Boris Johnson’s victory in last Thursday’s elections has secured an 80 member majority for the Conservative party, which won 365 seats as against 202 for the Labour party. This has given the Prime Minister free hand to negotiate Brexit with enhanced credibility. EU’s dilemma during previous rounds of negotiations arose from the fact that it had a negotiating partner with dwindling margin of support in a divided Parliament and rift within the ruling party itself. This stage is over. While the overwhelming win at home has given the British Prime Minister stronger hand to negotiate, it has not changed the equations across the channel.

At home in UK, the political landscape has changed. The issue of second Referendum has been buried. Within the Conservative party, ‘Remainers’ have been marginalized. It has also reduced the leverage of the hard Brexiter group on whose support Prime Minister depended. Mr. Johnson can still threaten Brussels with Brexit without a deal as a negotiating ploy – with increased credibility now. But he has the political space to negotiate a softer Brexit.

The outcome of Parliamentary elections was in stark contrast to European Parliament elections, which saw Farage’s Brexit party securing most seats, with Labour ending 3rd and Conservatives 5th. What changed this time round? The Prime Minister campaigned on the basis of a clear message of ‘Get Brexit Done’. The Labour position was divided amongst those favouring Brexit and a more subdued message for second Referendum with Labour leader Corbyn declaring himself ‘neutral’. Though Conservatives and Brexit Party fought on separate platforms, the former was helped by the latter’s decision not to field candidates in constituencies where Tories were strong. In the event, Brexit party took away more votes from Labour, while the Liberal Democrats split the ‘Remain’ votes.

What is most striking is that Conservatives have won many traditional Labour seats. The Labour lost working class support to Tories. This has implications both for domestic politics in UK and the future of EU, not in terms of Brexit negotiations, but in a broader sense. If the idea of ‘Union’ does not have the support of the masses, it will not have the legitimacy a multilateral institution needs to overcome the forces of nationalism, which have a much longer history. There is no immediate challenge though. The last European Parliament elections saw voter turn-out increase by 8 % across EU.

UK has negotiated two Brexit deals with EU under Prime Ministers Theresa May and Boris Johnson. If ‘Brexit’ sentiment had lost or the electoral verdict was divided, EU would have been more willing to accommodate the ‘Remain’ sentiment in a new deal. They have no reason to be more generous to Britain, now that the Prime Minster has stronger support in Westminster.

The expectation at the UK end is that the Prime Minister will bring to bear his domestic victory in negotiating a new trade deal. The dead-line for a new trade deal to be in place is December 2020. This may not be sufficient for ratification, but enough to advance negotiations. These negotiations will depend upon how the Prime Minister chooses to interpret his majority. He has to take cognizance of the interest of the ‘City’, which wants UK to remain an attractive hub for financial services. UK is not part of Eurozone. Outside EU, it will not have ‘pass-porting’ rights to allow UK based companies to offer banking services in EU member states. To avoid their exodus, it will need EU’s cooperation. A Brexit focused on trade in goods, will probably take care of traditional Labour supporters, who have voted for the Conservative party, but will be at the expense of its wider interests.

The trade negotiations with EU will also be influenced by the pace of UK’s negotiations with US. If the deal with US is given primacy by UK decision-makers, or is concluded earlier, it may have clauses which conflict with EU standards. Too close a conformity to EU standards, would leave US with no incentive to offer more privileged access. UK has to choose between ‘arbitrage’ or ‘convergence’ with the EU.

This dilemma has a wider dimension. UK can offer lower tariff and taxes to attract more trade and investment with other countries. This will however, surely be resisted by EU. Mr. Boris Johnson jettisoned Theresa May’s deal because it was criticized as binding UK permanently to EU in a trading arrangement, which UK could no longer influence from outside. In doing so, he has paid a major political price. He agreed to shift the customs borders with EU from the high seas to an internal border between Northern Ireland and UK. This preserves Good Friday agreement allowing free movement between Northern Ireland and the Irish Republic. But it imposes effectively two customs jurisdictions within United Kingdom weakening bonds with Northern Ireland. With his massive victory, he does not need the support of northern Ireland’s DUP (Democratic Unionist Party) on whose support Theresa May’s minority government depended for its survival. He had of course, jettisoned it even before the elections in his deal signed with EU. What will be implications for Northern Ireland in a future deal? The Irish Prime Minister has wisely decided to discourage any speculation at this stage. The nationalists have outperformed the unionists in the election.¹

However, Scotland’s First Minister Ms. Nicola Sturgeon has been more vocal. Her party won 48 of the 59 Scottish seats, and favours remaining in EU. She said that Scotland cannot be imprisoned in the UK against its will (Source: Financial times, December 15, 2019, SNP leader says Scotland cannot be imprisoned in UK). Asked if the Conservative government could grant another referendum, UK Cabinet Minister Michael Gove replied ‘No’.² Scotland had voted 68 % to 38 % in favour of remaining in EU in Brexit referendum in 2016. The problem will get worse if SNP does well in Scottish Parliamentary elections in 2016.³

London’s benchmark FTSE 100 index rallied by 2.47 percent after Conservative victory.⁴ British Pound also climbed against Euro. The market reaction was on account of reduced political uncertainty. However, there remain major political issues internally and externally in Britain’s relations with EU. The Prime Minister’s announcement of a tight time-line to negotiate a trade deal with EU by end 2020 with no further extension has dampened market sentiment. Tight time-line rules out an ambitious trade deal, and could create another crisis if no deal is reached by that time. It has resulted in the pound falling by 2.8 percent from the peak of $ 1.35 on Thursday night. It is now trading below $ 1.3173 just before Mr. Johnson’s election victory. The pound fell by a similar margin against Euro to Euro 1.1792.⁵ Brexit could weaken the forces for Free Trade within EU, where it has supported lower tariff and opposed trade defence measures.

References:

1. Financial Times, Brexit predictions for 2020, 17.12.2019
2. Financial Times
3. Financial Times
4. Financial Times, UK stocks jump higher as election results ease markets, 16th December 2019
5. Financial Times, Pound gives up post-election rise as Johnson signals hard Brexit deadline, 18.12.2019

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