The Bear’s Lair: Quit Backsliding On Brexit!

Almost three months have passed since the brave British voters voted for an exit from the European Union, yet Britain is no closer to actually exiting. Civil servants have been hired, but no firm timetable has been set for delivering an “Article 50” notice to the EU. Now Britain’s major foreign investors are demanding that Britain execute a “soft” EU exit, changing very little. With the permanent bureaucracy almost uniformly having voted “Remain” the chances of British voters getting stiffed are rising. Economically as well as politically, that would be a great pity.

One of the valid criticisms of the Brexit campaign led by Boris Johnson, Michael Gove and Nigel Farage was that it was amateurish, and had no solid strategy for what to do if the voters ruled in its favor. In retrospect, that seems a fair criticism, even though the Brexit campaigners probably did not expect to win. The shambles between Johnson and Gove in the week after the vote, when Gove’s wife played Lady Macbeth seeking to undermine Johnson, resulting in both of them losing out to Theresa May, would make a Shakespeare play – but a knockabout comedy, not a tragedy, such was the ineptitude displayed.

Nevertheless, the result was that even after May emerged as the new Prime Minister, nobody had a clear idea of what a British exit from the EU would entail. May reassured Brexit voters that “Brexit means Brexit” but since nobody had properly defined that term in the first place, we were not much the wiser.

At one extreme, the City of London and Japanese and U.S. foreign investors in Britain want a minimalist Brexit. The City of London worries that some of its functions, such as being the center of euro-denominated FX trading, would be lost if Britain undertook any more than a minimal exit from the EU. The “passport” by which City institutions can do domestic business in other EU countries is also at risk, although the reality is that the City has never figured out how to do such business and make any money at it — EU domestic markets are too competitive and City market shares in foreign markets are too small.