By Nick Hubble – Capital & Conflict (GBR) –
Theresa May wants an election in June. So we’re going back to the polls once more. In true EU style, the rejection of the EU in the referendum wasn’t clear enough. Please vote again…
It might seem like this time is different. When other nations rejected the EU, they were asked to vote again in an attempt to force consent. But in the UK, the predicted bigger Conservative majority means a more likely Brexit, not less.
But this is a ruse. Brexit is in trouble. Just ask financial markets, they know.
Last year the Brexit referendum vote popped the stockmarket and sunk the pound. This time around it’s the opposite. The FTSE 100 fell 2.5%, erasing the gains of 2017, but barely denting the 20% gains since the Brexit vote. The pound surged two cents against the dollar.
Why was the reaction to the coming election the opposite to the referendum if the election means a more certain Brexit?
Because May is positioning herself for a compromise with the EU. And when it comes to politics, compromise means a load of political obfuscation and complication. We could end up with some weird hybrid partnership worse than being inside the EU. This is good news for big business and their lobbyists who will have plenty of opportunities to cut out loopholes and prevent competition. It puts at risk the bright future Britain could have outside the EU.
It’s not just the stockmarket that is signalling there’s something iffy about the election. The business leaders who campaigned for Remain are happy with the election date, despite the higher probability of Brexit.
Sir Mike Rake, chairman of Worldpay and former CBI president, said, “If the election empowers the Prime Minister to negotiate a pragmatic Brexit with appropriate transitional arrangements it will be worthwhile.” Pragmatic? Isn’t the lack of pragmatism why we’re leaving the EU in the first place?
A bigger Conservative majority means a weaker Brexit because May will have more moderate Brexit backers in Parliament. She won’t have to rely on the controversial hard-Brexit advocates who kept her honest to the referendum.
When is Brexit not really a Brexit?
The coming election creates the new key question for the next two years: when is a Brexit not really a Brexit? How watered down does our split from the EU have to become before it’s not really a split?
Everyone has their own line in the sand. But those lines aren’t parallel. It’s not just a question of how much influence we allow the EU to have over Britain. It’s a question of which policy areas too.
Everyone hates something about the EU. So leaving it is popular because everyone focuses on the bits they hate. But a soft Brexit means few people will be happy with the result. They’ll still be stuck with some of what they don’t like and have to give up some of what they did like.
And that’s why calling the election has to happen now. Once people see the deal May makes with the EU, they won’t vote for her.
Brexit is betrayed
Prime Minister May claims the election is to secure a more stable Brexit mandate in Parliament. That’s a half-truth. She needs a strong mandate because the Brexit she’ll deliver won’t stand up to an election.
The election in June isn’t really about the election in June. It’s really about the timing of the election after.
Think about what would happen if May didn’t call an election before the Brexit negotiations begin. We’d have an election during the Brexit negotiations or once they’re concluded.
That would effectively be a second referendum on Brexit. This time a far more informed one. We’d be voting between two specified alternatives. The first would be the Brexit deal, now laid bare. The second alternative would be to scuttle Brexit because it’s a bad deal.
(The third alternative would be a vote for a hard Brexit which rejects May’s deal with the EU. But only Ukip would position itself for that. This scenario must be avoided by the British political establishment, hence the need for the election as soon as possible.)
In a world where people can vote for or against a specified proposed Brexit deal, the support for Brexit would crumble. The Brexit supporters would come to realise their vision for Britain is completely different between themselves.
Without a unified support for Brexit, there would be political chaos. We’d have a referendum mandate for a Brexit, but complete disagreement on what Brexit we want, let alone what we can secure with the EU.
If the EU ever realises a quick deal with Britain would expose the disagreement within the Brexit camp, there would be trouble.
May has called the election for June to ensure there is no further election before the Brexit deal is done and dusted. While Brexit is vague she commands a strong political position. With an election behind her, she will have a free hand to make a deal with the EU. There will be no political accountability to interrupt the process.
But once the deal is public, her position weakens enormously because she can’t please enough voters with any given manifestation of a Brexit. May’s incentive is to placate Remain voters and please soft-Brexit supporters, leaving hard-Brexit believers out in the cold. In the end, the deal will be a Brexit so diluted it’s meaningless.
With an early election, May has betrayed Brexit. Voters won’t realise it until it’s too late. We will never get a chance to vote for or against whatever Brexit deal May actually makes.
Staying in power is the only goal
In the end, this is just typical electioneering. May knows she can’t please enough Brexit voters in any given deal she makes with the EU. There are too many different versions of the agreement which different groups of Brexit supporters demand.
So she has to call the election now, before she goes into negotiations. That’ll get her to the next election, at least. Then the hard-Brexit voters and anti-Brexit voters will both be thoroughly annoyed with the doubtlessly bizarre deal she struck with the EU.
The only good news is that the Brexit negotiations could now take very long. That gives the EU plenty of time to have another financial or political crisis of its own, completely changing the dynamics of Brexit negotiations once more.
Does all this mean the pound and FTSE 100 are set to reverse course from the last few months’ trends? Investment bankers are publishing all sorts of commentary arguing both ways.
Here at Southbank Investment Research, our analysts are yet to publish their thoughts. Charlie Morris saw the moves in financial markets coming though. A few months ago the editor of The Fleet Street Letter explained how the falling pound and surging stocks trade was getting tired. The opportunity would be in the reversal. And this is just the sort of thing we launched our new Brexit Speculator newsletter for.
I’ll keep my eyes peeled on what Charlie and other editors make of the election and its effect on markets.