of a no deal on Brexit, the International Monetary Fund is anticipating an economic contraction of 6%. Supply chains will most definitely be disrupted in the event of a hard Brexit but this recognition misses the larger point that they have already been disrupted. In anticipation of a disruption, businesses have stockpiled inventories and raw materials at a record pace. Supermarket chains have ordered extra food. Drug companies are booking space on charter planes so they can fly in vital medicines.

 

One way or another, no matter what happens on March 29, the business forecasts of Britain are being disrupted.

 

Businesses have consistently insisted that the government must provide some level of certainty so that plans and strategies can be implemented to deal with Brexit – all to little avail. In an effort to avoid this disruption and escape the instability many companies are giving up on Britain and moving their operations elsewhere in Europe. Companies have been forced to spend hundreds of millions of dollars on contingency planning. Others have had to cut jobs or delay expansions or idle production.

What Happens Next

The failure of Prime Minister May’s vote in Parliament yesterday has set up a new line of contingency votes, all fall far too close to the deadline and any level of predictability.

Later today Parliament will vote on a “no-deal” Brexit. Tomorrow, they will vote on requesting an extension of the March 29, deadline which many believe the EU will agree to. The problem is that so little has gone according to plan since the day before the June 2016 vote to leave the EU. There is little reason to expect these votes will go that way.

 

Even if a delay for the Brexit date is agreed upon, there is an increasing risk that the instability and unpredictability of the British economy becoming more than the EU is willing to bear.

No matter where this ends, the damage is already being done and the frailty of institutions and democracies once so highly esteemed in the global order is being exposed. One editorial in the Washington Post this morning captured this sentiment in a quote from a European observer:

We think our democracies are weak, elsewhere in Europe. But even if you took a bunch of Italians, Poles and Hungarians, kept them up all night and got them drunk, they still wouldn’t come up with anything as disastrous as what we are seeing in the House of Commons.

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