The recent Parliamentary vote on a proposed Brexit deal resulted in a decisive “no” to Prime Minister Theresa May’s path for the United Kingdom divorcing the European Union (EU). The vote was among the most lopsided in recent history, illustrating the wide divisions in opinions about the best way for Britain to leave the EU (or not). The whole idea of a “Brexit” was flawed from the outset and was cautioned against by hundreds of economists and virtually every current and past leader on the planet. The ensuing chaos was to be expected.
The deal was presented after more than two years of negotiations. Given the spectacular failure, a few tweaks are unlikely to matter. For Members of Parliament who support an exit even if it means the so-called “hard Brexit” with no agreement at all, the linkages with the EU were too strong; for others, it was viewed unfavorably because Britain would be held to many EU rules and obligations, but no longer having much input; still others wanted to revote and cancel the whole thing. Without a broad base of support from any side and nothing approaching consensus, it’s no surprise that the vote was so resounding, and no simple solution is obvious.
What’s next? The current date for Brexit to occur is March 29. One potential course of action is to simply allow more time for consideration. An alternative strategy could also be worked out which tried to meet in the middle, though that seems difficult. Leaving the EU without an agreement would cause severe dislocations for everyone, and it would be advantageous for Parliament to craft something that the rest of Europe can embrace. Another referendum to allow voters the opportunity to reverse course faces strong opposition and could lead to the same outcome, but remains a possibility. As the King of Siam would say, “it’s a puzzlement!!”
Clearly, uncertainty is bad for the economy, and the current limbo is damaging. Businesses are sorting out how to proceed with investments and other decisions. Foreign companies are faced with assuring access into the European market and questioning whether the UK remains a viable option.
Because the UK is an important trading partner for the United States, what happens there affects our economy as well. Furthermore, economic retrenching in Britain could slow growth across all of Europe, compounding negative effects. Whatever the outcome, centuries of complex economic linkages don’t vanish overnight without consequences.
Even so, the worst-case scenarios are highly damaging and there are strong incentives to avoid a sudden, chaotic crisis on March 29. Time is tight, but hopefully the stakes are sufficiently high on all sides to increase the likelihood of a workable solution.