Will Britain Be The Next Greece?

One year ago, Greece held a referendum on whether to accept the terms of a bailout proposed by the European Union. After voters soundly rejected the deal, the Greek government went back to Brussels to demand a better one. Europe, led by Germany, crossed its metaphorical arms, smiled as the Greek economy tanked and its ATMs ran out of money, and said ‘Take it or leave it.’ In the end, Greece had to take what was offered.

Now it may be the United Kingdom’s turn. Britons stayed up through the night watching the results from the country’s referendum on its EU membership, and as dawn broke, realised they’d chosen to go it alone. Hours later the Prime Minister, David Cameron, resigned and the jockeying for a new government started.

When David Cameron won his majority in last year’s election, I reckoned his tenure might prove short-lived, because he’d encouraged optimism in irreconcilable factions in Conservative Party, particularly among both Europhiles and Eurosceptics. Anything less than a resounding defeat for Leave would have failed to quell the Eurosceptic rebellion in his party. Now, their victory in hand, the Brexiters have claimed their pound of flesh. Mr. Cameron is finished.

I’ll now make the same prediction for those who orchestrated his downfall, including former London mayor Boris Johnson. Sure, they’re jubilant now, but see where things stand at the next election – or even earlier. And this is where Britain’s resemblance to Greece comes in. For although the UK may be a far more prosperous and well-run country than Greece, the calculus of its future negotiations resemble those that faced its little Balkan ally this time last year. Then, the Greek Prime Minister had raised hopes that he could get his country a better deal; as the economy crumbled around him, he therefore came under intense pressure to take whatever was offered.

Britain starts from a better base, with an economy that everyone would like to trade with. But that also means it has further to fall, and it’s not apparent that Britons are prepared to do so. Throughout the campaign, leading Brexit spokespeople insisted that Britain would get better trade deals on its own, and dismissed as scare-mongering the wealth of research that suggested the economy would take a hit. But when the markets opened this morning and both shares and the pound plunged, it became apparent all that research could no longer be dismissed as merely the politics of fear.

Markets hate uncertainty. Until Britain’s new place in the world is clarified, the risks that businesses and consumers will postpone spending and investment decisions will persist. That could well produce the recession Brexiters insisted wouldn’t happen. To forestall this eventuality, the new government will likely find itself under intense pressure to quickly conclude all those new agreements it said it would obtain, with both Europe and the rest of the world.

That’s an exceedingly tall order. In the best of circumstances, trade deals can take many years to negotiate, and certainly more than the two which Britain is now allowed under European law to finalise its exit. But even that presumes a high degree of capacity in trade-negotiation, something Britain now lacks. Since the country joined the EU, it handed its trade-negotiation authority to Brussels, and there’s now little technical capacity left in London. Rebuilding it quickly will be difficult if not impossible.

Moreover, the global environment may not prove as receptive to new trade deals as the Brexiters kept insisting. A recent study by the World Trade Organisation found that after decades of increasing openness, protectionist impulses have been creeping back into the world economy. Countries driving harder bargains will be unlikely to be mollified by a British vote that was itself motivated by protectionist impulses – to say nothing of any annoyance they might feel that British voters chose to plunge a fragile world economy into a period of uncertainty.

Taken all together, a new Brexit government may feel itself under intense pressure to cut deals quickly, without the ability to do so, and with partners taking a harder line. The EU, in particular, will be anxious to prevent contagion from the Brexit vote spreading to other countries where populist movements are pushing to do the same thing. In a recent interview the German finance minister Wolfgang Schäuble, the villain in last year’s Greek drama, may have signalled the EU’s response to Brexiters saying they’d get a generous deal from Europe when he insisted ‘In is in. Out is out.’

Don’t be surprised, therefore, if a Brexit government soon finds itself back-pedalling, trying to weasel out of promises, and otherwise preparing its supporters for an ‘independence’ that delivers less than it promised. That will probably only help prolong the instability in British politics, now aggravated by both the deep divisions the unequal geographic distribution of the vote revealed and the fact that both Northern Ireland and Scotland voted to remain in the EU, thereby bringing the very future of the United Kingdom into question.

This crisis has only just begun.

 

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