Tuesday, January 15, 2019, was a big but not so bright day in the United Kingdom. The British Parliament delivered a very wide defeat to Prime Minister Theresa May’s proposed Brexit deal terms. For the time being, at least, Britain will remain in the European Union. While this exit from the EU is an obvious defeat, the vote may not be what it initially seems to be. In some aspects it could lead to a worse or messier Brexit outcome, but there are continued uncertainties which have to be considered.
The big issue here as far as 24/7 Wall St. is concerned is that most Americans do not even know what Brexit really means, nor what Brexit really means to America itself. That was the result of a poll from Bookmakers.tv, according to Express in the United Kingdom.
We have been considering and preparing for Tuesday’s vote for some time. Here is brief, quick-hit attempt, with some observations and parallels in the United States, to explain what Americans need to know about the Brexit path going forward.
Prime Minister May had a loss in the House of Commons with a vote of 432 to 202. Some 118 members of May’s own Conservative Party voted down the proposed wording and terms of the existing Brexit plan. She had been working with her counterparts in the EU since Britain voted for Brexit in 2016 to secure terms on how to have an orderly exit from the union.
As of now, this vote against the current terms does not formally kill Brexit itself. That said, the other outcome now is that almost any scenario is on the table. The Brexit deadline is still just over two months away at March 29, 2019. The transition period, or grace period, is supposed to extend from that date through the end of 2020.
There are multiple issues to consider in the Brexit plan that was voted down on Tuesday. One issue is around hard border crossings with customs in Ireland. Another is to secure a trade pact between the United Kingdom and EU. Some politicians have wanted obvious assurances of a smooth and orderly exit after transition. Others have wanted the United Kingdom to stop paying into the EU and to be able to more easily set its own rules.
Tuesday’s vote could mean that Britain leaves the EU with no deal and no terms in place. That would be the “disorderly Brexit” scenario. If Britain leaves without a deal, there is some obvious fear that it would create serious disruption for travelers and businesses alike. Still, Tuesday’s vote ultimately could mean that Britain might back down and not leave the union at all, after a second referendum.
May spoke on Tuesday acknowledging the vote against her Brexit deal. She also was quick to point out that the vote made no efforts to put any new plans in place and had no path ahead of it. She still plans to pursue an orderly Brexit.
Jeremy Corbyn is May’s political opponent as leader of the Labour Party, and he has put up a vote of (no) confidence in May’s government that is expected to take place in just one day’s time (Wednesday). Most media outlets have signaled that May is likely to survive a vote of confidence because it would require members of her Conservative party to effectively side with Labour. In terms of the United States for a parallel, it would be like members of the Republican party saying there should be a Democrat leadership, or Democrats calling for Republican leadership. That’s why May is expected to survive a vote of no confidence. Yet, the vote on Tuesday was lost by such a strong margin that some people would be justified in questioning polls and media opinions now (which sounds familiar enough in America).
24/7 Wall St. recently pointed out that Germany was entering 2019 on the brink of what might get defined as a “technical recession,” without some of the classical fallout seen in past recessions (and certainly not the Great Recession a decade ago). While the effort is to sort out the United Kingdom in the Brexit process, there is a simple reason why this matters in the grand scheme of international trading: Germany had the largest weighting of the EU with 21.3% of total gross domestic product (2017, Eurostat), followed by the United Kingdom (15.2%) and France (14.9%). There is a lot of trade that could get disrupted with very few known mechanisms or remedies, and this could drag Europe down further.