U.K. Prime Minister Theresa May (center right) on a state visit to Italy in July.
Photo courtesy the British Embassy in Italy.
Continental Europe and the United Kingdom are taking a hard line toward one another over the impending British exit from the European Union, and the pound fell to three-decade lows against the dollar yesterday.
So things are looking up for the British.
In fact, the FTSE 100 index of U.K. stocks hit a record high yesterday even as the pound sank. A weaker pound makes British exports cheaper, to the eurozone as well as to the rest of the world. It also makes British real estate more attractive to foreign buyers, and vacations in England, Scotland, Wales and Northern Ireland less expensive for overseas tourists. Count me in: I’m taking the family to London to see “Harry Potter and the Cursed Child” in the West End this holiday season.
Prime Minister Theresa May’s pledge to formally trigger British withdrawal from the EU no later than the end of March was accompanied by signals that the London government is willing to risk sharply diminished access to Continental markets in order to assert control over immigration. In a speech at her party’s annual conference earlier this week, May said, “Let me be clear: We are not leaving the European Union only to give up control of immigration again.” In addition, May said that the country will seek to leave the jurisdiction of the European Court of Justice in Luxembourg as a further mark of its focus on full sovereignty.
Under current EU law, access to Europe’s free-trade zone is contingent on agreement to Europe’s free-movement principle. Until recently, it was unclear whether Britain would agree to any sort of limits on its immigration policy in order to maintain access to the EU’s single market. May seems to have clearly answered that question, describing what observers – though not May herself – characterize as a “hard” Brexit scenario.
EU leaders, prominently including German Chancellor Angela Merkel, have insisted that the bloc will penalize Britain if the U.K. abandons the European policy of open and free migration – meaning the British would not be obliged to take in any of the Middle Eastern and South Asian refugees, now over a million, who Merkel unilaterally invited to enter Europe by crashing through other states to get to Germany. Nor would Britain any longer be obliged to offer homes and work to people like Iygor, the Polish-born driver who has shuttled my family and me between central London and Gatwick Airport on prior visits to England.
In response to May’s announcement, Merkel and other EU leaders have declined to begin informal discussions with the British before London invokes Article 50 of the Lisbon Treaty, which would mark the official beginning of the separation. The idea is clearly to use the two-year negotiation window as leverage, since the deadline can only be extended if all EU countries agree. European leaders obviously want to secure every advantage they can manage when they sit down at the negotiation table, and it seems likely they will stick to their threats to restrict trade access if the U.K. does not agree to free movement across its borders.
Of course, by cutting trade with Britain, the Europeans would be cutting themselves out of the goods produced in British factories and farms. For the moment, those goods are about 15 percent cheaper than was the case prior to the June 23 Brexit vote that triggered the pound’s decline. European output would itself suffer due to reduced availability and higher costs of the British inputs that are integrated into the continent’s supply chain. And British products that are not sold in Europe would instead compete with European goods in other global markets. Driving away the British will turn them from a collaborator to a competitor – a more efficient, market-oriented competitor, at that. Meanwhile people like Iygor, if forced to leave Britain, would seek jobs and homes elsewhere in Europe. The logical starting place would be Merkel’s Germany.
As I have written before, although the British may stand to feel the most short-term pain from leaving the union due to retaliatory action by the Europeans, there is a very good chance that Europeans will suffer more from such behavior in the long run. Markets seem to be coming to a similar conclusion.
It is no tropical paradise, but London and the rest of England are a pretty good winter vacation destination for American travelers, especially if you are leaving the often-frigid climes of comparable cities like New York or Chicago. The pound’s fall is making that holiday a bargain this year. And by the way, if you can get tickets, the reviews for Harry Potter have been excellent.