Prime Minister May’s Hard Brexit – Analysis
By Giancarlo Elia Valori*
The speech of the British Prime Minister, Theresa May, delivered on January 17 at Mansion House, foreshadows a new and more global Britain, but above all entails the end of the European Union as we know it today.
Thirty years after the speech delivered by Margaret Thatcher at Lancaster House in 1988, when the conservative Iron Lady accepted the European single market and the freedom of movement and trade within Europe, a new conservative Iron Lady states she is ready to leave the European Union and the European single market.
In the European Union, Great Britain has always experienced Germany’s marked hegemony that it has tried to control both by entering the European Union and then deciding to leave it, as it is currently doing.
Great Britain never wants hegemonic powers in its way: neither the EU nor the Franco-German Europe, nor even the possible EU of the South, with the alliance between Italy, Spain, Greece, the Balkans and Austria.
In fact, the documents of the Bank of England on the euro have always been very clear: we do not want the single currency because, as Great Britain, we are a global power and the only counterpart for the Commonwealth, and we do not accept a Mark disguised as European currency, namely the euro, which is the result of a pact – proposed by Margareth Thatcher herself – between those who did not want German reunification and Germany itself.
The core of the issue was as follows: Germany could be reunited but it had to give its currency as ransom.
At that time the Italian President of the Republic, Francesco Cossiga, was in very close contact with Margaret Thatcher, on the one hand, and Helmut Kohl on the other.
He carried out a strong and necessary mediation activity.
Hence, in his recent speech, Theresa May has made it clear that Great Britain wants back its full sovereignty on migration issues, which will be the axis of the future “engineering of nations” and the primary tool for controlling and managing the labour force, its complexion and cost. She also wants full sovereignty on customs – another essential factor in the relationship between Great Britain and the European Union.
Hence, following the traditional model of the Free Trade Agreement (FTA), May’s government will manage a series of trade agreements with the individual EU and non-EU countries. Obviously what will be missing in the Euro-British regulations will be richly offset by the new economic relations between Great Britain and its wide Commonwealth, as well as between Great Britain and Donald Trump’s United States.
Let us wonder, however, whether the United States still need the European Union – this is currently the real question.
In fact, only the US weight and clout did enable France and Germany to create the first pan-European institutions and only Great Britain did act as a strategic and economic counterbalance to ”Rhenish Europe”, the one that Charles De Gaulle defined as “the United States’ Trojan horse”.
Indeed, before the vote on Brexit, it was precisely Great Britain to strongly support the Transatlantic Trade and Investment Partnership (TTIP), which was designed as a geoeconomic alternative to the probable fragmentation and disruption of the European Union.
Hence Brexit has had a long-standing gestation and it will completely change the EU strategic and economic landscape.
It was worth recalling that it was Prime Minister Edward Heath to bring Great Britain into the European Common Market in 1973 – a choice reaffirmed by the outcome of the referendum held by Wilson two years later.
However, throughout the 1980s, the European integration process slowed down significantly and, therefore, in those years the City of London created wealth with its monetarist policies of high interest rates. This enabled the holders of UK government bonds to make excellent profit and also enabled the City to stabilize its rates without adhering to the European Exchange Rate Mechanism (ERM).
In 1986 Thatcher’s financial reforms established a close link between the City and the US financial system – a link which will obviously make Brexit even stronger.
However are the United States really interested in having a “Little Britain”, which will no longer be the trusted channel with the EU, or will they strengthen the traditional ties of the Anglosphere between Britain and the United States?
And what will be the geopolitical and financial link between one of the largest economic areas of the globe, namely he EU, and the United States, which cannot certainly afford to neglect Europe?
Certainly Donald Trump was clearly in favour of Brexit and, after taking office, he will be the first world leader to receive Theresa May at the White House on January 27th.
Moreover, it is well-known that President Trump does not like the European Union. He prefers to deal with the individual EU Member States, but this does not mean that Europe is not still decisive in the US strategic and economic framework.
Do the United States want to keep united and friendly a great commercial and political area, namely the EU, which acts as a rampart vis-à-vis the Russian Federation and the Arab and Islamic world, or do they want to deal only with its Member States, thus destroying the Union and paving the way for Chinese and Islamic capital?
We will soon see Donald trump’s proposals in this regard.
Moreover, the origin of the European Monetary Union lies exactly in its unusual and asymmetrical relationship with the United States: the slow creation of the single currency stems from the crisis of the Bretton Woods agreements, created specifically by the United States, by the strong exchange rate volatility in that phase and, above all, by the US refusal to restore a global monetary balance.
Only China and, in other respects, the Russian Federation are currently interested in redesigning, with the EU, a new international monetary and financial system which will be based on a basket of currencies at variable exchange rates in a predefined range.
Furthermore today Germany does no longer need a highly regulated economy, mediating between capital and labour, as was the case until 2000 and up to the financial crises of 2006 and 2009.
Hence Germany can further financialize its economy by lending euro to its periphery and hence maintaining extremely high trade surpluses, as currently happens, or can invest directly in the US system through the City.
The United States will always have a growing share of high-interest and short-term “toxic” assets.
Moreover, regardless of Brexit, the City’s trading and transactions with the United States and the European Union have decreased significantly.
London’s financial centre does not yet know whether to invest in the EU or elsewhere in the world, especially in China or in the BRICs and the British government’s participation in the new Asian Infrastructure Investment Bank proposed by China has created strong tensions with the United States. Said tensions will persist if the North American financial markets maintain their growth.
Another problem not to be overlooked is that neo-liberal policies, from Thatcher onwards, have deeply divided Great Britain socially and geographically.
In Great Britain the Gini coefficient, a statistical measure of social inequality, has risen from 0.26 in 1979 to the current 0.4.
The gap between the rich London and the South of the country and the increasingly poor North is particularly evident.
All this could lead to an inherent weakness of the British political system, irrespective of the party in power.
Moreover, as many commentators have noted, also Donald Trump’s election is a kind of Amexit: the US unilateral withdrawal from the post-Cold War global system, which had not been well negotiated and was based on the Russian and Chinese strategic void filled by an America which was becoming the only global power.
This is no longer the case – the United States are no longer the “indispensable nation”. With President Trump, the United States will no longer act as the world’s policeman and, in the North American decision-makers’ minds, Brexit means that the EU shall either break up or rebuild itself as a real Union.
Also NATO which, until Barack Obama’s Presidency, denied to Russia and China the right to their natural spheres of influence – often with suicidal intentions – will be a US (and British) direct instrument or an inter-European mechanism which, however, the EU Member States shall pay largely by themselves – and today’s Europe has certainly neither money nor strategic ideas.
Moreover, Theresa May’s Brexit is not yet well-defined within the British political scene: the Supreme Court’s ruling has forced the government to seek approval from Parliament before formally starting negotiations on Article 50 of the Lisbon Treaty. The Scottish National Party wants to remain in the EU and threatens to hold a second referendum on the separation between Scotland and England and it also wants to table over 50 new amendments to the law for Britain’s withdrawal from the EU according to Article 50 of the Lisbon Treaty.
The Labour Party itself wants to slow down the process of separation between Britain and the Union, although it will generally vote in favour of Brexit in Parliament.
The Tories have no majority in the House of Lords and the Bremain supporters could cause problems to Prime Minister May’s government.
Hence if – as currently everything leads us to think – President Trump manages the new relationship with Britain vigorously, the UK economy will be granted full and free access to the US financial and non-financial market, without forgetting that Prime Minister May wants better strategic and military cooperation with the United States, both for renewing the Trident missile system and for tackling the other matters relating to global intelligence.
As a result of Brexit and the consequent British full entry into the US economic and strategic sphere, the EU will be less effective also at military and intelligence levels.
Hence we will see what will happen on January 27 next, after Prime Minister May’s meeting with President Trump in Washington.
At technical and legal levels, the British Prime Minister intends to close the economic negotiations between her country and the EU Member States before the end of the procedure pursuant to Article 50 of the Lisbon Treaty, which also means she wants to avoid “cliff edge”, namely the tariff and economic cliff edge of spring 2019, the moment of real Brexit.
Not surprisingly, Prime Minister May talks about an “implementation phase” from now until 2019, before the end of negotiations with the EU on Article 50.
The political and strategic significance is very clear: Prime Minister May wants to stay on good terms with the EU area but, if Europeans want to “punish” Britain, London will become a centre for the trade, financial and political war against the European Union.
If the EU has a punitive attitude vis-à-vis the UK on Article 50, Britain will become a low-taxation and low- regulation economy; it will gradually acquire a large part of European industries and will wage a tariff and financial war against the EU and its Member States.
Not to mention the City’s finance, which will be directed against the euro area and will support any aggressive US dollar operation.
Or any aggressive operation of other countries, which will certainly come to the fore against an ever weaker Euro.
Currently the global economic trends are clear: increased uncertainty on global financial markets, which favours emerging economies and their countries of reference, such as Russia and China; reduced dependence of peripheral markets from those of the First World economies (the so-called decoupling) and the rise of China’s public debt.
Probably, the growth of public spending in the United States will add other crisis factors on the global scene, while we must not neglect the agreement between Russia and OPEC for reducing oil extraction and the related increase in oil barrel prices.
The EU may remain the old regional union of the Cold War and it will be bound to break up under the combined pressure of Brexit and Trump’s Presidency in the United States, or may become smart and hence start or extend negotiations with Israel, the non-EU Balkans’ area, South Korea and Singapore – obviously in addition to China and Russia – for a new Eurasian economic union.
About the author:
*Professor Giancarlo Elia Valori is an eminent Italian economist and businessman. He holds prestigious academic distinctions and national orders. Mr Valori has lectured on international affairs and economics at the world’s leading universities such as Peking University, the Hebrew University of Jerusalem and the Yeshiva University in New York.He currently chairs “La Centrale Finanziaria Generale Spa”, he is also the honorary president of Huawei Italy, economic adviser to the Chinese giant HNA Group and member of the Ayan-Holding Board. In 1992 he was appointed Officier de la Légion d’Honneur de la République Francaise, with this motivation: “A man who can see across borders to understand the world” and in 2002 he received the title of “Honorable” of the Académie des Sciences de l’Institut de France
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This article was published by Modern Diplomacy
