The Financial Express

Brexit bailout: 'Bad' Friday forthcoming?

| Updated: April 08, 2019 21:08:19

Lankabangla and Fianancial Express Lankabangla and Fianancial Express
Brexit bailout: 'Bad' Friday forthcoming?

Jeff Bezos's record "divorce bill" last week is being threatened by "Brexit." His $35 billion settlement with former wife, Mackenzie, was not, after all, overtaken by Great Britain's European Union (EU) "divorce bill" on March 29. Friday April 12, the next "Brexit" divorce threshold, now carries all the trappings of the proverbially luckless Friday 13th. Likely to be at least twice as costly as Bezos's split, any no-deal "Brexit" will hit both sides, revealing an ineptly handled divorce agreement. Even British Prime Minister Theresa May admits the outcome to be either no-deal or back to EU business for the United Kingdom.

Her determined pursuit of the 2016 referendum mandate to "exit" Europe (hence "Brexit"), faced mounting opposition, from both within her own Conservative Party and the opposition Labour Party. That decision got increasingly harder to make as the full costs of an EU exit surfaced, bit by bit, upon the sentimentally-driven supporters ("Brexiteers"). Forty-seven years of a marriage bred a "soft Brexit" flank, while the European Union leaders, particularly Jean-Claude Juncker (President, European Commission), and Donald Tusk (President of the European Council), propped May up until her fourth exit proposal to Parliament was finally approved, by one vote nonetheless.

A tyranny of unexpected circumstances intervened: (a) May's three previous proposals were soundly defeated, the first, by 230 votes, becoming the largest defeat margin in modern British history; (b) Labour's relentless opposition amid its perceptual political ascendance was itself propped up by upstart Jeremy Corbyn's underlying thirst to evict May and the Conservatives; (c) many "Brexiteers" also softened their previous sine qua non approach, especially as the size of costs kept filtering in; and (d) many would-be "Remainers," that is, those who did not vote last time (an apparently large bloc), suddenly emerged from their aloofness through a carnival-spirited London march last month. Still no winning side seems evident.

When the EU leaders extended May's March 29 divorce-consummation day to April 12, they felt there were enough supporters inside the United Kingdom to make the garrulous member stay. Tusk even referred to British people as "Europeans."  Yet, May's new extension request of June 30 opens such a can of works that the bridge must now be crossed: if the United Kingdom does not exit by the May 26 European Parliament election, it must fulfill all the motions of a regular member specified by European law. Any drift in that European direction opens up the two least preferable, but increasingly likely domestic options: another referendum, or a British general election. Neither is popular, and neither is likely to supply a magic wand.

May's decision to step down if the parliament had approved her "Brexit" deal elevated the British election option. It did so at a very difficult time for the Conservative Party: many ministers have resigned, and the divided camp looks less certain to even finish its ongoing term without a determined leader. Boris Johnson, who championed the "Brexit" cause and served temporarily as May's Foreign Minister, is the most salient among them, but not perhaps strong enough against an equally stubborn tide. The Labour Party has its own defectors, but not on the scale of the Conservatives. Other parties have more interest to stay inside Europe than outside. How the Democratic Unionist Party (UDP), Liberal Democrat, and Scottish Nationalist Party have been fluctuating between a rock and a hard place pales against the routine Conservative-Labour parliamentary fracas.

Britain's last European exit was in 1940, if war-time can be counted. It left Britain financially marooned until it was rescued by non-Europeans. Even if Britain leaves Europe in 2019, it must, by law, follow extant terms. The European budget, typically a 7-year document, exemplifies the new constraints. With the last one, in 2014, compelling the United Kingdom to pay its obligations until 2021, a burdensome amount since its traditional share has been 13.5 per cent of the total, behind only Germany's 19 per cent and France's 16.6 per cent. With exit costs estimated to be between $35 billion and $70 billion, we can only sense the stakes skyrocketing out of sight. True there are reverse payments (from Europe to the United Kingdom), but only as a mere fraction of the out-payments.

A third "half-way house" option is the Labour Party's sine qua non for continued negotiations with the Conservatives (called no less by the hitherto reluctant May): a customs union, with trade covered by extant EU laws for members, but exempting services. Yet, Ireland's division intervenes: whereas the Republic of Ireland remains a full-fledged EU member, Northern Ireland's treatment as part and parcel of the United Kingdom compact creates problems along other UK-EU common border. May's "backstop" proposal (literally, the last defence line against border controls) to rectify this border problem opens up the entire European border with the United Kingdom, such as those in Belgium, Denmark, France, the Netherlands, and so forth. Rippling Irish effects converting into a European wave of adjustments, costs, inconveniences, and wrath, may keep both Britain and the European Union too preoccupied far into the foreseeable future.

That is a populism-deepening recipe. On the one hand, the majority referendum mandate has not been delivered even after two years of negotiations, and, on the other, businesses have been lining up to relocate plants or headquarters (or both) from Britain to Europe. Consultancy firm EY estimates $800 billion have already left British banks and financial organisations, that is, about 10 per cent of total UK assets in these sectors, in addition to over 2000 jobs. The fallout, it contends, will be worse than with the Great Recession, especially with some heavyweights as Deutsch Bank, Goldman Sachs, and Citi already gone (Ivana Kottasová, January 07, 2019). These drawn-out and mind-blowing costs virtually guarantee the hovering populist mood will deepen and widen.   

Europe may not benefit that much, or at all. "Brexit" negotiations occurred at a very delicate moment in the global economy. Still reeling from the Great Recession and the kind of economic stimulation (like zero interest rates, or thereabouts), that is not stimulating the economy sufficiently, Europe's fading economic growth-rates confront a long-term demographic collapse, both the stuff that populism feeds upon.

Global economic performances can only suffer by extension. Even with lubricated policies, instruments, and institutions, accessing safe western markets will become less accessible, and with China's galloping global spread finding lots of receptive host-governments and plenty of business opportunities, the rest of the world has many other, and more positive, considerations. Amid the "Brexit" tumult, China's Belt Road Initiative (BRI) not only entered West Europe silently, but also penetrated deep into its 'heart' Italy, of Great Silk Route fame. Portugal seems next, but the interesting questions are more "when" and "where," rather than "if" or "how," about China's "coming" and Europe "capitulating."

Rarely since World War II, if ever, has Europe reached such a crossroad as helpless as at present. With a neo-liberal framework intensifying competition, every British cough is set to spawn European flu, leaving the global economic steering-wheel in external hands. Rarely before, to continue the drama, has an illustrious continent been more besieged, needing a truly "Good Friday" wake-me-up call as now. Lesser still is the fear that it will be anything but "Bad," given what is at stake.

Dr. Imtiaz A. Hussain is Professor & Head of the Department of Global Studies & Governance at Independent University, Bangladesh.

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