Rethinking Europe

The UK’s Post-Brexit Hangover

When the Tories’ partying is over, the UK will realize it has little choice but to coordinate with its EU neighbors.

Credit: Visit Britain www.flickr.com

Takeaways


  • Post-Brexit hangover: When the Tories’ partying is over, the UK will realize it has little choice but to coordinate with its EU neighbors.
  • Punching above its weight class: In dealing with Russia and China, the UK has little to gain from playing its own games. Coordinating with the EU is its only real ticket.

Geography, history as well as close economic and cultural ties suggest that the post-Brexit UK will remain closer to the EU than to any other region of the world.

In dealing with, say, Russia, China and Trumpian bouts of “America first,” as well as other threats to global trade, the UK has little to gain from playing its own games instead of trying to co-ordinate with its mostly similarly-minded neighbours.

Size matters. With Brexit settled, London may even find it politically easier occasionally to agree a common approach with its key EU neighbours. The Conservative government will not have to watch out for anti-EU hecklers from its own ranks as much as before.

The real difference will be that, in genuine European affairs such as the future of the Balkans, Ukraine, Turkey and the further evolution of the EU itself, London will no longer have a say. Instead of shaping its neighbourhood, the UK will simply have to adjust to whatever happens on the other side of the Channel.

Brexit means Brexit

For two reasons, it is highly unlikely that the UK will try to rejoin the EU in the foreseeable future.

First, settling the divorce from the EU was such a bruising experience for the country and both of its dominant political parties in 2019 that they will shy away from the issue of EU membership for a long time.

Second, most UK citizens will likely experience Brexit year 2020 as a year of relief after the 2019 upheaval rather than a year of trouble. The fiscal stimulus will see to it that the costs of Brexit will not become obvious yet. And once they do so, many voters may not attribute either these costs or the future need for austerity to pay for the current spending spree with Brexit.

Of course, an initial semi-hard Brexit with a bare-bones deal on future economic relations between the UK and the EU, and some subsequent arms-length arrangements for individual sectors, need not be the last word.

It would not be surprising if, after a future swing in the political pendulum in the UK, London may be willing to upgrade its economic relations with the EU again by negotiating new cross-Channel deals. This may take quite a while, though.

Conclusion

For the time being, we all have to get used to a UK that – in economic more than in political terms – is drifting somewhat apart from the rest of Europe.

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About Holger Schmieding

Holger Schmieding is chief economist at Berenberg Bank in London. [United Kingdom] Follow him @Berenberg_Econ

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