I think I am starting to develop a clearer view of what has happened and what it is going to happen, and I am starting to see the silver linings. I’ll try to explain point by point.
Why did we really have a referendum?
The whole Brexit exercise has been a clear example of how you can abuse of democracy and exploit it for your personal, little goals. Cameron used the promise of the referendum to raise his position during the electoral campaign, no doubt about it. He then went on and actually called the referendum, having the certainty that brexit would have no chance to win. Perhaps this certainty was justified back then when the referendum was announced: after all, there were no major political figures going for Brexit and the only really recognizable face was Farage, so it looked like an easy campaign. In fact, in Scotland and NI, where not a single political leader backed Brexit, they had an easy outcome.
But then, Boris Johnson quickly realised that the role of Brexit primadonna was actually vacant and moved swiftly to jump in. How could he miss this opportunity? As for Cameron, I don’t think Boris ever really hoped or even wanted to win. For Johnson, gaining the highest position on stage was already a victory – he would have gained visibility and his position would have been so much stronger if leave were to get close enough, but not win. Boris Johnson, like David Cameron, used the referendum for his own political goals but lost control (yes, I know, losing control. Isn’t that ironic?). The third person who abused of the democratic process is Farage obviously, but his tactics, role and goals in all this exercise are trivial so do not need to be discussed.
Why did Dave and Boris lose control?
Cameron lost control partly because of the Tory schism: not just Johnson, but also a good part of his cabinet decided to split for personal political gain. Gove, IDS saw the opportunity and went after it. Cameron’s mistake, at this stage, was to be lenient. Johnson, on the other hand, lost control because he underestimated the anti-establishment sentiment. Millions of people voted against EU to send a signal, without even knowing what they were doing. I don’t think one can blame Boris for this actually: nobody really believed this could end this way. Not the markets, nor the polls; not even Farage! who started conceding 5 minutes after 10pm on the 23rd. There is a reason nobody had a political plan for brexit (except perhaps Mark Carney who came out as the real pro): nobody was expecting to need one. Everyone underestimated the brexit sentiment, even the liberal media like the Guardian who waited ages to endorse Remain and every second day run yet another “the EU is not perfect” op-ed.
What is going to happen next?
First of all, let’s say that in the political chess-game this is, Cameron played the right move. He resigned, knowing everyone now expects Johnson to take over. I am not sure he will manage to push it until October though. Things are precipitating fast now and there is no much time left. Having said this, what are the options for the next PM? Withdrawing from the common market and trading under WTO is not a feasible option for the UK. The average voter may think it is, but it is not. To recreate from scratch 20-30 trade deals would take decades and heavily damage the economy. More importantly, it would clearly destroy the political union of the UK, leading to Scottish independence; potentially resuscitating violence in NI (and create it in other party of the country). This is not going to happen. No politician would ever go for it, no matter what their political gamble. This would be as wise as declaring war to the USA. Period. Also, keep in mind that leaving the EU is a choice of the PM. Not of the parliament, not of the Queen. It is a single man responsibility.
So that leaves the PM with only three choices:
a) somehow buy time and hope that the economic turmoil will be bad enough to explain to the British public why this was a bad decision. One cannot rely on markets for this because markets are like toddlers. They are just good for throwing tantrums until interest rates go down or until QEs happen. One could rely on the currency, though. If the Pound will fall to some kind of psychological threshold (say 1:1 on EUR) than this may do the job. Unlikely to happen though – and extremely risky option too.
b) Same as a), but call for another referendum. This second option is more likely but it is fairly difficult to implement. Investments are being diverted while the UK are busy making up their mind and this is a huge damage to the economy. The further in time the date for the second referendum, the greater the damage. It is, however, the best option if the UK hope to retain political power in the EU.
b) remain in the European Economic Area. This is the most likely output in my view. Many leavers kept asking for a Norwegian / Swiss model and – technically – it would completely match the referendum choice so it is a very easy option to justify politically. I think most leavers are also OK with this choice at the moment. However, there is one major factor: most leavers believe they can achieve a special state in EFTA, where they have access to the market but do not have to obey free movement of people or obey EU regulations. And this is not going to happen. The latter point cannot even technically happen because regulations are a major part of trade agreements. Most, including the media, appear to erroneously think trade agreements are about tariffs. They are not. If they were about tariffs it would take one line of text and five minutes “abolish tariffs, done.”. Trade deals are about the milk industry in one country asking for rules to guarantee that the milk industry in the other country is not going to be unfairly favourited. Repeat this for every single industry lobby and see why it takes 100 diplomats and 6-7 years to draft a single treaty. (And by the way, the UK would have to renegotiate something like 20-30 new trade deals and they have the intellectual power for one or two). So, EU regulations will stay. What about free movement of people? EFTA currently requires full adherence to Schengen and a treaty that allows for free market exchange without movement of people does not even exist at the moment. It would have to be drafted and undersigned by all other 27 members. I believe this is the most important point of them all. Many Leavers live in some shadow of the British Empire, and believe the British economy is so important that the EU will grant them any special status they want. Yes, BMW sells 15% of their cars here, but if they think this is enough to convince all of the EU countries that the UK need to be treated like the special pretty princess they are, then, my friends you are in complete denial. The UK have no bargaining power whatsoever and the EU must and will use an iron fist against this mutiny, to discourage any other separatist behaviour. So what it will happen is that the UK will join EFTA. They will keep access to the single market, they will still have to obey EU regulations, they will have to have even more freedom of movement by adopting Schengen (and no: the fact that Liechtenstein has called Article 5 will not serve as loophole. The emergency brake is no a political trickery). Obviously, this is pretty much the exact opposite of what who voted Leave wanted: they get more immigration, they still get to send money to EU – in fact more money than now, because they will lose the rebate – and they abandon democratic representation (basically they eventually really truly lose control! Oh, the irony is so sharp). However, this is still “leaving EU” and technically 100% in line with the public vote.
Will the EU suffer from this?
No. If they act with an iron fist they will not. Economically, this should make no difference to the EU. Politically, it can be a good news. What does not kill you, makes you stronger. In fact, they can use this as an opportunity to move one more step towards the United States of Europe.If there is a fantastic data about the referendum is that 75% of the youngsters in the most euro-sceptic country of the EU were passionately in favour of remain. That means that the USE are one generation away from happening.
The silver lining?
1) Gaining Schengen is a good thing. To be able to travel without border controls is such a good feeling
2) The EU can grow stronger from all this. they lose their weakest gear and can move to a different pace. It is clearly a great political challenge but at least is on the table.
3) Those who voted leave without knowing what they were doing just because they wanted to send a signal to Cameron will not be affected. Those who voted because they did not like immigrants or the EU will have more immigrants and more EU and (excuse the childish joy) this, for me, it’s quite a good news.
How things will develop then?
The first and biggest question mark will be around timing. Cameron announced he will continue working as PM until October but there is no way he can afford to do that. Not because EU is putting pressure but rather because the markets will. Markets and investors do not like periods of indecision and they will make it very clear. I do not expect the international markets to suffer much in the next few weeks (unless Podemos will win in Spain – in that case, run for your life) but they will start hitting London, especially as macro-indicators will start to appear.
Cameron will have to resign quickly and Johnson will start negotiating with EU the entrance to EFTA. As mentioned, the UK do not really have much bargaining power. Their only strength, at the moment, is trying to push decision as far as they can hoping that other anti-EU movements will gain momentum in other countries. However, this is a double edged sword because delay will hurt the UK much more than the EU.
So things will happen quickly and in the next few days, we shall see the first signs going in this directions. I will put them here as they happen.
24 June. Boris Johnson first speech after the referendum. (video
We cannot turn our backs on Europe. We are part of Europe. Our children and our grandchildren will continue to have a wonderful future as Europeans, travelling to the continent, understanding the languages and cultures that make up our common European civilization. Continuing to interact with the peoples of other countries in a way that is open and friendly and outward looking.
25 June. Tory Brexiter Daniel Hannan: Leave campaign never promised “radical decline” in immigration (video
It means free movement of labour
26 June. Philip Hammond (video
Those who say “no they need us more than we need them don’t worry they’ll allow us to have control of migration from the European Union while maintaining access to the single market” are simply mistaken. We will not be able to negotiate control of migration from the EU and at the same time full access to single market
26 June. Boris Johnson (article)
The only change – and it will not come in any great rush – is that the UK will extricate itself from the EU’s extraordinary and opaque system of legislation
I thinks this last article closes the matter for me. The UK will join EFTA. Johnson is still lying on several aspects of course (e.g. ECJ, point system immigration) but the direction is clear. He will have to break the news to leavers soon.