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Analysis
'Hotel California' might apply to UK too

'Hotel California' might apply to UK too

Flexible 'halfway house' still most likely outcome

by David Marsh

Tue 8 Nov 2016

The celebrated melody 'Hotel California' by the Eagles – featuring the lyrics ‘You can check out any time you like, but you can never leave’ – is a new favourite, for various wry reasons, at the German Bundesbank. Amid the furore over last week’s UK High Court ruling that parliament should decide on triggering Britain’s exit from the European Union, the song appears more than ever a metaphor for difficult-to-break EU ties.

In Frankfurt, the tune (they even play it on ceremonial occasions) is held to epitomise the difficulty of getting any member of economic and monetary union actually to depart. It stands, too, for the intractability of the European Central Bank’s unconventional monetary policies; Bundesbank officials first spoke about ‘exit’ six years ago.

Uncertainty about whether Britain will depart from the EU, and under what conditions, has been present since the referendum result on 24 June. Many European officials don’t believe the British government is serious in wishing to implement ‘the will of the people’. Neither do upset Brexiteers who foresee betrayal by Prime Minister Theresa May.

Desire to counter party mistrust explains why May intensified ‘hard Brexit’ rhetoric at the Conservative conference in Birmingham a month ago. She implied that immigration controls had clear priority over unimpaired EU trade. However, nothing she said before or since has confirmed that she wishes to proceed in that way.

For similar reasons, she showed unnecessary belligerence at the conference against serial Remainer Mark Carney. This has allowed the Bank of England governor, at least temporarily, to regain the upper hand by declaring he will stay until 2019 to save sterling.

Suspicion of the government’s Brexit credentials explains, too, the heated aftermath of last week’s logical High Court decision to allow parliamentary scrutiny over the Article 50 withdrawal mechanism. It would have been folly indeed to have sought to wrest back law-making control from Europe only to deny parliament the right to supervise that transition.

Hot-headed sections of UK media and public opinion spy a revanchist plot to scupper the referendum result. May has encouraged them by affirming – again, at the party conference – her ironclad insistence on an executive-led withdrawal process. Grotesquely, she said those who sought to give parliament a say over Article 50 were seeking to ‘subvert democracy’.

In nearly all her other statements, May has been common sense incarnate. Outside party conferences, she seems still to be trying to keep the door open to a destination that other EU leaders say is unrealisable: a compromise combining some restrictions on free movement of people and abundant access to the single market, perhaps under a modified European Economic Area with voting rights attached.

The referendum result will not be countermanded. Parliament cannot go directly against the result. I am sticking to my belief of 24 June that the vote poses significant medium-term threats both to EMU and to the EU itself. But I also believe, as I wrote on 29 June, that a complete British divorce from Europe in the years ahead is highly unlikely. Much more probable is a flexible ‘halfway house’ relationship, far from the absolutist or apocalyptic predictions of some Leave and Remain campaigners.

The cacophony of Brexit in the UK will get worse before it gets better. Yet winning British consensus will surely pale against the EU-27’s challenge of achieving a common negotiating position. May, who worked at the Bank of England between 1977 and 1983, would be well advised to make an ally of Carney. A robust prime ministerial-gubernatorial alliance in the struggles ahead could be worth a great deal.

David Marsh is Managing Director of OMFIF.

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