Brexit vote 10 years on

I was reminded the other day by a good friend of mine, Paul Wallace, that 10 years ago on the 16^th June, he and I were at the Shelborne Hotel in Dublin, preparing to host an event to a packed auditorium on the likely impacts of a vote to either “Leave” or “Remain” 

At the same time the news was just starting to filter through that the Labour MP Jo Cox had been brutally and senselessly murdered by a fascist far-right activist, which in turn led to a sharp rise in the value of the pound, and in UK gilt prices.

This cold market reaction, was presumptive of the view that this senseless act would swing voters over to maintaining the status quo, and staying in the European Union, when the votes began to be counted a week later.

As Paul explained in his own excellent note on the topic, and it was a view I happened to agree with at the time, the idea that we would see the country vote to “Leave” merely a week later seemed highly unlikely, given the raw emotions this awful event stirred up.

As we now know events turned out quite differently with the UK narrowly voting to leave the EU by 52% to 48%, with the pound dropping sharply from $1.50 against the US dollar to as low as $1.30 over the next few days, and then as low as $1.20 by the Autumn.

Now as we approach the 10-year anniversary of that polarising vote on the 23^rd June 2016, we’ve had a number of different perspectives on the economic damage that has been done, along with the deep divisions the vote opened up across the United Kingdom as a whole.

While much of the recent debate has centred around the economic damage Brexit has done to the UK economy, (it varies depending on who you talk to) very little effort has gone into asking why the UK voted as it did with many on the “Remain” side of the argument treating “Leave” voters as ignorant, uneducated and bigoted.

As someone who had a front row seat at the time, in my role as Chief Market Analyst at CMC Markets, I was afforded a privileged position to dig into both sides of the argument, and to try and cast an uncritical eye over events.

In the lead-up to the vote, I was on the fence so to speak when it came to whether I would vote to remain in the EU, or take the decision to put my X in the leave box. The outcome for me could have gone either way with many pros and cons.  

In the lead-up to the referendum vote there was plenty of “spin” from both sides with the “Remain” side predicting financial Armageddon if the UK voted to leave, while pressure was also brought to bear from all of the major economic bodies like the OECD, and the IMF predicting disaster, while the Bank of England also got involved with the new Governor Mark Carney expressing concern over financial stability.

There was also an intervention from soon to depart US President Obama telling the UK that we would go to the back of the queue for a trade deal in the event we voted to leave the EU.

The tone of the campaigning became hysterical in the extreme with members of both sides behaving like hyperactive school children on acid, with questionable statistics on the part of both sides, leaving voters none the wiser when it came to making a fully informed decision.

What was clear was that the EU was extremely unpopular with a lot of voters with many politicians using it as a whipping boy for many of the ills afflicting the UK economy.      

A brief EEC/EU history lesson

EU membership had always been a thorny issue for the British electorate, even as far back as the 1970’s, when the government took us into what was then the EEC in 1973, with a public vote taking place 2 years later on slightly revised terms, a vote incidentally I was too young to qualify for.

At the time the EEC was purely a trading bloc or customs union, before transforming into a single market in 1993 under the terms of the Maastricht Treaty.

In the intervening time the UK had also dabbled with the idea of joining a single European currency with its participation in ERM, or the Exchange Rate Mechanism, which attempted to fix diverse European economies into fixed exchange rate bands in order to create economic and fiscal divergence.

The experiment blew up badly in 1993, after the UK government at the time adopted a policy of shadowing the Deutsche Mark in 1987, with the failure largely being attributed to the high costs of German reunification, which caused the Bundesbank to raise rates sharply.

This action prompted the UK to fall out of the ERM, as politicians baulked at the thought of hiking rates and collapsing the economy.

In reality the damage had already been done, as the housing market collapsed, and while Black Wednesday as it became known in 1992 left some scars, it turned out to be a blessing in disguise, although the electorate never forgave the Conservatives, voting in Tony Blair’s New Labour in 1997.

Why the history lesson you may ask? The reason is that these events helped to shape the outcome of what happened 10 years ago.

The push for greater European integration, the Maastricht Treaty, the adoption of the euro, and the push for full scale monetary union without fiscal union, was all done in spite of scepticism that it was a wise idea.

In fact, the fledgling European Constitution saw both France and the Netherlands vote against it in 2005, before it evolved further into the Lisbon Treaty of 2007, and got passed into law in 2009.

Curiously on this occasion the revised treaty wasn’t subject to a referendum, I wonder why?

Fortunately for the UK we managed to secure opt-outs to greater European integration, keeping the pound, while Chancellor Gordon Brown proposed 5 economic criteria the UK economy had to satisfy to adopt the euro, raising a very high bar to the idea of euro membership.

Nonetheless in the intervening years since Brown adopted those tests in 1997, the EU as it was and is now, continued to add new countries to the bloc, sowing the seeds of a crisis which would blow up in its face between 2009 and 2012.

The Eurozone sovereign debt crisis

While the financial crisis of 2007 and 2008 was rippling across the globe, causing severe recessions in the UK, as well as the US, there was another crisis brewing in the Eurozone.

A crisis which started with Greece in 2009, when the new government there reported its budget deficit was more than double previous estimates, due to endemic corruption which saw it enter into the euro due to fudged public finances.

This was the catalyst for a rippling crisis as bond yields surged in various countries across Europe, and which then spread to Ireland, a year later with both countries undergoing punitive austerity bailout measures to prevent a banking system and economic collapse.

Portugal came next in 2011, before Greece needed 2 more bailouts, one in 2011, followed by a third in 2012.

Spain also required a €100bn loan to recapitalise its banking sector with Cyprus also needing a €10bn bailout in 2013.

It was on the topic of these bailouts that proved to be most revealing in the context of what EU leaders chose to do when it came to changing EU treaties to deal with the fallout of the Eurozone debt crisis.

In December 2011 EU leaders driven by Germany and France, came up with the EU Fiscal Compact which served to sideline the UK and create a 2-speed Europe, as well as potentially serve to undermine the City of London.

As a result of this course of action, the decision was taken to veto the measure by UK Prime Minister David Cameron due to a refusal to include an opt-out for the UK’s dominant financial services sector.

Ordinarily this would have been the end of the matter and would have led to further discussion, however EU leaders decided to ignore the UK’s veto, thus rendering it completely useless.

This decision to plough ahead was viewed with dismay, causing many to question the value of the veto, as well as sowing distrust which eventually led to the decision by the Conservative government to confirm a referendum vote in 2016, in the aftermath of their win in the 2015 General election.

Whatever the rights or wrongs of that decision by Cameron, the seeds of the UK’s departure were sown then as the leaders of France and Germany decided that the UK’s veto did not matter.  

A very simple choice

None of this should have been a surprise to EU leaders or anyone else with the EU/UK relationship increasingly resembling a toxic marriage, and well know this isn’t sustainable.

In a speech in January 2013 Cameron made the following commitment in the Conservative Party manifesto for the 2015 General Election to try and negotiate a new settlement for the UK in order to reinforce a project which was becoming increasingly viewed with suspicion by large elements of the UK population.

He stated “when we have negotiated that new settlement, we will give the British people a referendum with a very simple in-or-out choice to stay in the EU on these new terms; or come out altogether. It will be an in/out referendum."

On the 23^rd June 2016 the UK made its choice, albeit against expectations, in so doing rejecting the thin gruel of concessions of EU leaders, while at the same time expecting that politicians would honour that promise and address the problems that led them to vote to leave in the first place.

Sadly, that turned out only to be the end of the beginning of the saga as it soon became quite clear that Westminster had no intention of honouring the vote to leave.

For my part, despite leaning towards “Remain” due to it being the status quo, I decided to put my tick in the leave box, primarily down to my utter distaste for how EU leaders behaved towards Greece, Ireland and all the other bailout countries, as well as the toppling of a democratically elected Italian Prime Minister with a technocratic government.

There was also the fact that a lot of the economic doom mongering from the Remain side was just that. There was no positive case for staying in the EU, and in my opinion if you can’t make that case, then you don’t have a case.

The aftermath

Suffice to say the behaviour of the political class since that day hasn’t changed my mind. When you have the likes of the Governor of the Bank of England behaving in a brazenly politically partisan way, then the argument starts to lose weight.

Only this week we have heard from the current governor of the Bank of England Andrew Bailey stating that a decade of Brexit has proved that it’s been bad for the economy.

What? 

You mean worse than Covid, the Ukraine war and Iran? 

Really? 

Honestly, we need a better quality of public servant.

While that may be true on some level it certainly hasn’t been the disaster we were led to believe it would be, and it’s certainly not been worse than those factors I just mentioned.

We also shouldn’t forget that not one politician has even tried to implement the wishes of all those who voted in good faith ten years ago.

If these politicians had expended even half the energy in responding to the concerns of Brexit voters than they have in trying to block the vote, we might well be in a much better place than we are now.  

Sadly, that didn’t happen and it’s not hard to see why when recapping what happened between June 2016 and 2020.

Immediately after the vote outcome became known, Prime Minister David Cameron, having promised to deliver the referendum and implement the outcome, resigned leaving someone else to clear up his pile of steaming mess.

This turn led to over 3 years of unedifying infighting, as well as some courtroom melodrama as some form of Brexit deal got tried to push through the House of Commons, as well as the House of Lords, first by Theresa May, and then by Boris Johnson, after May blew her majority with an ill-advised dash for the polls in 2017.  

By the time Boris Johnson won a majority in December 2019, over 3 years had passed before the Brexit deal was eventually signed in January 2020, just in time for Covid to sweep across the globe.

The fact is any attempt to try and make a deal with the EU was thwarted at every turn by politicians who viewed many leave voters as thick uneducated gammon, who were bigots, and were in their metropolitan view, not representative of their multi-cultural Britain.

The antics of some of the “Remain” side during that period, and even now are probably the biggest stain on their side of the argument.

The sneering condescension, the intellectual snobbery, along with the cancel culture where if you don’t align with a particular belief system has created a divide which is likely to be very difficult to bridge.

This divide won’t be helped by the ongoing clamour, on the part of some rabid remainers to rejoin the EU, and which still permeates much of our politics.

It is also a trend that in some parts remains embedded in the mainstream media, thus helping to widen the chasm of distrust between the voters, and our political class.

This erosion of trust in institutions like the FT, as well as the BBC, who used to be renowned for their impartiality, and both of which I used to hold in high regard, appear to be emblematic of the rot at the heart of some of our longest standing institutions.

This has led many people to the point where they choose to get their news from other sources which may well not be anywhere near as reliable, whether it be from social media or other means.  

Brexit continues to divide

So yes, Brexit does continue to divide British voters, and it will continue to do so.

This is not because it hasn’t worked, it’s because many of the people who voted for change haven’t seen it, and more to the point have been insulted, sneered at by people who have no conception of the problems faced by ordinary hard-working people.

Many of the people working in government, and the civil service have never had a proper job in their lives, and are either PPE graduates, worked as SPADs, or worked for NGOs.

They have little to no concept of life outside their narrow world view, which makes them completely unable to comprehend what life must be like for anyone outside of their social circle.

As a result, it makes them completely incapable of critical thinking and changing their minds based on new evidence.

As an analyst of longstanding, I’ve always lived by the famous quote “When the facts change, I change my mind, what do you do sir?”

It’s a pity that politicians, economists and the like don’t follow that same advice.

I can honestly say it’s served me very well over the years.