Another Gripping Episode of Brexit

Simon Lack, Portfolio Manager
Simon Lack is Founder and Managing Partner of SL Advisors, LLC. Mr. Lack is Portfolio Manager of an energy and infrastructure fund at Catalyst Capital Advisors LLC. Mr. Lack’s experience includes: Managing Director, JPMorgan Global Trading Division and CEO, JPMorgan Incubator Funds. Mr. Lack has authored The Hedge Fund Mirage: The Illusion of Big Money and Why It’s Too Good to Be True (January 2012) and Bonds Are Not Forever: The Crisis Facing Fixed Income Investors (September 2013).

For constitutional observers, each weekly Brexit installment leaves viewers on the edge of their seats, pondering what further twists in the drama remain. Most recently, England’s Supreme Court ruled against Conservative Prime Minister Boris Johnson’s suspension of Parliament. Intended to stifle parliamentary debate during the run-up to Britain’s next Brexit deadline of October 31, the PM had argued that the extended closure was a normal prorogation leading to the Queen’s speech opening parliament’s next session. Nobody was fooled, and Johnson has in effect been found to have provided illegal advice when he asked the Queen to suspend Parliament. Great embarrassment for PM and Monarch. Civil wars are fought for less.

Johnson’s premiership opened shakily last month. He lost four straight votes while Parliament passed a law preventing a hard Brexit. The PM had pledged to leave the EU on October 31, with or without a deal, and Parliament disagreed. He then tried to call an early election. But the opposition preferred him in office but not in power for a few more weeks, so voted that down too. The PM subsequently kicked 21 MPs out of the Conservative party, including Nick Soames, Churchill’s grandson.

As a vocal Brexit supporter, it’s entirely appropriate that Boris Johnson should be in power right now, so as to carry the burden of the policy he championed, and to explain any disruption in its execution.

The country where I grew up has suffered from a complete void of competent political leadership in recent years. David Cameron’s decision to hold the referendum on Brexit in 2016 unleashed the divisiveness that has dominated UK politics ever since. Leaving the EU is far too complex to be based on a simple Yes/No vote. It should have been fought through a general election, with the winner responsible for carrying it out. Except that none of the major political parties supported Brexit, a political gulf starkly exposed by the referendum. When politicians don’t reflect voters’ views, populism follows. It is democratic, if unsettling

If you know someone’s location you can pretty much guess how they voted. London and other large cities along with Scotland and Northern Ireland voted to remain, while suburban and rural England voted to leave. No wonder the Scots may seek independence from the UK, as they’re dragged unwillingly out of the EU. Although the vote was close (52%:48%), and didn’t provide any view on what type of EU exit was approved (though it probably wasn’t a hard Brexit), polls suggest that few voters’ positions have since moderated.

People regularly ask me how it’ll turn out. I don’t think anyone can be sure. Since Parliament has outlawed Brexit with no deal, but also failed to approve Theresa May’s exit deal when she was PM, another delay is possible. Johnson could negotiate a revised exit agreement and get it through Parliament, which will now be reconvening earlier because of the Supreme Court decision. But he’s lost his majority by ejecting Conservative MPs who previously voted against him, so he may fail in getting his deal through too.

Another Brexit delay would lead to a general election, on which Brexit would finally be the defining issue. It’s recasting normal voting patterns. The Conservatives are unambiguously the Brexit party.

Labor is led by Socialist Jeremy Corbyn, whose main accomplishment has been to offer such a dystopian vision of Britain under his premiership that Theresa May clung to power far longer than her inept negotiations should have allowed. Labor’s Brexit position is ambiguous, an odd posture when it’s the country #1 issue. They’re choosing strategic flexibility at the cost of votes.

The Lib-Dems are the Remain party. But they routinely run a distant third, which renders their popular vote vastly under-represented in Britain’s first past the post electoral system. Hence, Lib-Dem votes are often regarded as wasted, like voting for a third candidate in a U.S. presidential election.

As a result, Johnson is betting that he’ll romp home with a decisive majority over a divided Labor party and weakly supported Lib-Dems. So far his judgment has been poor on every big issue. So we’ll see how that turns out for him.

I have close friends on both sides of Brexit, and can well appreciate the emotions supporting leaving the EU even though I would have voted to Remain. I’ll be visiting the UK next week, and have little doubt it will be a topic of discussion.

In any event, I no longer vote in the UK, having emigrated over thirty years ago, thereby forfeiting my UK voting rights. Instead, I vote in the U.S. at every opportunity, including primaries and even school board elections. Brexit is an utterly absorbing spectacle for this transplanted Brit, safely ensconced in the U.S. Those who criticize America’s dysfunctional politics should watch the UK for a few days. Its democratic institutions are proving robust, in spite of the efforts of the current crop of leaders to break them.

EU history is full of late night crisis negotiations that avert catastrophe. Surely the biggest crisis of all will ultimately be resolved this way. My bet is that the UK will leave with a new deal, and as ill-advised as that move is, they’ll muddle through and things will work out. But there’s a wide range of possible outcomes, and next week I may change my mind again.

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