{"id":27469,"date":"2016-07-01T11:46:37","date_gmt":"2016-07-01T01:46:37","guid":{"rendered":"http:\/\/www.aspistrategist.ru\/?p=27469"},"modified":"2018-10-30T09:26:47","modified_gmt":"2018-10-29T22:26:47","slug":"denial-deficits-set-terms-brexit-divorce","status":"publish","type":"post","link":"https:\/\/www.aspistrategist.ru\/denial-deficits-set-terms-brexit-divorce\/","title":{"rendered":"Denial and deficits set the terms for Brexit divorce"},"content":{"rendered":"
\"\"<\/figure>\n

After Britain\u2019s shock Auf Wiedersehen last Friday, politicians in the UK and Europe are now struggling to figure out what a Brexit divorce will look like. One way to do this is to look at the factors that will be at play behind three big new questions: will the EU opt for pragmatism or revenge; will the UK fragment; and will the UK\u2019s current political parties survive?<\/span><\/p>\n

First, the EU. The forces pushing for a<\/span> non-amicable divorce<\/span><\/a> are powerful because the EU is in shock. For people who\u2019ve spent their working lives in EU institutions, the rightness of the EU nation-integration project was always a self-evident truth. Now, their cause has been spurned.<\/span> Denial<\/span><\/a> and anger will stalk Brussels and European capitals for months\u2014possibly years\u2014and that emotion will \u00a0upset rational decision-making.<\/span><\/p>\n

Fortunately, the factor that steers the course of most divorces\u2014money\u2014will exert a sobering effect. With the EU\u2019s<\/span> second-biggest<\/span><\/a> net contributor, the UK, removing \u00a310 billion from the Unions\u2019 income statement, Germany is now on the hook for almost 25% of the EU budget. German power has therefore just taken a big step forward. Regardless of how high emotions run in Brussels, Berlin will call the shots.<\/span><\/p>\n

And what are German interests? In trade terms, Germany wants to keep UK trade as free as possible. Worth<\/span> \u20ac89 billion per year<\/span><\/a>, German exports to the UK are its third most valuable, after the US and France. What\u2019s more, the balance is in Germany\u2019s favour: export-import ratios to the UK run at roughly 2:1. Commercial self-interest will be the EU\u2019s most powerful driver, so the EU probably will compromise on freedom of movement as the price of keeping UK in the Single Market.<\/span><\/p>\n

But Germany\u2019s also desperate to hold the EU together. In financial terms, a terminal domino-effect collapse is one that starts with rich, northern countries, not poor southern ones. While a knee-capping strategy might unduly impress Mediterranean suppliants, it won\u2019t endear Scandinavian sceptics. So the forces in favour of amicability will remain in the ascendant, and Merkel\u2019s<\/span> call for calm<\/span><\/a> will probably prevail.<\/span><\/p>\n

The second question is whether Britain will continue to exist as it does today. Despite Nicola Sturgeon<\/span> announcing plans<\/span><\/a> to get the ball rolling for a second referendum, the cold calculus of Scottish independence actually looks bleaker than ever. As the implications of Brexit become more defined, it\u2019ll become clear that independence from a non-EU UK is a far less attractive proposition than the one set before Scottish voters in 2014.<\/span><\/p>\n

First, an independent Scotland will encounter whatever trade or customs barriers that emerge from the divorce. Since those barriers won\u2019t be quantifiable for about two years, a Scottish referendum before then is implausible.<\/span><\/p>\n

Second, English politicians have just learned what the electorate thinks of uncontrolled immigration. Attempting Scottish independence while simultaneously promising an EU membership that obliges the free movement of EU citizens will require finesse. Selling the idea at the precise moment that millions of English-speaking migrants can no longer look to England looks like political suicide.<\/span><\/p>\n

Third, Scotland is already in<\/span> financial trouble<\/span><\/a>. Low oil revenues have sent the Scottish deficit to \u00a37.8 billion, or 7.8% of GDP. And most perverse of all, if they get a second referendum, Scottish Nationalist will endure the unique liberation-movement challenge of campaigning to<\/span> surrender<\/span><\/i> powers\u2014over agriculture, fisheries and development\u2014their country has just acquired.<\/span><\/p>\n

The last big question is the shape of UK politics in Westminster. That\u2019s because the entire party political elite has just received an almighty intellectual thump. Only<\/span> 158 out of 650 MPs<\/span><\/a> supported Brexit\u2014and only 10 Labour MPs, which is why the party is in deeper existential waters than the Tories.<\/span><\/p>\n

Just as in Europe, the forces of denial will confuse politics for months. The sound of three-quarters of UK politicians trying to avoid facing up to the electorate\u2019s instruction won\u2019t be easy on the ear. But there\u2019s one new factor in UK politics that\u2019ll impact party re-alignment: deciding which commercial interests should predominate in the UK\u2019s EU negotiations on access to the Single Market<\/span><\/p>\n

Here, the political economy is fascinating. The UK has an<\/span> \u00a385.3 billion EU trade deficit<\/span><\/a> that\u2019s deteriorating by \u00a310 billion per year. Against this, the UK\u2019s<\/span> \u00a320 billion EU services surplus<\/span><\/a> pales\u2014and financial services only account for half that surplus. Post-Brexit politics cannot ignore commercial interests, because it\u2019s laid bare in the<\/span> political geography<\/span><\/a> of the vote: London voted \u2018Remain\u2019; the industrial heartlands of the Midlands, the Northwest and the Northeast\u2014which on close inspection don\u2019t do too well out the Single Market\u2014voted \u2018Leave\u2019.<\/span><\/p>\n

How will this play out? Let\u2019s say Jeremy Corbyn<\/span> hangs on<\/span><\/a> to a rump Labour Party, then at least his followers can reconnect with their traditional workers by campaigning for a semi-protectionist policy of trading with EU on WTO terms. That\u2019s at least feasible: his right-wing ousters in the Labour Party currently have no-one obvious to reconnect with at all.<\/span><\/p>\n

In the longer term, the Tory Party\u2019s task is hardly less gruesome. Now they\u2019ve won, Brexiteers have to balance the interests of London with those industrial and rural interests that gave them victory. As the party tries to agree a EU negotiating position, MPs will encounter one issue after another\u2014the EU trade deficit in manufacturing, \u00a0agricultural subsidies, and financial services<\/span> passporting<\/span><\/a>\u2014that divide economic liberals from Tories, and pitch City-sympathising conservatives against rural MPs. What happens then is anyone\u2019s guess.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

After Britain\u2019s shock Auf Wiedersehen last Friday, politicians in the UK and Europe are now struggling to figure out what a Brexit divorce will look like. 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