Why Britain is surviving the Brexit backlash and Europe is not


Opinion: Why Britain is surviving the Brexit backlash and Europe is not

Harmony in the U.K. as Europe becomes even more chaotic

Reuters
What a difference a few weemakes. On June 24, just after Britain’s “Brexit” shock, the United Kingdom was apparently facing political chaos, financial crisis, and economic disaster. The prime minister was standing down, the stock market and currency were in freefall, and all the wise men and women of the international financial system were predicting doom and recession.
Here we are today, and the country has already picked its new leader — two months ahead of schedule — and British stocks and government bonds are both stronger.
Meanwhile, on the continent of Europe there is chaos, confusion, and crisis.
The Italian banking system appears to be imploding but nobody can do anything about it. Insurgent parties are on the rise in several countries, including the fascist Le Pen movement in France and the anti-EU “Five Star” party in Italy, which was founded by a comedian and just won the mayor’s office in Rome. French president Francois Hollande is rushing around Europe trying to shore up support for the EU, but with 90% unfavorable ratings at home he is a dead man walking. The current European Commission president, Jean-Claude Juncker, remains an inept, gaffe-prone, and divisive figure, but has not been removed.
Cameron: Theresa May to become U.K. prime minister
U.K. Prime Minister David Cameron announced that Home Secretary Theresa May will become Britain’s next prime minister by Wednesday evening. The announcement came after Andrea Leadsom pulled out of the Conservative Party leadership race earlier Monday. Photo: AP.
You could hardly make this up. It reminds me of the famous (possibly apocryphal) story of the London Times headline from the 1930s, which declared that a thick fog in the English Channel had left the European continent, rather than Great Britain, “isolated.”
The British, not for the first time, seem to have a charmed national life — in this case dodging bullets of their own making. Right after the Brexit vote it looked like former London Mayor Boris Johnson was on track to become the next prime minister. Johnson is a charming and engaging public speaker, but insiders knew him to be smug, disingenuous, and remarkably lazy. It is hard to imagine he would have handled the Brexit negotiations with Europe as seriously as they needed. It is probably lucky for the British that his campaign imploded.
Instead the British have current Home Secretary Theresa May as their next leader. A strong and respected figure, May is expected to take over as prime minister on Wednesday, two months ahead of schedule. Her only rival for the job, junior minister Andrea Leadsom, bowed to pressure and common sense on Monday and withdrew from the race. Thank heavens for small mercies: We are all spared a needless summer of uncertainty. Leadsom was a lightweight and not ready for prime time.
May is not widely adored but does command support both within the Conservative party and outside of it. She is considered something of an Iron Lady, in the style of the late Prime Minister Margaret Thatcher, but May made it clear on Monday that she wants to be a national unifier — not something generally said of Thatcher. May outlined several policy ideas that will please the center-left, such as forcing more openness on the boards of public companies, and pledged to represent the working people of Britain, not merely the rich and privileged. Whether she makes good on these promises is another matter.
Already there’s some encouraging news: May has scrapped the government’s destructive and needless goal of creating a budget surplus by 2020. The interest rates on 10-year British government bonds, known as gilts, have plummeted since the referendum from around 1.4% to around 0.8%. Not only does that give the lie to the idea that the British government faces a crisis of confidence in the financial markets, it also means that the government can borrow and spend money at incredibly cheap rates. That would, within reason, be the sensible policy.
May says she does not want to call an early general election. She probably won’t need to. Not only does she have a workable majority in the House of Commons, but the opposition is in complete disarray. The leader of the Labour Party, the far-left Jeremy Corbyn, just received an overwhelming vote of no-confidence from his own colleagues, but has refused to resign.
Theresa May therefore looks like the strongest British prime minister since the early days of Tony Blair. Vast numbers of British centrists and conservative Labour supporters — and many Labour members of parliament — may secretly feel closer to her than to Corbyn.
You can measure the reaction in the markets. The FTSE 100 index UKX, +0.09%   of top British stocks rose another 1.4% on Monday and the pound GBPUSD, +1.8028%  stabilized. When converted into U.S. dollars DXY, -0.46%  , the FTSE 100 is up 10% from its post-Brexit lows, although it remains about 9% below the peak — in dollars — seen just before the June 23 referendum.
A better metric of underlying British business confidence is the FTSE 250 index MCX, +0.12%  of mid-cap stocks (the FTSE 100 is heavily dominated by London-headquartered multinationals), which rose 3% on Monday. In dollar terms the FTSE 250 is up 9% since the post-referendum panic, though it also remains below the peak from earlier in June.
Markets hate uncertainty and love stability. The early resolution of the leadership contest in Britain can only be good news.
The pound remains down — on Monday trading at just over $1.30 against the U.S. dollar, compared to $1.50 before the referendum. On balance a weaker currency is good for British right now, because this helps both exporters and domestic manufacturers. It may also attract a healthy and profitable dose of tourists over the summer — just what a nervous economy needs.
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