The recent Conservative and Labour Party conferences are testament to the political polarization surrounding Brexit. The British electorate is divided too, with recent opinion polls showing that voters are unsure whether the decision to leave the European Union was right or wrong. The government is facing crisis and confusion after the failed E.U. summit in Salzburg, leading to sharp criticism of Prime Minister Theresa May’s Brexit plan by key Conservative politicians such as former Foreign Secretary Boris Johnson and Jacob Rees-Mogg. Time is running out, and the growing division is not helping in reaching a deal.
There has been much talk about May facing leadership threat from inside her Conservative party alongside rumors of snap general election being called should the British government fail to negotiate a coherent deal. These are all unsubstantiated and unlikely to become reality anytime soon. It is likely that many Conservative politicians view May’s position as a poisoned chalice due to the political uncertainty over Brexit and would rather not run for her office.
May’s Problematic Chequers Deal
Last month’s Salzburg Summit on Brexit highlighted the fundamental problems of May’s so-called Chequers Deal, with many commentators believing that Britain is now back to square one.
The most significant problems of May’s plan are how to deal with the Northern Ireland border and whether Britain would be allowed to stay in the single market. For many Brexiteers, May’s Chequers Deal is too “soft” of a Brexit, with too many concessions made to the European Union.
It is very unlikely that May can come up with a radically different plan in the time that she has left while also pleasing her Brexiteer politicians. For May’s deal to be successful, Brexiteers must be willing to make compromises with the prime minister on important issues such as the freedom of movement and the single market.
Many Leavers talked about striking trade deals straight after the referendum in 2016. However, fast forward two years, and it becomes clear that very little progress has been made. It is still unclear if and when the economic nirvana that many Leavers predicted can be achieved. What we do know is that markets dislike economic volatility and, in my opinion, the current lack of a plan is likely to destabilize Britain’s financial situation more as the clock ticks further to the deadline. This could all change, however, if a decisive deal is struck at the next summit.
Economic Volatility
Two years ago, when the landmark Brexit referendum took place, we witnessed the economic volatility that the vote brought to the financial markets. The figure below shows the economic downfall as the vote unfolded with the pound falling sharply.
If a No Deal scenario takes place on March 29, 2019, it is quite possible a similar development will take place. This would hurt Britain and its standing in the world economy. The following economic confusion and chaos would almost certainly affect ordinary British citizens. Therefore, it is of paramount importance that a deal similar to the Chequers proposal, but with the support of the British Parliament, can be struck with the European Union by the end of the year. Staying in the single market will be a massive positive factor for Britain’s economy and should be on the table in a revised deal that the British government discusses with the European Union at the summit of next week.
In the last few days, there has been optimistic talk from top E.U. officials about Brexit deal being reached by the end of the year. Yet, there is little agreement on crucial dividing lines such as remaining in the single market and how to avoid a divide on the Irish border. The next E.U. Summit on Brexit will take place in seven days, and it is looking increasingly likely that the British government will have to pull a rabbit out of the bag to reach a definitive Brexit outcome. What is clear, however, is just how divided the nation and its politicians have become on the Brexit issue.
The country is now facing a critical moment in the Brexit process, and the time is passing quickly. As a No Deal scenario looms ever nearer on the horizon, the next few weeks are crucial in deciding the type of Brexit that Britain will get and, connected to the outcome, the long-term economic future of the country.