Against the backdrop of Brexit and terrorism, the United Kingdom’s general election is scheduled to take place on Thursday, June 8, 2017. Panelists discussed the possible outcomes and their implications for the U.K., Europe, and trans-Atlantic relations.
SCHMEMANN: Thank you. And good afternoon, everyone. I’m Anya Schmemann. I’m the CFR director of communications for the Council on Foreign Relations.
And I am delighted to be joined by two colleagues today to discuss the U.K. elections, U.K.-Europe relations, and U.K.-United States relations. I’m joined by Charles Kupchan, who’s a senior fellow here at the Council on Foreign Relations, and was former special assistant to the president and senior director for European affairs in the National Security Council. We’re also joined by Sebastian Mallaby, who’s the Paul Volcker senior fellow for international economics at the Council on Foreign Relations. He’s also a contributing columnist for The Washington Post and the author of the recent book “The Man Who Knew: The Life and Times of Alan Greenspan.” So thank you both for joining us.
So the U.K. has elections tomorrow, snap elections that were called by Prime Minister Theresa May, who initially seemed quite confident that she would prevail. But recent events have thrown the United Kingdom into some—turmoil is maybe too strong a word, but some uncertainty, and it’s really anybody’s game at this point.
So I thought, Sebastian, if we could start with you. You split your time between the United States and London, and I know you’ve just recently arrived. If you could give us a sense of the mood in London, the outlook for this election, and what Britons might be thinking as they head to the polls tomorrow. Sebastian?
MALLABY: Well, Anya, you know, following this most recent terrorist attack, there was some shock just because it’s three in a row now in the space of a month, and because Britons had thought beforehand that they were more successful in containing this kind of attack than, let’s say, the French, partly because relations between the police and Muslim communities in Britain were generally better, moderate Muslims are willing to give tips to the police so that they could forestall attacks and planned attacks. And so there was some sense, I think, of complacency in discussions I was in six months ago, say, where, you know, people would draw this distinction between Britain and the continent. Now that has to be rethought.
So, on one level, this is a shock and a challenge. But I’d say that the public mood is pretty defiant. You know, following the Manchester bombing, a little while ago there was the rescheduling of the Ariana Grande concert, and people made a point of making—you know, showing that life would go on as usual. There’s a lot of pride in Britain about, you know, being the people who withstood the Second World War blitz. When The New York Times ran a headline saying that London was “reeling” after the most recent attack on London Bridge, there was a huge amount of Twitter, social media reaction saying we’re not reeling, we’re perfectly fine, life will continue. You know, and there was a photograph that got emailed around a lot or tweeted around a lot, which showed a Briton, you know, walking away from the scene of the attacks balancing a large glass of beer and making sure that none of it spilled. And this was sort of emblematic of the spirit of carrying on as usual.
So I think it’s a mixed picture. Whether it, you know, explains why the polls and the election have narrowed so much, I think, is not completely clear. You know, the polls began at 24-point lead for Theresa May. They are now down to between 12-point lead and a one-point lead, depending on which poll you want to believe. So there’s been a sharp narrowing.
Some of it probably is connected to the terrorist attacks, because Theresa May, the prime minister, was previously the home secretary in charge of the police, among other things. And so it’s been possible for her opponents to say, well, you know, the budget for the police were cut, and that’s why they haven’t had the resources to follow up on those tips they were getting about potentially dangerous individuals. So she’s taken some hits.
But even before the terrorist attacks, I’d point to a couple of other things that had cost her. She had refused to appear in a debate with the Labour Party leader, Jeremy Corbyn, and I think that had cost her some credibility. It made her look unconfident. And she did a much-noted U turn on one of her key manifesto promises, which had to do with making the elderly pay for medical care for chronic conditions when they have them at home. They were going to pay for it out of the value of their homes in a sort of stealth estate tax. And this proved to be so unpopular that it was withdrawn.
And that U turn sort of validated the people who have called the prime minister Theresa Maybe. I think that was a term coined by The Economist. And so she looks vacillating when she set out initially to try to look strong.
So I think when you boil all this down, you ask the question which I guess most outsiders focus on: What is the implication for Brexit? I’d say that this election has achieved one good thing in terms of the potential for smooth negotiations, and that is, by holding an election in 2017, you delay the next election, which was going to be in 2020. You push it back to 2022. And that gives a little bit more time to conclude negotiations in the way that avoids a dramatic break and a kind of chaotic break with the rest of the European single market.
So delaying the election, the next election, is one advantage of the vote tomorrow. But the other two advantages which seemed to be on offer when the vote was called have not really played out as expected. You know, the first was that Theresa May’s personal status would be built up and reinforced because she would win a handsome victory. And unless the polls are all wrong and she really underperforms, you know, that increase in her personal status, and therefore in her ability to negotiate effectively, we won’t really get that.
And the last thing is that there has been some commentary to the effect that a larger Conservative Party majority in the House of Commons resulting from the strong Conservative performance would mean that it was easier to ignore sort of vociferous hard-Brexit advocates within the Conservative Party. And, you know, that again won’t be the case if the Conservative majority in Parliament winds up being not very different to the rather slim majority of 17 seats which they have now.
So, net-net, I think, you know, Britain is not reeling from this terrorist attack. But because of the likely close result of the election, I think the Brexit negotiations look as difficult and perilous as ever. And I’m slightly surprised that the U.K. currency, the pound, which had jumped when the election was called in April, has not gone back down to where it was, because it seems to me the premise for that move in the currency has fallen away.
SCHMEMANN: Thank you, Sebastian Mallaby.
Charles Kupchan, Sebastian has laid out pretty high stakes for this election. And certainly what’s at stake is not just who wins the election tomorrow, but the United Kingdom’s broader relations with the rest of Europe as it proceeds into Brexit negotiations and the so-called special relationship with the United States, which has taken a bit of a hit in recent days. President Trump was recently in Europe. And he has responded to these recent terrorist attacks. What can you tell us about the U.K. and Europe and U.K. and the United States, Charles?
KUPCHAN: Thanks, Anya.
I would add I guess three main reflections to what Sebastian had to say. The first would be that I think that the election will tell us more about the future of the European left, which I think is a very—a very important topic moving forward, because what we’ve seen happen over the last couple of years is the reversal of the left move to the center. And in the U.K., I think many of us thought that Blair had brought the Labour Party into the political center in a somewhat irreversible way. That’s proven wrong, because Corbyn has pulled the party sharply to the left. In the French election, we saw the socialist that had moved to the center do very poorly and the hard-left candidate, Jean-Luc Mélenchon, do very do very well. In Italy, Renzi had attempted bring the left into the center through his Democratic Party. He lost the referendum. And now the Democratic Party has broken and a wing of it has moved back into the traditional left.
And so there’s really only one main EU country where the left is still in the center, and that’s in Germany. And that goes back to Schroder’s chancellorship and what were called the Hartz reforms. But if Europe as a whole, the EU and individual member states, are going to turn the corner and beat back the populist tide that we see everywhere, the economic sluggishness needs to be tackled. And that’s going to require a modernized European left. And so I think that how well Corbyn does, whether he survives that his election, whether we see the Labour Party begin to tack back to the center after this, it’s not an immediate concerns because the Tories are likely to remain in power, but I do think it will be an indicator of where the left is headed, which in turn will be an indicator of whether the EU is going to be able to tackle critical reforms. And certainly this is a pressing issue for France, heading into their own parliamentary elections. Macron looking to get a majority in the National Assembly, which will be critical to his ability to tackle some of the labor market reforms and the economic structural reforms that he has aimed at.
A second issue, I would just add one additional comment to what Sebastian had to say on Brexit. And that’s that I think, you know, the main result or net gain for the British government will be putting off the election, so that it—the next election, so that it doesn’t come as the Brexit negotiations are heading toward conclusion. But I do think that whether May has a large majority or a slim majority, assuming she wins, it really doesn’t matter that much, because this is going to be a very difficult and a very painful negotiation. I expect the European Union, Brussels, to take a pretty hard line. I don’t think the markets have yet priced in how painful this is going to be politically as well as economically for the United Kingdom. And when you look about—at the consequences of pulling Britain out of the single market, at almost 50 percent of British—of British trade goes to Europe. When you look at the loss of influence that is already beginning to take effect, when you look at the potential threat to the unity of the United Kingdom that could come as a consequence of Brexit, I think whatever the outcome of this election, the next few years are going to be very, very difficult and politically fraught ones for the United Kingdom.
The final point I’d make is that I think that—and Sebastian alluded to this—this call for an early election has in some ways backfired because it’s weakened May. It’s weakened her because of the flip-flopping. It’s weakened her because of the security issues coming out of the Manchester bombing. In some ways, it has taken the—I don’t know, a certain image away from her as tough and in command, which I think she had before.
The other—the other issue that I think is important here is that May, after taking office, tacked toward what you might call the Anglosphere. She quickly met with Trump. She has been pushing for a free-trade negotiation with the United States and with others. And I think what we’re seeing now is a—is a period in which there is a recalibration of U.S.-U.K. relations in which it may—it may make it difficult for May to continue down that road. And it’s in part because of how Trump has reacted to the bombings and the spat that he has had with the mayor of London. But we’ve also seen over the last couple of weeks an unsuccessful Trump trip to Europe, very strained relations in NATO. And, as the Brits exit the EU, they’re going to put more focus on NATO, but NATO seems to be going through some serious tribulations right now. You had the—in addition, the United States pulling out of the Paris Agreement. And so the idea that the U.S. and the U.K. are going to ride off into the sunset as the U.K. leaves the EU, that vision is looking pretty tarnished right now. And so, as we—as we head out of tomorrow’s election and May has to kind of recreate her vision of where the U.K. is headed in foreign policy, it’s not clear to me what that vision is going to be because she’s headed into a brick wall when it comes to her relationship with the EU, and in terms of her relationship with Trump and the United States I would say she’s going to have to go back to the drawing board.
SCHMEMANN: Thank you, Charlie Kupchan.
And just to put a sharper point on that, as President Trump trades tweets with the mayor of London, do you think it has hurt Prime Minister Theresa May that she seems to be somewhat close to President Trump, that she hasn’t criticized him? Has that hurt her in the polls?
KUPCHAN: You know, I think that May is in a very awkward position vis-à-vis Trump because she did come out of the box looking to legitimate herself and raise her game by showing that she was close to Trump and that Trump trusted her. And President Trump has already made himself a sufficiently unpopular brand in Europe and in the United Kingdom that it’s very hard for her to do that. Whether it’s May or whether it’s European politicians, you don’t gain any bump domestically by standing shoulder to shoulder with President Trump and getting good photo-ops in the—in the White House. In fact, it’s the opposite. Coming out of the NATO summit and the G-7 summit, Merkel went back to Germany and said, you know, that we can’t trust the United States anymore, Europe needs to take matters into its own hands. Even though the U.K. is leaving the EU, that puts May in a very, very difficult position in terms of her posture vis-à-vis the United States and the kind of—as I said, the vision that she’s going to put forth. If the—if the future of the—of the U.K. does not lie in Europe and the future of the U.K. as a—as part of a tight alliance with the United States isn’t looking so good either, then what’s left?
SCHMEMANN: OK. Well, thank you for that.
For any of you who have joined us late, I’m Anya Schmemann, Washington director of communications at the Council on Foreign Relations, and this is an on-the-record conversation to discuss the U.K. election, Europe, and transatlantic relations. And I’m joined by Charles Kupchan, who is senior fellow for Europe at the Council on Foreign Relations; and Sebastian Mallaby, senior fellow for International Economics at the Council on Foreign Relations.
I also want to recommend to any of you who might be interested that we have additional resources available on the Council’s website at www.CFR.org, including a backgrounder on the U.K. election, posted today, and some additional information.
And operator, I think we’ll be ready to take some questions now.
OPERATOR: Thank you.
At this time we’d like to open the floor for questions.
(Gives queuing instructions.)
Our first question will be from Serge Schmemann from New York Times.
Q: Yes, hello. Can you hear me?
SCHMEMANN: We can hear you.
MALLABY: Yes, we can.
Q: I’d like to say hello to my daughter and to thank both of you for your wise comments.
I have a question. Brexit does not seem to have played a major role in this campaign, at least not from where I sit in Paris. It’s been more about this dementia tax and some of these other issues.
But I’d like to hear from you how big an issue it actually has been and whether the outcome of the election could play a role in shaping the British position on Brexit. I mean, if Corbyn actually does win—and I know this is unlikely—what would he do with Brexit? Where is it headed now?
SCHMEMANN: Thanks, Serge.
KUPCHAN: Sebastian, you want to start?
SCHMEMANN: Yeah, Sebastian, we’ll go to you.
And then, Charlie, I’ll ask you to weigh in after him as well.
MALLABY: Sure. OK.
So you’re right, Serge, that Brexit hasn’t featured much. It’s been the big elephant in the room that nobody mentions. The one party, as you know, of the sort of nonregional parties that is explicitly unhappy with the Brexit vote, and willing to say so, are the Liberal Democrats. Their support, which was around 57 members of Parliament before 2015, fell to under 10 in the 2015 election. And I don’t think many people expect it go to up much from that. It might go up by three or four seats, but not more.
So the Liberals—the Liberal Democrats, who are the one party that try to make an issue out of the vote and try to question and talk about a second referendum, have really derived no political tailwind from that. And I think that just shows you that the country has sort of accepted the outcome of the vote, even though it was pretty close, 52-48. There isn’t a lot of appetite for reopening the vote and, you know, reconsidering it.
There’s plenty of appetite, I must say, in the sort of, you know, cosmopolitan city that I live in, London, but in the country as a whole, not really. And so it is the absent issue. And I think the position of the U.K. in its negotiations with the rest of the European Union is sort of a confused, you know, ostrich posture; sort of head in the sand, not facing the real tradeoffs, you know, wanting to have it both ways.
I think if Labour, you know, by some, you know, miracle, were actually to win the election and have a government, it wouldn’t change that much. On the one hand, you know, Corbyn is somewhat less tough on reducing immigration. Theresa May is pledging to reduce it by at least two thirds. And that really—you know, real determination to clamp down on freedom of movement of people means that remaining in the single market is impossible.
If you have Corbyn, and he’s a bit more flexible on how much to reduce immigration, there might be more spirit for compromise. But I think you have to set against that that the competence level, which is not that high in the current government—although Theresa May being criticized a lot for consulting very narrowly, leaning much too much on one senior adviser, Nick Timothy, and then one other one, and not really pulling her Cabinet with her. That problem of competence would become much, much worse in a Corbyn government because many of the talented members of Parliament on the Labour side refuse to serve in a Corbyn administration. They’ve resigned from the shadow Cabinet because he really represents the sort of leftist grassroots of the party as opposed to the more moderate, centrist parliamentary leadership. And so I think there’d be a real terrifying dearth of, you know, just human talent in the British government, which would mean that the Brexit negotiations might be even more chaotic.
SCHMEMANN: And Charlie?
KUPCHAN: Yeah. I mean, I noticed the same things here, and was struck by the degree to which Brexit almost did not figure in the conversation, with the exception, as Sebastian mentioned, of the Lib Dems. And it really does reflect to the degree to which the domestic debates seems to have effectively been closed off, even though it was actually a pretty close referendum. But for whatever reason, the—it appears that most of the British voters and the political class have kind of said, all right, we’re now headed towards Brexit. This appears to be a done deal. And I think in some ways, that by having the snap election the escape hatch that still might have existed is gone. And that escape hatch was that you start the negotiations. And then as they are coming to an end, you have elections which serve as a second referendum, if you will.
But now that those—that those elections don’t need to take place, it’s hard for me to see how there is any escape hatch at all. And so, you know, we’ll go through this two-year period, and we’ll either have a deal or we won’t have a deal. But it looks like there is at this point no alternative. The other—the other comment I would make about the absence of a domestic debate is I still think that the British government, the British political class still have yet to embrace a realistic assessment of where these negotiations are headed. And I can’t tell whether that’s simply a political maneuver, in that they kind of want to hide the ball for now, or whether they really believe that the U.K. has a great deal of negotiating power, and that it is going to get considerable access to the single market because the U.K. market is so attractive.
But I do think there’s—as I said, there’s a cold shower coming when they sit down at the table. And when they say we want to break on immigration, we want a break on payments, we want a break on other things, I think the EU is going to tell them, well, that means that your access to the single market is going to take a very significant hit. And so some unpleasant conversations ahead.
SCHMEMANN: OK, thank you. Operator, we’ll take the next question.
OPERATOR: Your next question will be from Marjorie Chorlins with U.S. Chamber of Commerce.
Q: Hi. I hope everybody can hear me. I realize that this question delves completely into the realm of speculation, but I’m going to ask it in any event. What do you anticipate we might see in terms of Cabinet changes after tomorrow’s election outcome?
SCHMEMANN: Sebastian, you want to take that?
MALLABY: Well, if the conservatives are returned, there’s been some speculation that there’ll be a change of finance minister which, you know, I think reflects the fact that he’s the one who’s been the most persistent in arguing for a soft Brexit, emphasizing the benefits to the U.K. of single market membership and trying to make arguments that would, you know, lead the U.K. to preserve as much of that as possible, whilst being flexible on the other issues in order to achieve that. So I don’t know if that’s correct, but that’s the main shift that I’ve heard talk about, and it would indicate a sort of hardening of the U.K. position.
We’ll take the next question.
OPERATOR: Thank you. Our next question will be from Garrett Mitchell from The Mitchell Report.
Q: Thanks very much to all three of you.
Just a quick question, because I haven’t gotten any sense of this, either in this conversation or in the reading that I’ve been doing on this. And that is to get—what’s the level of sort of interest/enthusiasm? What’s that factor like in this election? I mean, is this—is this a gripping matter, or is this sort of not such a—have such a consequential feel to it?
MALLABY: I think there’s some—
SCHMEMANN: OK, go ahead, Sebastian.
MALLABY: Should I just—I was going to say quickly I think there is some election fatigue. You know, there was an election in 2015, a referendum in 2016, and now another election in 2017. Plenty of people are kind of tired of it.
And I think there’s also a sense that neither party—neither of the main parties commands an enormous amount of enthusiasm. I mean, the Labour Party under Jeremy Corbyn has moved, as Charlie was saying, way off to the left, I think far, far to the left of where the majority of U.K. voters are. And you’ve got, you know, talk of renationalizing three of the main industries, higher taxes, and unraveling of, you know, most of the sort of pro-market reforms that began in the ’80s with Margaret Thatcher, as well as a foreign policy which has been characterized by sort of standing up for rather fringe people like Chavez in Venezuela. So, you know, it’s hard for the electorate to be so enthusiastic about the Labour Party under its current leader.
And at the same time, as we’ve been saying, the Conservative leadership, under Theresa May, sort of looked convincing when it began just under a year ago, but has taken a hit in terms of perceived confidence and competence now, partly because of the bombings, partly because of the U-turn on social policy, and partly because I think, you know, people are waking up gradually to the idea that all this bravado about the U.K. retaining membership of the single market and be able to negotiate a great deal, I think people are gradually sort of, you know, understanding that that might be a bit of a hollow promise.
So I think there’s some disaffection with both sides. And yet, no Macron-style phenomenon of a kind of brand-new, fresh, you know, movement that captures the public’s imagination and surges for it. So I think, you know, election fatigue plus disaffection with the established leadership may be causing, you know, some apathy.
KUPCHAN: Yeah. I would just add on the—on the apathy/engagement front that the—you know, that the terrorism issue, interestingly enough, does not seem to be having the political impact that one might expect. And I think—I think we’re kind of seeing across Europe—across the U.K., France, Germany—that publics have to some extent priced this in, and that incumbents are not taking a hit when terrorists attack, and I think in part because people want to demonstrate resilience.
It was interesting. I was watching Merkel’s numbers after the Christmas market attack, and they really were almost unaffected by that. And so it does seem to be that we’re now in a realm in which these kinds of attacks are not—are not swaying voters one way or the other, but in some ways getting them to vote and to stand by their guns as a way of demonstrating resilience.
Q: All right. Thanks.
SCHMEMANN: Thanks for that question, Gary.
I’d like to encourage any of our listeners to pipe up with a question if they would like. I know we have a number of CFR corporate members on the line as well. And, operator, can you just give a reminder, and then we’ll take the next question.
OPERATOR: (Gives queuing instructions.)
And our next question will be from Adam Hemphill from Walmart.
Q: Hi, everyone. Thanks for taking the time to do this summary. It’s been really helpful. And I just wanted to play off the earlier discussion where we talked about how Brexit didn’t play a large role in the campaign, yet it will probably take a lot of attention in the activity following the election. So I wondered what domestic policy issues did come up. I know we mentioned that tax issues, and energy taxes have come up. What are the policy issues that did rise to the level of attention to the public in the election, and where—how much space is there to move on domestic policy issues, given the umbrella of Brexit? Thank you.
SCHMEMANN: So, Sebastian, what’s your sense of that?
MALLABY: So if you—the single issue that, you know, garnered the most attention was this manifesto promised by the Conservatives that they were going to have people—elderly people with long-term conditions, such as dementia, who receive medical care at home—that they would have to finance this out of the sale of their home at their death. And then the withdrawal of that policy when it created an outcry, you know, was what dented Theresa May’s image of being in control and having conviction around what she proposed.
I think, you know, one of the interesting things about this issue is that, of course, they proposed it because financing an aging society is tough for all mature democracies. And Britain that’s especially true because you’ve got an economy which is going to grow more slowly in the future because of Brexit. I mean, although there wasn’t the cliff edge effect that some people feared right after the vote, because consumer spending, rather strangely, actually surged. People just went out and borrowed more. And so consumer debt rose, consumer spending rose, and demand was enough to power strong growth after the referendum. So we didn’t see the economic hit except in the currency market after the vote.
But I think nobody doubts that that price of Brexit will be paid. You know, financial institutions are going to reweight their operations out of London. We don’t know how dramatically, but we do know the direction of the shift. Certainly corporate headquarters, which have been based in London as a jumping-off ground for serving the European Union may be relocated, or parts of their operations may be relocated. So we can expect the tax base in London to be eroded and therefore the fiscal challenge of paying for an aging society only gets stronger.
And of course, in a society with a government health care system, you know, some people say the only thing that Britain has that approaches the status of a national religion is the National Health Service. You know, the fiscal issues around paying for a society are really, really tough. So we got to—we’ve got both the kind of taste of how that can get onto the agenda, and also a taste for how it’s a third rail and the political system hasn’t really faced up to how to deal with it.
KUPCHAN: And I would just add that I think we’re in a period where most elections in the democratic West are going to focus on this question of do we—do we sort of turn sharply to the left or do we head in the direction of market liberalization, because it is in some ways the lightning rod in our societies right now, where you have these—this phenomenon of the general supporters of the Labour or the Democratic Party or the left who have jumped ship and moved over to the Conservatives, which has then pushed the sort of rank and file left further over toward Corbyn or Bernie Sanders or Mélenchon. So I think this is a—we’re going to be with this for a while until we actually figure out how to address the economic uncertainty and stagnant wages of the middle class. So I think this is—this is a theme that’s going to be with us for quite a while.
SCHMEMANN: Thank you.
I see quite a number of callers on the line, but we don’t have any questions in the queue. So this is the last call for questions before we wrap up.
And let me ask a follow-up question to both of you, Sebastian and Charlie. It’s striking to me, looking at the latest poll numbers, how unpopular both candidates are, May and Corbyn. And I wonder how many Britons might just sit this out and not vote at all. And it’s been really an extraordinary political year for the United Kingdom, for Europe, and for the United States.
And so I just wonder if you have some thoughts about going forward. Does this do damage to British democracy? Is there a risk that the public is just fatigued and might tune out of all of this and be less inclined to be active going forward?
Sebastian, if you have thoughts on that.
MALLABY: I mean, I don’t have a great sense of what the turnout will be on this election. But I think the general issue you raise is a good one. And there’s an irony in it, which is that, you know, polls after last year showed that the lead issue that caused people to vote for Brexit was the sense that, you know, they wanted sovereignty back.
Now, you know, in some ways that doesn’t make any sense, because in an interdependent world, you know, you need some cross-border cooperation. And it’s not a dilution of your sovereignty if you are part of a free-trade agreement necessarily.
But at a kind of more emotional level, I think it just shows that Brussels and the EU just felt too distant to engage people emotionally. They didn’t feel any political connection. They didn’t feel there was political legitimacy around these distant governing bodies, much as, you know, if you go to the West, in the U.S., and, you know, you ask people about the federal government, it feels remote and people don’t like it. I mean, this is more pronounced with respect to Brussels when you—when you look at the U.K. public opinion.
So the irony is that this a vote which is supposed to bring back the kind of location of political decision-making to Britain and make it closer to the voters, and therefore strengthen that political tie between the governors and the governed. And yet, as you say, having a system which produces three national votes in three years may be overkill, and it’s not producing a sense of empowered leadership that inspires people, because there is no good solution to these Brexit negotiations.
As Charlie says, they’re going to be—there’s going to be a cold shower coming, and that will delegitimize U.K. leadership. It will make them look incompetent and bad at delivering on what they promised. So we might end up with the worst of both worlds, you know—exiting Europe because it felt politically distant, but then distancing ourselves from our own political leadership within Britain.
KUPCHAN: And clearly I think what we’re witnessing here is the tide of anti-establishment sentiment that is here in the United States, and that led to Trump’s election, and that we have seen erode support for mainstream political parties across Europe.
And in general, what has happened across the EU is that the mainstream Social Democrat and Christian Democrat parties have remained in power and have tacked to the center and have remained pro-European, but they have gradually ceded market share to populist, anti-establishment parties on the right and on the left. And that’s why, for example, in Italy many people are very worried that it’s the Five Star Movement that could come out on top in the—whenever the Italians go to their next election.
In the case of France, you have a figure, Macron, who is very centrist, but he was able to win because he was neither from the center-left or center-right, and therefore he was able to sustain legitimacy because he was seen as a newcomer, as someone who was not part of the establishment.
What the Tories did is, to some extent, steal the anti-establishment mantle from UKIP, and they did so in part by embracing Brexit. And that has generally stood them well and forced Theresa May to go from the reluctant remain camp to the staunch leave camp. But one has to ask, now that Brexit is sinking in and is becoming part of the mainstream, and it has been embraced across the political spectrum for the most part as we were talking about earlier, will the Tories be able to continue to embrace the mantle of being anti-establishment? I don’t think the answer to that is necessarily yes. And that, in my mind, is one of the reasons that even if Theresa May wins, she is—she is not going to have a lot of wind in her sails over the next few years, meaning that the Brexit negotiations are going to be very hard indeed.
SCHMEMANN: Interesting. Thank you.
I believe we have a follow-up question from The New York Times. Serge, go ahead.
Q: Serge Schmemann again.
I just wanted to challenge both of you. You’ve both said that Brexit will usher in a cold shower, that there is—I mean, both of you seem to preclude any positive outcome. And yet, as you say, the political class and the markets do not seem so certain. They do not seem to be reacting this way yet. Are you absolutely certain that there can only be a negative outcome from Brexit on the whole?
MALLABY: Well, should I take a shot at that?
So my sense, Serge, is that, you know, the U.K. sends 43 percent of its exports to the European Union. There is good economics literature about the gravity models of trade, which suggest that geography does matter, you do tend to trade most with the countries that are closest to you. And so there’s a natural side to all of that, and losing access to those markets on the good terms that exist now can only be a negative.
On top of that, you’ve got the fact that it’s specifically services exports, not goods exports, that Britain sells most successfully to Europe. And it’s services, precisely, that will be—trade in them which will be most disrupted by Brexit because goods trade is more or less liberalized by WTO rules, but services much less so. And it’s the kind of acceptance of cross-border passporting rights—sort of the recognition of an architect’s credentials in one jurisdiction in the EU allowed that architect to sell architectural advice across the EU—it’s that kind of thing which Britain will lose. And because it’s a service-based economy with 80 percent of GDP, roughly, being accounted for by services, that’s a big hit.
And the other aspect in which Brexit is a negative is that, you know, London did very well because it was the destination of choice for multinational companies to set up corporations from which to serve the rest of the EU. I believe it’s the case that 60 percent of non-EU multinationals which have an EU base choose to locate that base in London. And that generates employment, generates tax revenue, generates, you know, auxiliary support industries like the legal services and so forth.
And so losing all those things is bad, and that’s before you even count the transition confusions. I mean, the fact that, you know, Theresa May says she would like to go negotiate new trade deals with other trading partners, but actually the U.K. didn’t have any trade negotiators on the government payroll because trade had been handled out of Brussels. So you’ve now got to, you know, establish this new ministry for negotiating trade. You’ve got to hire people to check customs at the border, potentially. You’ve got a whole sort of transition problem which will take quite a while to settle.
You’ve got the Northern Irish border issue where, you know, the peace and relative prosperity in Northern Ireland is predicated upon a company on one side of the inter-Irish border being able to sell to people on the other side, hire people from the other side, and just operate across the border as if it didn’t exist; where in the future, if north is part of one market and the south is part of the single European market, there’s got to be some policing of that border. And that’s another form of uncertainty and disruption.
So I—you know, to put all these things together, you know, I think one can debate how bad the Brexit shock is going to be, but surely there’s going to be one.
KUPCHAN: Yeah, I would—I would agree with everything that Sebastian just said. And I think, Serge, that you may have also been asking, well, is it possible that when they get around the table they will be able to fashion some kind of compromise that averts the outcome that Sebastian described? And I think the answer to that question is theoretically yes, but practically no. And that’s because May and the Tories have already laid out the terms in such a way that the EU has responded from the outset and said, you know, if those terms are the ones you stick by, then we, of necessity, will not be able to allow you to continue access to the single market.
And it’s hard for me to imagine how either side can back out of that kind of pre-commitment, because if May tried to pull a fast one, her constituents and her party would scream bloody murder because they’d say, you know, you promised us that you’re not going to have, you know, the four freedoms and the immigrants coming and these other issues. And if she delivers on that, then it seems to me that the EU is going to have to say: We’re sorry, but. And so in some ways, I think we know what the—what the last chapter looks like. And that’s why in the end I think Sebastian and I are both pretty pessimistic about where this is going.
SCHMEMANN: All right. Thank you. Well, we’ll have to watch what happens tomorrow and see what develops in the weeks and months ahead. And so with that, I want to thank our panelists, Sebastian Mallaby and Charlie Kupchan, Council on Foreign Relations. And just as a reminder, this conversation was on the record, a transcript will be posted online on the Council’s website. And as I mentioned earlier, there are some additional resources there, including recent writings by both Sebastian and Charles.
And with that, I thank you all very much and wish you a good rest of the day. Thank you.