OPINION: Brexit - Implications for Asia
By Andrew Sheng
15 April 2017

KUALA LUMPUR (The Star/ANN) - Asians who are frustrated with negotiating with Brussels or Washington will find a sympathetic ear in London. 

Being in London when UK Prime Minister Theresa May formally triggered Article 50 in filing for divorce from the European Union was bitter-sweet. The mood was one of determination - Great Britain has decided to leave, and there is no looking back.

The debate in London was very much one whether there will be a soft easy Brexit, in which the divorce is reasonably amicable, or a hard acrimonious Brexit, in which there are no winners. Most realists know that you cannot have a divorce and still stay in the same house. My British friends' views ranged from "depressingly tough negotiations" to "stiff upper lip and get on with it".

But all divorces come down to emotion + dollars and sense. As emotions cool down and negotiations begin, the costs to both sides become rather contentious. The leading European think tank Breugel nicely put the calculations as "divorce", where each party shares the assets and liabilities, or "leaving the club" where the leaver pays up all dues and does not share in any assets or liabilities. On either basis, the cost to the UK could be in the range of  25 billion euros to 60 billion euros. Of course, one side can simply walk away from everything if negotiations fail. 

But the true costs to both sides are actually unknown, because all forecasts of doom or gloom by Leavers or Remainers turned out to be wrong. The UK economy did not collapse or face higher inflation, interest rates or slower growth, but instead seemed to be doing slightly better with a recovery of exports as sterling depreciated. Like any divorce, the winner is the party that actually gets on with life, makes the right mental adjustments to learn from past mistakes, and make new friends and new career directions. The loser is the one that still blames the other party, sulks on whether the divorce settlement is adequate or not, and does not learn from what went wrong in the relationship.

By being part of Europe in terms of geographic proximity, but not a member of the European Monetary Union (euro zone), Britain was never fully signed onto the European dream of full political union through monetary integration. Having a separate currency has cushioned Britain from the worst defects of a single currency, where Southern Europe - Portugal, Ireland, Greece, Spain and Italy - are suffering - a long period of deflation without the flexibility of adjusting through the exchange rate.

In the short-term, Europeans have managed to get over the shock of Brexit with a stronger sense of unity - making sure that the family hangs together and not allow more leavers. Over the medium term, the strains between the net savers in the North, led by Germany, and the net borrowers in the South, are beginning to show. German insistence of fiscal discipline has resulted in very painful adjustments, in which almost all the Southern laggards have moved to current account surpluses. But the recession has devastated their job market and shown up in growing non-performing loans, especially in Italy.

Taking a more distant perspective from Asia, Brexit has opened up new policy options in terms of trade, investments and geo-political initiatives. By leaving the EU, Britain must survive by dealing with her own fundamental problems of labour productivity and overall competitiveness. The City of London will surely suffer somewhat from the loss of the Euro clearing business as these shift back to either Frankfurt or Paris, but it will be decades before either city manages to get the legal, financial and commercial skills that exist in London.

To put it simply, Britain will always remain as an offshore centre in the right time zone that bridges the American and the European continents. Being offshore and having probably the least ideological diplomatic skills, Britain will be able to move more nimbly than either the American

Exceptionalists and the more bureaucratic European coalition. In a world where Trump is pushing for America First and Europe will be more pre-occupied with internal issues and border tensions, Britain will become a champion of free trade and globalization, because she cannot survive by being an isolationist small England.

Taking the Brexit emotions out of the picture, and having still some of the best universities in the world, Britain must attract global talent in order to compete. In short, surviving in a high tech world depends not only on financial capital, but also brains and the ability to execute projects without being bogged down by too much complex red tape.

In short, British soft power in terms of intellectual leadership in thinking through how to navigate global tensions in geo-politics could be Britain's trump card in order to finesse her weaknesses in terms of scale once she is out of the European Union.

Different Asian economies will find that working with Britain will offer an alternative option in terms of trade negotiations that may increase the degrees of freedom in negotiating with the US or the EU. And if negotiations with Britain succeed faster in driving Asians to move towards say, RCEP, this could open up avenues not thought possible after the demise of TPP. Asians who are frustrated with negotiating with Brussels or Washington will find a sympathetic ear in London. Of course, Britain will need to balance between her interests and that of both sides of the Atlantic, but that has always been Britain's strong suit.

In the words of Sir Humphrey, the inimitable British civil servant in the hit TV series "Yes, Prime Minister", the British banger will once more be freed from being defined by EU precise bureaucratic definitions of fat content with no taste. Going forward, the British banger will be served with samosas, dim sum, French fries or Thai sauces, to new hybrid tastes.

After a shambolic struggle for Conservative Party leadership, Theresa May seems to have found her calling in taking Britain to a new direction, thanks partly to a Labour Opposition that is still stuck mentally in 1970s.

I left London this spring not depressed by Brexit, but with a sense of new hope. 

(Andrew Sheng writes on global issues from an Asian perspective)


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