If the Brexit was a Netflix series, we would now be in the (extended) ninth season. It is a political comedy, horror and drama production. Manipulated by smart marketers and poisoned by fake news, the Brits have cast their votes and now are being held hostage by politicians. They have been demoted from actor to spectator in this soap opera.
Seasons so far (number of episodes varies by season):
All this drama has produced nothing tangible, except for the British people being divided to the bone and suffering from chronic lethargy. No wonder a day without Brexit-news is celebrated:
During the (parliamentary) Easter holiday and partly thanks to the fantastic weather, London returned to its old-fashioned merry and crowded self .... if not for the Extinction Rebellion (XR) making convenient use of the calm around Brexit. The political situation in the last few months and years has been so Brexit dominated, that little attention has been paid to anything else. This vacuum started to itch with climate activists who came to London for a whole week and peacefully disrupted as much economic activity as they could handle.
The Conservatives party’ right wing
It seems that the right-wing conservative Brexiteers, united in the European Research Group (ERG) have overplayed their hand and have not been able to force a no-deal Brexit. Their opposition to the ‘backstop' has isolated them from the majority within their party and the rest of parliament. They did not want to accept the fact that the words of the agreement make a backstop possible in theory, but formally expressed intentions and binding assurances made by the EU make this extremely unlikely. This typical English' form over substance' reaction underlies many misunderstandings about the EU in the United Kingdom
For a long time, hardcore Brexiteers counted on the EU yielding to the pressure of the two-year time constraints of the article 50-deadline of two years and dropping its backstop demand. This is proving to be a miscalculation (at least for now). The ERG did not expect Brussels would give in to the UK’s parliament request to extend the article 50-period of two years. Despite all the intense British divisions and disagreements on almost all other options, the British parliament now is unusually explicit in its desire not to leave the EU without an agreement securing its commitments concerning the Irish-British border. As such, it appears that any hope the ERG may have to leave the EU without an obstructive backstop safety net is pointless.
To make things' worse' for the ERG, their second attempt to unseat Theresa May failed. The first attempt to do so was last December. It failed, and according to the internal rules of the Conservative party a subsequent attempt can only be made after a year. This did not satisfy the ERG. Given May's poor handling of the Brexit file, they strongly pressed for a revision of the internal party rules to challenge the position of the party leader after only six months (in June). Public darling, arch opportunist and the therefore pliable Boris Johnson would be for the very dreamed successor (within the rest of the Conservative party his status, however, is controversial). The 1922 Committee, the competent body within the Conservative party to deal with these issues; however, did not play along thus blocking this particular threat to May’s position.
Compromises and concessions
This does not mean, however, that May can be confident to be at her desk until the end of December. Threats are diverse, and there is little restraint in politics and the media alike to fault her for the current state the country is in, on the Prime Minister. She deserves a lot of the blame, but the divisions within and outside her party were and are not exactly favourable for conducting constructive consultations. None of the major parties within parliament had a clear and unanimous position on Brexit. Self-interest (or of the group within the party to which one belonged) was and has systematically been placed above the national interest and that of the citizens. None of the various Brexit options selected for voting within parliament could boast a majority.
Within this climate, it is challenging to do business, but still, it is the only way out of the Brexit labyrinth. Comprising and making concessions is not ingrained within the DNA of the British two-party system. Each compromise towards approving May's Brexit agreement with the EU will, therefore, carry a considerable political price tag. At the same time, May's political legacy is at stake: ‘her' Brexit deal must succeed! The ball therefore, lies in May’s court. Having said that, Labour too is divided and desperately needs to show initiative and resolve in being part of a solution rather than ducking responsibility for a situation their voters also helped to. If possible, both the conservatives and Labour would like to avoid the election for the European Parliament on May 23-26. The latest polls predict a massive loss for the Conservatives, but also Labour is under pressure, mainly because many voters do not have a clue where this party stand for in the Brexit debate. The pro-Brexit parties (Brexit Party and UKIP) are expected to pick up most of these votes. This is a clear signal to the established parties to prevent being part of these elections and reach an agreement on the Brexit before May 23.
The last few months have shown that it is impossible to make any predictions about the progression, let alone the end game of this phase of the Brexit soap. Having noted this, the most likely outcome would be that moderate conservatives and Labour MP’s cut a deal on a customs union, before the European Parliament elections. What exact form or shape this customs union will take and whether this requires far-off adjustments the Political Declaration on the future relationship between the United Kingdom and the EU, cannot be assessed at this stage.
It is nearly certain that Theresa May’s political role will be over and done after this phase. After the defection of several Conservative MP's in the last months, ‘her’ government (with support from the DUP) has lost its majority. In my view, this makes it impossible to govern the country and escape new elections. How these elections eventually will unfold for these parties is hard to predict, but neither the Conservatives nor Labour can be assured of the outcome for their parliamentary powerbase let alone of gaining a majority. Coalitions then are inevitable, and it remains to be seen what that will do to the outcome of Brexit. An essential factor is that the Brits are fed up with the political elite and how the system functions and may well demand reforms. Fixing the NHS, tackling social issues, increasing climate efforts and closing the gap on income inequality to name a few will also feature high on the agenda. This explosive cocktail of issues offers little hope for a smoother course of the next phase of Brexit (Season 10, when staying in Netflix terms). I will keep you posted.
Brexit-Monitor: 4th quarter of 2018
The Brexit monitor I have compiled follows the economic ups and downs of Great Britain, the Netherlands and the EU on several relevant parameters for the impact of the Brexit's consequences (see my first Brexit monitor for an explanation and a further explanation).
The year 2018 ended on a sour note for all three countries surveyed by me, although the decrease in the individual results in the overall index was relatively low. The United Kingdom lost most (minus 0.4 points) and the EU least (minus 0.2 points). Over one year, on the other hand, the United Kingdom performed best (plus 1.8 points), followed by the Netherlands (plus 1.2 points) and the EU (plus 0.9 points). One should bear in mind that the monitor lags behind reality as a result of the late availability of all relevant data. Regardless, the British growth over the whole of 2018 is remarkable.
Changes compared to last quarter and one year back
The UK economy has not managed to hold on to the performance of the previous quarter and lags behind the Netherlands and the EU. A decline in consumer confidence, economic sentiment and house prices are the root cause for this. The income in the financial sector, the BPB/capita and the export as a result of the lower value of the GBP, has given a positive impetus. Declining consumer confidence and a reduction in economic sentiment also affect the Netherlands and the EU. This is indicative of decreasing confidence in the growth of the economy in Europe as a whole. Even though the Netherlands is in control of its government finances, its surplus has declined. The large surplus on the budget is invested in public facilities and projects deemed necessary after previous years of austerity. In the fourth quarter as well house prices continue to rise above average in the Netherlands.
Over one year, the United Kingdom has taken over the lead of the Netherlands. This is mainly due to the relatively significant decline in Dutch consumer confidence, the decline in income in the financial sector and the reduction of the Dutch financing surplus. In absolute terms, the Netherlands still leads the pack in virtually all dimensions of the index. The rise in Dutch house prices ensures that the index is still positive over a year. The United Kingdom owes its lead to an increase in exports and the relentless growth of incomes in the financial sector. I expect that once the Brexit is a fact, particularly this last component will come under pressure.
During the period between January 2018 and December 2018, housing prices in the greater London area have stabilized, but there are some notable local differences (in parentheses the figures for the period January-December 2017): City of London +2.2% (-4.4%), Westminster- 10.1% (-2.4%) and Kensington and Chelsea +1.8% (-0.2%).
The overview above shows the relative values, with the second quarter of 2016 as the benchmark (index = 100). The table below shows the absolute values for the fourth quarter of 2018, enabling better insight into the order of magnitude in which the outcomes are moving.
Development of exports from and to the United Kingdom with the Netherlands and the EU
In addition to the Brexit monitor as such, I follow the development of exports between the Netherlands, the United Kingdom and the European Union separately.From June 2016, the size of the UK's GBP exports to the EU has risen considerably (plus 27%). For a significant part (15.3%) this is due to the reduction in the value of the GBP versus the euro. Interestingly, exports from the Netherlands to the United Kingdom have grown by 13.2% since 2015, and the exports from the Netherlands to the rest of the world have risen even by 21%. The negative impact of Brexit, feared by Dutch exporters, has, as yet, not materialized at an aggregated level.
Chaos dominates the political scenes around and in Westminster. No one can predict with any level of certainty how this drama will play out. Tired of the Brexit-fuss and struck by the dysfunctional state of British politics, voters are no longer sure whether the decision to leave the EU was such a good idea. Nevertheless, none of the politically advocated solutions (no-deal, Theresa's deal, staying the EU or another deal) has a majority. Democracy remains an unruly instrument, particularly in the hands of weak politicians. The irony is that a customs union is no longer an unlikely scenario, which was precisely the fall back ‘scenario' which triggered the entire backstop debate in the first place.