The Price of Nostalgia
America’s Self-Defeating Economic Retreat
On March 2, British Prime Minister Theresa May presented her long-awaited proposal for Britain’s exit from the European Union. Hoping to cut through the cacophony and confusion of the two years since the Brexit referendum, May set out her vision for the economic relationship between the United Kingdom and the remaining 27 European Union countries by laying out the five “tests” of any Brexit agreement: “Implementing the decision of the British people, reaching an enduring solution, protecting our security and prosperity, delivering an outcome that is consistent with the kind of country we want to be, and bringing our country together.” Her speech finished on a feisty note. “We know what we want,” she said. “We understand your principles. We have a shared interest in getting this right. So let’s get on with it.”
Unfortunately for May, her ambitious plan took only a few days to deflate. On March 7, European Council President Donald Tusk released draft guidelines for the remaining negotiations, in which he clearly contradicted May’s five tests. “The repeatedly stated positions of the [United Kingdom],” he starkly recalled, “limit the depth of such a future partnership.” Furthermore, he added, “a non-member of the Union (…) cannot have the same rights and enjoy the same benefits as a member.” With only a year to go before Britain formally leaves the EU, its post-Brexit relationship with the rest of the continent is as unclear as ever.
The main obstacle to progress is easy to identify. The Leave campaign promised a Brexit without trade-offs, one in which the United Kingdom could achieve national sovereignty without losing European market access. On succeeding David Cameron as prime minister, Theresa May, anxious to consolidate her support among hardliners in her party, doubled down on those promises, insisting on several “red lines,” which include leaving the Single Market and the Customs Union, as well as removing the United Kingdom from the jurisdiction of the European Court of Justice. Ever since, her government has been paralyzed by the commitment to sever ties with the political architecture of Europe, while expecting that “trade at the UK-EU border should be as frictionless as possible.”
This refusal to confront contradictions—or “cakeism,” as it has become known since Foreign Secretary Boris Johnson declared that he was “pro having my cake, and pro eating it”—continues to dominate the British political debate. The Brexit cheerleaders in the government win plaudits from the tabloid press for demanding a full and unambiguous break with the EU and its institutions, while pro-European Conservatives are bound by party discipline to support May’s red lines. The official opposition, Jeremy Corbyn’s Labour, is itself too afraid of losing pro-Brexit votes in its traditional heartlands to challenge the government narrative that Britain can have it all. The technocrats of the Bank of England and the British Treasury are silenced by their obligation to political neutrality and too stung by the failure of their gloomy economic forecasts to shift public opinion.
In this context, May can only finesse the contradictions. Her speech attempted to square the circle by suggesting that “UK law may not necessarily be identical to EU law, but it should achieve the same outcomes,” conceding that some “independent mechanism” should oversee the consistency of market regulations. Faced with a regulatory vacuum in aviation, medicine, and chemicals, May suggested “associate membership” in European agencies. And confronted with the ultimate Brexit deal-breaker—the need for a border agreement in Ireland to protect the Belfast peace agreement—May proposed a loose set of arrangements to maintain frictionless trade on the island through the alchemy of “technology, robust systems to ensure trust and confidence, as well as goodwill.”
So it was left to Tusk and the EU’s Brexit negotiators to deliver the reality check. The EU Council guidelines, which were pointedly described as “reconfirming the guidelines of 29 April and 15 December 2017,” stated that “being outside the Customs Union and the Single Market will inevitably lead to frictions” and that “divergence in external tariffs and internal rules” would mean “checks and controls to uphold the integrity of the EU Single Market.” In other words, the United Kingdom can have its cake, or it can eat it. And in case there were any doubt, Brexit “unfortunately will have negative economic consequences.” Specifically, Tusk ruled out any bespoke deal for financial services and reiterated the EU position that there is no prospect of anything more than a basic trade agreement for goods unless the United Kingdom accepts corresponding obligations.
Patience is evidently wearing thin in Brussels at the British government’s reluctance to face up to the reality of what it has decided to do. But what may appear as obstinacy to the point of obtuseness from outside makes much more sense when one considers the impossible constraints that May is laboring under inside her own government and the Westminster parliament. The prime minister began her term of office with a wafer-thin Conservative majority in Westminster and unambiguous instruction from the majority of British voters to leave the EU. Bound by the demands from a significant part of her own party for a hard Brexit, and distrusted for her previous stance on Europe, May had good reasons for adopting her red lines on the European Court of Justice and the Customs Union.
But having thrown away her majority in June 2017, her ability to maneuver her way to a compromise with the EU is constrained by her reliance on the votes of a tiny parliamentary minority that makes Tory Brexiters appear quite malleable. In Northern Ireland, the hardline Democratic Unionist Party is uncomfortable with the province’s power-sharing agreement, which is currently suspended after the Irish nationalist party Sinn Fein walked out in protest at the DUP’s handling of a renewable energy scheme. The DUP is suspicious of the motives of the EU and the Irish government, and campaigned for Brexit in 2016, but it is also opposed to a hard border on the island of Ireland, while fiercely condemning any suggestion of regulatory divergence from the rest of the United Kingdom. Any deal that is acceptable to Ireland and the EU negotiators runs the risk of alienating the DUP and dragging down May’s precarious government. And any alternative parliamentary strategy would give supporters of a softer Brexit, both in the Conservative and the Labour parties, an opportunity to redraw May’s red lines, opening up a civil war in her own government.
If politics is the art of the possible, May must be wondering what she has got herself into. But her government’s paralysis cannot be sustained much longer. The EU’s Article 50 makes an abrupt and potentially chaotic Brexit the default option if agreement cannot be reached. Planes could be grounded, trade could grind to a halt, and medical supplies could be compromised if no progress is made. May’s five tests cannot be met if she has no answer to the question posed by the European Council president: Does the United Kingdom want to have its cake or eat it?