BREXIT opportunities are dwarfed by numerous difficulties, both for the UK and European Union (EU).
The nub of the problem is the lengthy Brexit process, which opens the door to public discontent and economic uncertainty. Divisions between “Brexitier” and “Remain” politicians are already wide. The media and public focus is only one year to Brexit on March 29, 2019. But the UK government has agreed to remain a member of the EU, without any say in policy, until the beginning of 2021. The process will thus drag on for almost five years after the June 2016 referendum.
During that period, the expected compromise agreement is unlikely to satisfy those who voted to leave the EU, and those who wanted to remain. Polls already show that 56 per cent of respondents believe that government has done poorly in negotiations; only 28 per cent think it has done well,
British premier Theresa May promises that the “implementation” process between 2019 and 2021 will help businesses, investors and consumers, get used to Brexit. In practice, some complex negotiations could well continue, such as judicial decisions and the Irish border.
Markets are currently optimistic about the preliminary trade deal. Sterling has recovered spectacularly from its 2016 lows. The pound is currently only 3.8 per cent below average pre-referendum US dollar levels and has also recovered against the euro and yen. The stock market has declined in line with global counterparts, but is not far below its heady January peak. The main reason for the currency surge and sanguine investment bankers is the free trade agreement with the EU, which accounts for 43 per cent of total UK exports and 54 per cent of imports. Moreover, the EU has agreed that Britain can independently negotiate trade deals with the US, Singapore and other non-EU nations, from March 2019 onwards.
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But is this optimism premature? After the government and EU close the final Brexit deal, the UK parliament must agree to it. A row is likely to ensue. Many MPs, on both sides of the House, believe that the UK should remain within the customs union. It would solve the Irish border problem, but Brexitiers fear it would prevent independent trade accords.
Other potential problems include the services sector that accounts for 36 per cent of UK exports to the EU. So far, an agreement hasn’t been forged on whether banks and other financial institutions can operate without restriction in the EU. As an incentive to obtain a reasonable deal for the financial sector, the government has agreed that the EU will retain control of fishing rights until 2021 – a compromise that has deepened the mistrust of fishing communities, who voted for Brexit.
Many poor and middle class people used Brexit as a protest vote in the referendum. Their job opportunities and standard of living have worsened since the 2008/2009 crisis. They feared and continue to fret that an immigration surge has crowded out locals in jobs, schools, hospitals and housing. Since 1993 when the EU instituted free movement of labour, net immigration has soared to 4.5 million, raising the population to 65.5 million. Polls show that most people want immigration controls, but the government has agreed to free movement of labour between 2019 and 2021.
Unless economic and social conditions improve markedly, disenchanted voters could protest and choose an ultra-left, bigoted Labour Party in 2022. That political and economic risk would be of even greater concern than Brexit.
© copyright Neil Behrmann
This was an editorial in The Business Times, Singapore
Neil Behrmann is London correspondent of The Business Times. Jack of Diamonds his thriller on global diamond mining and smuggling, will be published in coming weeks. It is the sequel to the thriller, Trader Jack, The Story of Jack Miner.