Just to put Brexit in context – Britain eschewed membership of the European Economic Community which was established by the Treaty of Rome in 1957, but changed its mind in the early 1960s, only to be rebuffed by Charles de Gaulle. The EEC then consisted of six member states – Belgium, France, Italy, Luxembourg, West Germany and the Netherlands. Britain signed an accession treaty in 1972. Securing Britain’s entry in 1973 was regarded by the former Prime Minister, Sir Edward Heath, as his greatest achievement. On 5 June 1975, a referendum was held, after renegotiating the terms of entry, and the vote went in favour 2:1. 67% of British voted to stay in. Tony Benn was among the more prominent figures who was in the anti-EEC group. According to some analysts, Britain decided to join the EEC as a way of avoiding its economic decline. But appeared to have joined too late, at a bad moment in time, and at an avoidably larger cost. Despite former Prime Minister Margaret Thatcher’s success in clawing back some of the contributions (the UK rebate), differences within both the main parties, Conservative and Labour, regarding EU membership persisted. However, it was the division in the Conservative Party that compelled David Cameron, former Conservative Prime Minister, to offer a fresh referendum. It was more a political decision than one driven by public demand. After a lacklustre campaign by both major parties, the referendum took place on 23 June 2016. And the rest as they say is history.
Except the Brexit drama, a comedy of errors that borders on turning into a comic-tragedy, continues to be a source of confusion and concern. No one seems to know what Brexit means, including those who campaigned for it. Within days of winning the mandate, the main players disappeared from the scene. David Cameron resigned as he had campaigned to remain in the EU and felt unable to lead the country after a Brexit vote. The appointment of Theresa May (who had also voted to remain) as successor and PM may have been yet another example of the great British sense of diplomacy and compromise, it now seems like a silver lining. One can only hope that the country has changed and stereotypes of gender, age and disability are things of the past. In the meanwhile, developments in America – the unexpected rise and nomination of Donald Trump as Presidential candidate for the Republican Party – mirrored the Brexit phenomena. It was an expression of deep distrust and rejection of the Establishment. Brexit was a vote against the status quo – people blamed the EU for all sorts of problems at home. Brexit continues to mean different things to different people. In the immortal words of our new PM: ‘Brexit means Brexit!’ And this Theatre of the Absurd is work in progress. The day we find out what Brexit means, we’ll all experience nirvana of sorts. Americans are already waking up to their nightmare. I hope common sense will prevail and Hillary Clinton will win.
Taking stock of life after Brexit a couple of months down the road, we have a new PM who was not elected, but her party won a respectable majority. Some people were of the opinion that she should call for a snap general election to secure her position. Remember what happened to Gordon Brown? They said. It is to the PM’s credit she ruled it out, did not introduce greater uncertainty, making a bad situation worse. Though it might have helped the Labour Party to sort out its problems. It is quite extraordinary that the Leader of the Opposition lost the support of his own parliamentary party, refused to step down, claiming to have the support of the broader party membership, and is facing a challenge from Owen Smith. The Labour party need to sort out its rules and regulations and get on with the job of being the Opposition – that is why they are there. We’ve had no real opposition, no contribution from Labour thinkers towards the future of the country. We have turned into a nation ‘waiting for Brexit’ without knowing what it means. Individual human beings may spend entire lives in such existential crises, but the suffering of a nation is compounded when it does so.
What we do know since the vote for Brexit is that Article 50 – dubbed by Cameron as ‘the gamble of the century’, referring to the EU’s Lisbon Treaty of 2007 which will decide how Britain will leave the EU – will not be invoked until the new year. It goes without saying that in order to prevent a hard break with the EU, a lot of work needs to be done to agree on a framework for future relations. According to the Financial Times: ‘The way Article 50 is drafted implies that there will be no deal until everything is agreed because there are too many moving parts. That suggests a protracted period of uncertainty for businesses and EU citizens.’ As that is indeed the case, and it was not something the Brexiters were ignorant of, would it not have been saner to have addressed the major issues with the EU before a referendum was offered to the people? The terms of divorce will define the way in which the UK will deal not only with the EU, but also with itself (Scotland) and rest of the world. Nicola Sturgeon announced Scotland’s right to remain in the EU (62% of Scottish voters elected to remain), and that she would put the issue of a second referendum in light of the Brexit vote back on the agenda. If that happens, can Londoners (who also voted to remain) elect to set themselves up as an independent nation?
The uncertainty of Brexit is already impacting business confidence and the state of the nation’s finances. The seasonally adjusted Purchasing Managers Index (PMI), which gives us an idea of business confidence in the country, fell to 48.2 in July 2016 down from 52.4 in June. It was the lowest reading since February 2013, influenced by a fall in both production and incoming new orders. The increased business uncertainty after the EU referendum offset an increase in new export business supported by a weaker pound. In addition, employment fell for the seventh straight month, with the rate of job loss registered at the second-sharpest for almost three-and-a-half years. Manufacturing PMI in the UK averaged 51.32 from 2008 until 2016, reaching an all-time high of 61.50 in January of 2011 and a record low of 34.40 in November of 2008. The longer it takes to define the terms of Brexit, it is possible for business confidence to fall further.
On 3 August 2016, the Bank of England’s Monetary Policy Committee voted for a package of measures to provide additional support to growth and achieve its inflation target. Interest rate was already low, has been since 2008. Was it the optimal time to cut the Bank Rate to 0.25% and introduce a package of funding measures taking the total stock of asset purchases to £435 billion? Though there have been a few high profile investments into the UK post Brexit, the majority of firms are deferring their investment plans, waiting for some clarity on Brexit. It is not surprising that demand has contracted and the outlook for economic growth in the medium term is not as strong. That was to be expected, post Brexit. While for some firms and sectors, Brexit makes no difference. Others need to figure out the new reality. The global economic outlook is also linked to the future of the EU. It is understandable for investments to be postponed. To what extent this latest rate cut will help remains to be seen. On the contrary, some banks have begun to charge companies for their cash holdings, and these companies are highly unlikely to invest that cash. They will simply hold it elsewhere. The rate cut will simply continue to hurt individuals with small savings, struggling to finance their retirement.
Sterling is at a 31-year low, doing it best to boost exports and to import inflation – thanks to the UK economy’s dependence on imports. While spending may have been somewhat subdued in the months immediately before Brexit, data suggests that consumers in the UK appear not to have adjusted their behaviour post Brexit. Shopping and holidaying appear to continue as before – though it stands to reason that most people would’ve booked their holidays in advance, purchased their holiday money when the currency was not as anaemic. Besides, higher prices as a result of a weaker currency have not yet been factored in. On the contrary, a weak Sterling and the dramatic fall in the stock market immediately after Brexit attracted huge inflows, providing a false sense of security as markets went up dramatically. And now with the BoE’s quantitative easing the stock market is irrationally exuberant, forgetting we might still end up with low or no growth and higher inflation.
It is difficult at any time to predict the future, more so when one is in Alice-in-Wonderland territory. There are far too many uncertainties, open-ended possibilities, to be able to arrive at any sensible conclusions. All the questions I had, pre-referendum, were never answered – just kicked into the long grass. Now that the UK is leaving the EU, should we care for a more democratic, efficient, reformed EU? I think we should, for if the EU begins to stumble or unravel it will drag the world economy with it. The referendum in the Netherlands will signal whether the EU will survive without disintegrating further. Emerging markets are recovering, but Brazil, one of the largest EM economies, has been mired in political crises, corruption and recession. Hosting the Olympics will not trigger an economic miracle. China and India may compensate for lack of growth elsewhere. Unless EU members realise they are staring into an abyss and need to usher in reforms urgently, we could be in for a period of low or no growth.
With the rise of terrorist activity in Europe, will reforming the free movement of people within the EU become a necessity? And, if that were to happen, what a pity the UK will be negotiating an exit. Brexit may mean different things – but sovereignty and immigration were/are the two big issues. As far as immigration goes, something needs to be done. Even those who never wanted to leave Europe would acknowledge the problem that unmanageable immigration has caused. And how will the EU deal with its own immigration issue versus the free movement of people? These are shared concerns and had the EU taken the trouble of addressing them perhaps we would not be here today. Alas, we are where we are.
Recently, Olympics fever took over the UK media, providing necessary distraction – from the debate about the EU, Article 50 etc. Team-GB’s achievement makes one appreciate that the UK is capable of punching above its weight. Maybe it will in other areas too, post Brexit. But competitiveness take time to hone, needs funding and a clarity of vision. Twenty years ago, Britain’s medal tally was a disgrace. And time is something none of us have. The steady performance of the USA was commendable – a symbolic and timely reminded that as the largest economy what happens in the US matters. I am not suggesting that in this interconnected world of ours what happens in the rest of the world does not. No, lives matter, all lives matter.
Most of us want to live peacefully, happily. Most of us need more or less the same things – jobs, housing, food, health, education, law and order. It is only after one has secured these basic needs that we aspire for more – leisure, sports, arts, culture, innovation – the things that make us who we are, can be. Most of us do not wish to go to war, nor do we like to have to do with no food, education or freedom. Most of us would prefer to go on holiday, remain fit or do something that might change the world. And, dare I say, most of us would want to bring about change in the country we are born in, not have to flee for survival to another.
Talking about changing the world, I hope Hillary Clinton will be elected as the first female President of America. And with Janet Yellen in charge of the Federal Reserve and the three most powerful women in politics – Hillary Clinton, Theresa May and Angela Merkel – on the global stage, not to mention the rising number of female CEOs and executives in the corporate world, perhaps the future will certainly be different if not better. Maybe, the stock market has already discounted the good news. In the meanwhile, life goes on as if Brexit was a just bad dream one has woken up from – except it is not.
Monday, 22 August 2016