Anyone who thinks that the UK’s forthcoming negotiations with its European partners will be either quick or lead to a soft Brexit need only take a look at the Conservative Party’s recently released election manifesto for the country’s June 8 parliamentary elections.
The positions taken in that manifesto, which will bind Conservative Party lawmakers in the next parliament, are bound to put the UK on a collision course with its European partners once the Conservative Party wins the election on the basis of that manifesto.
In a defiant tone, Prime Minister Theresa May is hardening her Brexit stance by insisting that no deal would be better than a bad deal. She is promising a clean break from the European Union and committing her government to limiting immigration into the UK to less than 100,000 people a year.
She is also strongly challenging the European Commission’s estimates as to the size of the exit bill that the UK should pay into the EU’s budget upon leaving the Union.
The hardline stance of the Conservative Party’s election manifesto heightens the probability that the Brexit negotiations will be drawn out as well as the chances that they will end in a very hard Brexit.
One reason for thinking that this will be the case is that the manifesto’s position crosses several European Union redlines drawn by German Chancellor Angela Merkel. Among other things, those redlines link access to the European Single Market to a commitment to free movement of labor between participating countries.
Another reason for expecting protracted negotiations is that the UK’s European partners are insisting that the Brexit negotiations of the various issues be done sequentially rather than in parallel.
In particular, they are insisting that before negotiations on a trade deal be begun, agreement first needs to be reached on the size of the UK’s exit bill, the question of Irish borders, and the issue of the rights of European Union citizens residing in the UK. Considering how very far apart the UK and its European partners are on these vexing issues, it would seem unreasonable to think that these issues will be quickly resolved.
All of this does not bode well for the UK economic outlook. If there is one thing that UK domestic and foreign investors abhor it is uncertainty. And if there is one thing that they fear it is a hard Brexit that will limit their access to the Single Market.
Yet the Conservative Party’s election manifesto now heightens the chances that the Brexit negotiations will be protracted and that they could very well end in the hardest of Brexits. This will hardly provide a conducive environment for UK investment over the next two years.
Desmond Lachman joined the American Enterprise Institute as a Resident Fellow after serving as a managing director and chief emerging market economic strategist at Salomon Smith Barney. He previously served as deputy director in the International Monetary Fund’s (IMF) Policy Development and Review Department and was active in staff formulation of IMF policies.