In April 2019, when Europe gave the United Kingdom another six months to find an orderly way to leave the European Union, Donald Tusk, the president of the European Council, warned the United Kingdom not to waste time. Judging by recent developments in the United Kingdom, his warning seems to have fallen on deaf ears.
This heightens the chances that at the end of October the United Kingdom will crash out of Europe without a deal. That is likely to have highly damaging consequences both for the UK and the European economies.
One way in which the UK has wasted time in getting out of Europe is by having had three unsuccessful parliamentary votes on basically the same version of Theresa May’s Brexit deal. Similarly, the UK also failed to get indicative parliamentary agreement for any other way for the UK to leave Europe in an orderly manner.
A consequence of the UK not finding a way to exit Europe before the European parliamentary elections at month’s end is that the UK has been forced to participate in those elections. This has opened the door for a hard-Brexit Nigel Farage to rally forces for the UK to leave Europe without a deal around his newly formed Brexit party. In the process, he has deepened the UK’s political crisis by substantially undermining the Conservative Party. Electoral polls suggest that while Mr. Farage’s Brexit Party will garner around 35 percent of the votes, the Tories will be lucky to end up in double digits.
Another way in which the United Kingdom is wasting time is by now embarking on a likely protracted leadership contest to replace Mrs. May. At best, this leadership contest will be resolved by mid-summer. This will leave only a few months for the United Kingdom to find an orderly way out of Europe that has eluded it over the past two and a half years.
One reason to think that Theresa May’s replacement will not improve the country’s prospects to leave Europe in an orderly manner is that her replacement itself will not change the parliamentary arithmetic. Absent a general election, the same people will be sitting in parliament as were sitting there while she was prime minister. If they could not agree on an orderly European exit before her departure, why would one think they would be able to do so now?
A more serious reason for doubting that the UK will find an orderly way out of Europe is that Mrs. May’s replacement is all too likely to be a hard Brexiteer. Given Nigel’s Farage’s strong showing in the European parliamentary elections, survival will dictate that the Conservative Party go with a hard-Brexit leader. Sadly, Boris Johnson is the current frontrunner to replace Mrs. May, and he has every intention to opt for the hardest of Brexits.
Global economic policymakers would be making a grave error were they to underestimate the consequences of a hard Breixt.
According to most impartial observers, including the Bank of England, the International Monetary Fund, and the Organization for Economic Cooperation and Development, a no-deal Brexit would deliver a crushing blow to the UK economy and more than likely tip it into a deep economic recession. The UK’s global supply chains would be disrupted and both domestic and foreign investors would take flight over worries about Britain’s diminished access to Europe’s single market, which consumes around half of UK exports.
A stumbling UK is also the last thing that an already challenged European economy needs. The German economy is showing clear signs of sputtering in response to a slowing of the Chinese economy and fears of U.S. tariffs on European automobile exports. Meanwhile, a highly indebted Italy has again slipped into recession for the third time in the past decade. This raises the risk that a further European economic setback could trigger another and more painful round of the European sovereign debt crisis in a country around 10 times the size of Greece.
At a time of considerable global financial market fragility, it would be in the U.S. economic interest to promote a healthy UK and European economy. Hopefully, the administration in Washington will remain alert to the risks to the U.S. and global economies associated with a hard Brexit and do whatever it can to help prevent such an eventuality.
Desmond Lachman is a resident fellow at the American Enterprise Institute. He was formerly a deputy director in the International Monetary Fund’s Policy Development and Review Department and the chief emerging market economic strategist at Salomon Smith Barney.
The Brexit issue and Europe’s economic challenge from rising populism will be discussed at an open AEI seminar in Washington, D.C., on the afternoon of June 4.