Theresa May in 2013. Photo courtesy Policy Exchange on Flickr.
The dire effects of Brexit may have been slightly exaggerated.
After the United Kingdom voted to leave the European Union in late June, markets plummeted both in the U.S. and abroad. But now, not quite a month later, we saw record highs last week for the S&P 500 stock index and the Dow Jones industrial average. International markets are rebounding too, and even the pound is beginning to recover after tumbling to its worst day on record after the June 23 vote.
Much of the credit for the markets’ rapid adjustment to the prospect of Brexit goes to the pragmatic approach adopted by British Conservative Party leaders, who have committed themselves to implementing the results of a vote that most in the party’s hierarchy strongly opposed.
The most obvious example is Theresa May, the U.K.’s new prime minister. Her predecessor, David Cameron, resigned after the Brexit vote. While May campaigned to stay in the EU, she reassured her Brexit-supporting colleagues, as well as everyday citizens, that she intends to do everything possible to make the separation work. In a speech delivered outside Parliament, May said, “Brexit means Brexit and we’re going to make a success of it.”
Others in her party mirror this attitude. In an op-ed for The Wall Street Journal, May’s fellow Tory George Osborne, who was the chancellor of the exchequer before May replaced him with Philip Hammond, emphasized that Britain is “open for business.” Despite his personal reservations about leaving the EU, Osborne made clear that he and other government officials would focus on closer economic ties with Britain’s allies, especially in North America. To that end, Osborne visited New York this month.
Immediately after taking office to succeed Osborne, Hammond echoed his predecessor’s sentiments. “The most urgent thing we need to do is send a signal to business about our intentions, our pragmatic approach to taking this agenda forward now, so that as we leave the European Union, we do so in a way that protects the British economy and ensures that Britain will remain an attractive destination for investments coming here from overseas,” Hammond told the BBC. Hammond met with Treasury Secretary Jacob Lew in London last week.
Nobody is saying it will be simple for Britain to renegotiate its trade relationships as it steps away from the EU. But many international observers feared that a vote in favor of leaving meant that the U.K. intended to withdraw from the world. May and her Conservative colleagues have now said just the opposite.
In other words, going forward Britain will seek closer trade ties with the world and a businesslike relationship with its Continental neighbors, as Osborne described. May has made clear that she also intends to pull away from the fiscal austerity of her predecessor, emphasizing the need for “an economy that works for everyone.” British leaders’ goal, now that the voters have made a decision, is to make Brexit work to the best of their abilities.
Many leaders in Europe will want to make sure it doesn’t work, in order to discourage other countries from following Britain’s lead. Certainly plenty of commentators warned that EU officials might try to penalize the U.K. for its decision. Those fears are not entirely without basis, considering the goal of an “ever closer union” has remained elusive. But all the same, it is clear that markets are sensing the reality that the Continent may need Britain as much as Britain is supposed to have needed Europe.
If Continental workers lose their rights to reside and pursue careers in the U.K., they will need to secure jobs somewhere else. Most of Europe lags far behind Britain in its ability to create and support decently paying jobs, and stripping non-British workers of their right to work there will stress an already stressed system. German Chancellor Angela Merkel, whose country is the most likely destination for job-seekers displaced from Britain, has been especially vocal about tying British access to European markets to the “free movement” of labor to Britain. In the end, she may have to settle for something less than “free movement,” and Britain will likely get something less than totally free access to Europe.
But it will be substantially free, because the U.K. is an important market for European companies, and many British factories and workshops are deeply integrated into the European supply chain. Punitively crippling trade with Britain could cause a lot of short-term harm there, true, but also in Europe. The British would eventually compensate, but that outcome is less likely for the less-flexible economies in Continental Europe doing the punishing. There, the damage could be initially milder but would probably be much longer-lasting. After all, there are lots of other places for the U.K. to seek closer economic ties, not least of them the U.S. and Canada.
The people now running Britain have long and deep experience in government – more so than many of Brexit’s key backers, in fact. It is counterintuitive, but Brexit probably has a better chance of success left in the hands of its former opponents, who now seem ready to make a good-faith effort to see that it succeeds.