(The opinions expressed here are those of the author, a columnist for Reuters)
June 9 (Reuters) – Just as there probably never was any such beast as a ‘soft’ Brexit, Theresa Mays coalition government will get a chance to demonstrate there is also no such thing as a good Brexit, at least as an economic proposition.
Conservative leader May, who managed to blow an election she herself called as Prime Minister sitting on a 20-point lead, will now try to form a coalition government of certainty with Northern Ireland’s Democratic Unionist Party.
Having bluffed before the vote that no deal is better than a bad deal, May will now find herself in a yet weaker position, vulnerable to losing her leadership or being forced to go yet again to the country for a general election, and just as negotiations over the terms of Britain’s exit from the European Union begin on June 19.
That no deal would have been a disaster, with 10-to-14 percent tariffs for many British exports to Europe helping to catapult the economy into recession.
Many are now clinging to hopes that Mays drubbing makes moderate ‘remain’ Conservatives more powerful, or that it allows Labour, which made a hard Brexit part of its election manifesto, to backtrack towards something more ‘soft,’ retaining rights and privileges for Britains economy in Europe.
The only ‘certainty’ this government can truthfully promise is that the economic, industrial and competitive position of Britain will be worse in two years than it is today. Hopes that a weaker or stronger May might lead to a better or worse deal are misplaced and, worse, mislead those doing the hoping in where the motive force lies.
The problem, as ever, is the anglocentric slant of the narrative. Once Britain voted for Brexit it was no longer in the driving seat, no longer the prime actor, and decades of behaving, against all evidence, that it was will now hit a hard wall.
Britain, to use the metaphor of markets, is not a price maker in Brexit negotiations; it is a price taker. It does not get to set the price; that privilege and right belong to its EU negotiating partners, who are united and who hold most of the cards. Britains main power is in the right to pass on the price being offered, a decision, in the case of Brexit, with some particularly unpleasant consequences.
This doesnt make the Brexit negotiations any easier, Robeco Chief Economist Léon Cornelissen wrote to clients.
With a hung parliament its difficult to see how theyll be able to make an upfront deal on the up to GBP 100 billion of divorce payments that are being demanded by the EU. Whats most likely now is a coalition between the Conservatives and the Ulster Unionists, but it would be an unworkable razor-thin majority. So a collapse of the government is likely, with perhaps new elections in October.
WOULD YOU LIKE A RECESSION WITH THAT, SIR?
A so-called Norway-style deal, with access to the European Economic Area allowing for UK financial services to be ‘passported’ in to Europe, sounds attractive but is almost certainly a pipe dream, one German politicians have already explicitly rejected. It also implies continued commitment to the EU four freedoms of movement of goods, services, labor and capital.
We do not see that happening, unless the new Parliament votes to defy referendum results and reverse the course of Brexit. We do not see that happening either, Carl Weinberg of High Frequency Economics wrote to clients.
So Britains exporters will export to Europe at a disadvantage and the City will be gutted of core businesses.
This will happen, of course, only after long and destabilizing negotiations and very possibly further changes of government. The chances that investment in Britain is deferred or diverted are high.
Already the signs are not entirely great for the British economy. British GDP growth in the first quarter, at 0.2 percent from the fourth quarter, was the weakest in Europe. Data out on Friday showed construction sector output is in recession, down 0.6 percent from a year ago, very likely due to slowing flows of capital from abroad.
Two surveys of consumer spending released this week, from the British Retail Consortium and Barclaycard, both showed consumer spending growth has all but halted. Like-for-like spending fell 0.4 percent last month, according to BRC data. Demand for new vehicles also fell by 8.5 percent.
All of this is no surprise: living standards are being hit; pinched between stagnant wages and rising prices, some of it due to a slump in the pound.
Brexit, from conception to execution, will stay true to its form as a great miscalculation. (Editing by James Dalgleish) )