It would appear that a disenchantment with the failings of a recently established global economy was one of the reasons for a Brexit vote in the UK, but Britain will need access to the Single Market and the European Commission will negotiate to keep to keep Britain in, says Eddie Hobbs.

The shock is passing and, with it, thankfully, much of the darker analysis from a commentariat miffed that the mob didn’t or couldn’t listen to the elegance of their argument. The British electorate has spoken, albeit by a small margin. It wants a divorce, the terms of which are for another day.

The unexplored question is what’s really driving the disenchantment? The narrow view is that the British simply want to escape rule from the imperial capital in Brussels. This is the neat Little Englander explanation favoured by critics that masks their own prejudices, but what if it’s part of a wider disenchantment? Look north of the border and Scotland simmers with resentment at being ruled by an elite in Westminster.

Why would most Scots swap pax Britannia for pax Germania? Across the pond, American working and middle classes are rallying around gifted populist Donald Trump. The billionaire has tapped so deeply into their sense of disengagement with the Washington elite that they are happy to turn a blind eye to his bombast, ethics, and temperament. But why are millions of people opting for Boris and Trump in the first place?

Donald Trump
Donald Trump

In Ireland, such disenchantment has delivered a minority administration bristling with Independent TDs. Is the sharp fall in support for conventional political parties telling us something else is happening, that Brexit is just another manifestation, that the underlying desire is to regain a sense of control?

Let’s not forget that the interconnectedness and inherent instability of the recently created global economy has inflicted unexpected and nasty whiplash effects from afar, such as the US housing credit burst, leaving voters with a deep feelings of vulnerability and unfairness.

The diffusion of sovereign power in key areas to the unelected EU Commission has not been counter-balanced at the roots of society through a diffusion of power from the national parliament to the people through the strengthening of local government and community involvement in policy-making.

The result appears to come from a feeling of helplessness heightened by clear evidence that wealthy corporations and the ultra-high net worth are lunching out at the expense of the workforce, a feeling that the deck is stacked.

It’s early days in the evolution of next models of Government but the future ought to be very different to the past, with much more involvement by the people in deciding policy through regular plebiscites, thus constricting the power of national politicians to decide what’s best from within the bubble of parliament, while trying to control popular sentiment by manipulating conventional media.

The British have spoken, so what happens after the initial posturing and hyperbole settles and money starts talking?

As ever at the outset of negotiations both sides look irreconcilable, the next Conservative leader, who has to be in situ by September 9, will be tasked with giving effect to Brexit while, on the other side, the EU will be tasked with preventing contagion and using the exit to press for deeper integration.

The most likely outcome, despite the theatrics from the EU, will be some kind of associateship that swaps diminished access to the Single Market in exchange for sidestepping rules especially those surrounding free movement of labour. This still sees Britain leave the EU but remain part of the extended family, operating within the EU sphere and abiding by a constructive set of new rules in order to access its markets and not the rules of the European Free Trade Association.

Can Brexit be reversed?

This is unlikely without a general election putting a pro-EU government in power, an outcome that could result from austerity which follows recession as night follows day. Already there are signs that the British economy is stalling, a position that is being closely monitored by the Bank of England, standing by to cut rates and increase quantitative easing to lessen the damage.

The next move is with the British Government which is likely to activate Article 50 by year end and thus begin the horse trading. The EU, during the negotiations and despite what is said at press briefings, will test for opportunities not to lose Britain over a failure to compromise which is at the heart of how the EU does business.

It is possible that the EU, concerned about the economic side impact of a British slowdown, softens its position to a point which allows Brexit to be avoided through a second popular vote on a new package, allowing Britain to withdraw its Article 50 submission.

The central case however is an exit by 2019, with legacy negotiation going on for several years in an accommodation that sees Britain outside the European Economic Area but with customised access that benefits both sides. Quite where this will leave the home Union with Scotland and Northern Ireland is an open and difficult question.

Eddie Hobbs is a financial advisor www.eddiehobbs.com


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