Since the surprising outcome of the Brexit vote last week, my email inbox has been inundated with press releases, economic and political commentary, interview clips and thought-provoking articles. One view that particularly proved interesting was that of Portfolio Metrix’s Brandon Zietsman.
Brexit dominated the news over the weekend and there is little merit in re-summarising the facts. Instead, I’d like to present an alternative hypothesis arguing that it might just not happen at all. Even if an exit is the most likely outcome, the chance of another referendum is not immaterial.
Francois Hollande stated on Sunday that “what was once unthinkable is now irreversible”. Apparently he and Angela Merkel are on the same page and the intent is to get the UK out as smoothly and as soon as practical. European Commissioner Jean-Claude Juncker has said that Britain’s withdrawal must begin immediately. However, British politicians across the Remain and Leave divide appear to be in no great hurry, a position supported by Angela Merkel’s Chief of Staff, who has urged British politicians to reconsider the consequences of Brexit.
It is now clearer than ever that David Cameron took an appalling risk that was both foolhardy and reckless. Essentially he was addressing a deepening rift in the Conservative party at a time when winning an election was foremost on his mind. To assuage the nationalist right in his party, he gambled with the future of his country (especially its youth) and that of the European Union and whole European post-war order. In fact, you could argue that he gambled with the entire Western democratic order. He lost.
What needs to be unpacked is why he took that risk, which in hindsight looks like a 50/50 coin flip. I am tempted to imagine that if he fully appreciated the probability of losing, then the potential cost would have outweighed the potential benefit. Why then was he so confident? Quite simply, the clear-headed, unemotional arguments in favour of remaining thoroughly trounced all reasonable arguments to leave. Against this backdrop and the fact that initial polls on sentiment indicated broader support for remaining in EU, he saw the gamble as acceptable. I suspect, too, that he was hoping to put to bed a deeply divisive topic for at least another generation.
We need to understand how, with all the facts and logic on their side, the Remain campaign lost. Firstly, I think that the anti-Europe sentiment was vastly underestimated, as well as rising antipathy towards a domestic political establishment perceived as being increasingly remote and out of touch. Britain had become polarised between an affluent Tory South and a working-class Labour North, between urban and rural voters and between the educated and less-educated who had experienced the impact of globalisation differently. Latent secessionist instincts in Scotland had been awakened and London became an economic island culturally alien to the rest of the country.
The theme of a distant, unelected, unaccountable and disinterested Brussels dictating the daily lives of Britons dovetailed with an out-of-touch Westminster, perceived to be more interested in global finance than industrial jobs and farmers. Particularly galling in the case of the EU was the fact that this “dictating” was being done by foreigners. The Brits have always had an edgy relationship with the continent. British fathers plucking British sons off the beaches at Dunkirk and the sounds of Merlin engines play as much a role in the national psyche as does any sense of pan- European identity. The Exiteers understood this, as well as the emotional voltage behind the fact that globalisation has produced casualties; integration represented globalisation and more lost jobs.
Cameron miscalculated how little influence facts would play in this referendum, but he also underestimated the extent to which his opponents were prepared to lie straight-faced to the electorate. He also failed to appreciate how little grasp the average voter had of the issues and their ability to disaggregate fact from fiction; emotion is powerful medicine that is easy to dispense, particularly to an undemanding audience. This is perhaps why “what is the EU?” was the most searched term in Britain on the internet over the weekend and also why “#regret” is trending.
However, it’s easy to tell porky pies right up to the point that reality catches up to you. Both Johnson and Gove are ex- journalists with a flair for sensationalism and entertainment, with only a lightweight relationship with the truth. Michael Gove responded that “people were tired of experts” when economists told him that he was taking an extraordinary risk. Johnson had previously been fired by The Times for lying to its readers.
Both Johnson and Gove are now inconveniently cornered and it reflects in their subdued demeanours and awkward back-peddling. All the jingoistic, fiery rhetoric has been replaced by a palpable faltering in the confidence stakes, which hasn’t gone unnoticed by the voters they seduced. It was lies about exerting more control over immigration. Lies about GBP350m taken by Brussels every week that would now be directed to NHS, cutting taxes and making new investments in transport infrastructure. Lies about how EU subsidies were to be replaced and denials about a GBP40bn hole in public finances. Denials about the economic impact and political fall-out. Lies that are now painfully exposed – or about to be.
Let’s look at the facts: in reality, Britain will end up poorer, more isolated and less influential. Almost half of its exports go to the EU and access to the single market is critical. Dozens of critical agreements would need to be renegotiated from a much weaker position. The biggest lie of all was about how control would be “taken back”. Exiteers poo-poo’ed the potential loss of access to Europe, citing Norway’s access to the single-market (through being part of the European Economic Area) and Switzerland, which has a similar arrangement. What is left unspoken is that both of these countries have to accept the free movement of labour and just about all of the EU regulations; the difference is that they have NO say in determining those regulations. It’s hard to see the EU making a special concession here, in which case retaining access to the single market means LESS independence.
Given that all political parties in the UK, as well as Europeans, have indicated that they respect the will of the British people, why this scepticism on my part as to whether it will definitely happen? Let’s take them one by one:
- The “leave” vote is sobering up from the party with a hangover that refuses to abate. As the actual as opposed to supposed consequences become clearer and the degree to which they were misled (particularly the “regaining control” bit) becomes more tangible, expect rising discontent. Already, Cornwall (which voted Leave) is entering a mild panic zone and issued a plea for protection against the withdrawal of European subsidies – others will follow. The vote was close – 52% to 48% – it doesn’t take much “regret” to swing that outcome. Polls will be conducted to measure sentiment post the vote and I believe a material shift will become
- The vote was skewed, pitching young versus old, urban versus rural. Scotland and Northern Ireland voted differently to England and Wales. An actual exit stands not only to rip Britain from the EU, but to tear a 300 hundred year-old democracy apart both geographically and socially, polarising the country in just about every conceivable way. Another Scottish referendum would almost be unavoidable and a united Ireland a non-zero probability. It must now be seen as inconceivable that the country will ever unite behind an exit and it must be equally clear to everyone on both sides that there are existential threats to the UK as we know it. It was one thing to speculate about the outcome, but as the real consequences become clearer, other options will be explored. In financial parlance, the Remain camp has positive theta, that is, their arguments are increasingly validated with each passing
- Notwithstanding the popular vote, politicians themselves were overwhelmingly in support of Remain. Fewer than 150 Conservatives and a very small minority of labour MPs supported Brexit out of a total of 650 MPs. The weight of political opinion in Westminster suggests that any alternative path to Brexit would receive support. Jeremy Corbyn is now facing the backlash from his party over what was seen (correctly) as a dismal effort in supporting
- The referendum outcome has no legal or binding status; Article 50 needs to be invoked to trigger the formal negotiations for an exit. Cameron has said that he will leave this to his successor – I believe that this is calculated. It buys three and a bit months of optionality, during which time the facts argued by the Remain camp will be supported by evidence and the emotional arguments of the Leave camp will ring more hollow. The Leave camp has also argued against haste, but one gets a sense that it is simply because they don’t really know what to do now (like a dog that unexpectedly catches the postman’s van). In short, no-one within the UK is arguing for haste and until Article 50 is invoked, optionality
- There is nothing the EU can do to force the UK to move quickly towards invoking Article 50. EU officials have now been pressurising the UK not to delay and to exit as quickly and expediently as possible. Ostensibly, the reason is to minimise the period of uncertainty, but one does get a sense of churlishness and a desire to discourage other would-be exiteers by not making it too easy. Angela Merkel (God bless her) has been more sanguine and cautioned against rushing into formal negotiations, notwithstanding the message from yesterday to the contrary. She too, I feel, senses that all is not lost and Brexit is not a fait
- The EU is gripped by panic that Brexit could presage an anti-EU groundswell that could be difficult to control on the continent. Brussels has overreached and allowed populist sentiment on both the left and right to gain dangerous traction. The Marine Le Pens and Geert Wilders are crowing and demanding their own referendums. Politicians at the heart of the EU know that they have got it wrong; they have drifted too far from the voters and ignored the warning signs. Brexit is big cheese and we can expect a reaction. Donald Tusk (president of the European Council) has been signalling a different view to the die-hard “ever-closer integration” crowd. Many recognise the need to repatriate powers to national parliaments and place limits on Brussels’ influence. Europe tends to move at snails place until the 11th hour – that is the time currently showing the clock.
So what then could reverse the outcome of this referendum and under what circumstances might that be a possibility? Well, simply, if there is sufficient reason for another referendum. And let’s face it, the interests aligned behind causing that to happen are both broad and deep. In just the same way that Nicola Sturgeon has argued that the outcome of the Scottish referendum should be seen as null given this result, any new, material information that might render the initial Brexit referendum as less valid would create the case for a new one.
However stretchy a possibility, any chance of making this happen is something government and the EU would jump at. It could be driven by a marked shift in sentiment as measured through polls, domestic pressure and public unrest. The three and a half million plus votes have already been gathered in a petition calling for a new referendum (notwithstanding evidence that some of them are fraudulent), which parliament must consider and may use as an excuse for delaying triggering Article 50.
Most importantly, a reaction from the EU to materially change what membership means, not only in terms of technicalities but also the whole essence of the European compact, could be deemed to be material new information that would influence the outcome of a vote. If any of these stack up, another referendum is not an impossibility. It would be hard to imagine the Leave camp prevailing a second time.
Brandon Zietsman CEO: PortfolioMetrix