We are just starting to see the effects of Brexit on the British and Irish economies, and guess what? It’s not pretty.
In fact, saying ‘it’s not pretty’ is an understatement. An understatement reminiscent of the very British dinner guests visited by the Grim Reaper in Monty Python’s film The Meaning of Life. The guests, you’ll remember, were murdered by a salmon mousse. Once they realised they were bound for the lakes of fire, they said: “Well, that’s cast rather a gloom over the evening, hasn’t it?”
Things are becoming Monty Python-level ludicrous.
British indicators of market sentiment, like purchasing managers’ indices of both services and manufacturing, are showing readings not seen since the global financial crisis of 2008 and 2009. Large British banks are laying people off. One-third of foreign students are now less likely to come to Britain post-Brexit. Global car makers like Ford are warning they’ll have to close British and European plants. Profit warnings from PLCs are everywhere. Giants like IAG, the owner of British Airways, announced it lost nearly £150 million in the last few months, just because of the collapse in sterling’s value. Rolls Royce’s profits fell 80 per cent.
As an aside, if your business is doing badly, you can blame Brexit for at least another three quarters. It is the macro-excuse.
At least €68 billion has been pulled out of European equity markets since the Brexit result, and the Bank of England has been forced into a much more activist position to stabilise markets. Only two people have come out of the Brexit story winners. They are Mark Carney, governor of the Bank of England, and Nicola Sturgeon, Scotland’s first minister.
At the macro-economic level, the IMF has revised down its growth forecasts for both Britain and Ireland as a result of Brexit. The Irish Central Bank has done the same. The British current account deficit in the first quarter of 2016, of about 7 per cent of gross domestic product, is the biggest since post-war records began. That’s crisis territory. The only way to restore a current account balance is to sell more to the world than you buy. As Professor Diane Coyle recently argued, Brexit means the chances of Britain trading more with the world just got much, much worse, so the chances of reducing the risk of a sudden stop of funding are much smaller.
I’ve argued in this column that the trade negotiations Britain will need to conduct will take much, much longer than the two years specified by Article 50 of the Lisbon Treaty. I know this because no trade negotiation, ever, has taken less than two years. And the Brexit negotiations are some of the most complex ever undertaken. Brexit will keep lawyers, trade experts, negotiators, economists, and other parasites’ mortgages paid for years.
My sense now is that Britain won’t invoke the ‘divorce’ clause of Article 50 until the end of 2017, if ever. This is because it needs to gear its bureaucrats in its civil service up to actually do these negotiations. The EU is to bureaucracy as Fifa is to corruption and it has already been negotiating the Transatlantic Trade and Investment Partnership (TTIP). It has appointed former French foreign minister and EU Commissioner Michel Barnier as its chief Brexit negotiator.
Barnier has taken a hard line with the British financial services sector before. He recently said the British must accept freedom of movement “without exception or nuance” if it wants to keep its access to the single market. He will apparently negotiate only en français.
Britain has David Davis, a guy who once sold sugar, Liam Fox, a guy who once sold access to his ministerial office to lobbyists, and Boris Johnson, a guy who once sold a pile of lies to the British electorate on how brilliant Brexit would be for them.
Barnier will eat them without salt, but he might use a little butter. Think of King Arthur and his silly English ‘kniggits’ talking to the French behind their castle wall in the film Monty Python and the Holy Grail.
Britain’s new prime minister has been making nice sounds around the island of Ireland and in Scotland. Apparently it’ll all be grand. As reassuring as that is, remember the Republic of Ireland will negotiate as part of the EU, not alone, and border control will be part of the remit of Monsieur Barnier, not Monsieur Kenny. That part of the United Kingdom that is the six counties in the North and Scotland, who both voted to remain, will be represented by ministers Davis, Fox, and Johnson. Bet they’re delighted about that.
Remember the context for Brexit. Flagging global growth, high debt levels, low and in some cases negative interest rates, combined with a humanitarian crisis which is destabilising borders, political uncertainty across the globe, and a retrenchment of globalisation – all these are feeding into the problem Brexit is supposed to solve.
Irish interests are orthogonal to a situation where free movement of capital, labour, goods and services are curtailed. We thrive on openness. Brexit is the opposite of this, driven by people with no clue as to the future they’d like to create.
It’s ludicrous. Monty Python couldn’t have sketched it better.