WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

By Richard Grieveson
photo: iStockphoto/egal

• Boris Johnson as new UK Prime Minister means that risks of no deal have risen, which would have economic consequences across the continent.
• The UK parliament and/or the EU may end up taking action to prevent “no deal”, but neither can be guaranteed.
• A general election in the UK is looking increasingly likely. Mr Johnson, campaigning on a “no deal” ticket, could feasibly secure a majority.
• The UK remains trapped in a multi-year political crisis, which may still be closer to the start than the end, and the union itself could be at risk.

As expected, Boris Johnson has been elected by party members as the new leader of the UK Conservative Party. He will also become the Prime Minister. Mr Johnson has some qualities. Yet judging by the accounts of those who have worked with him over the years, he represents a huge gamble. He is a bluffer, inattentive to detail, prone to gaffes that can have serious ramifications, and often fundamentally unserious. Considering the backdrop—with the UK set to leave the EU on October 31st—the stakes could not be higher.  

Why have they chosen him?

The Conservative Party has chosen Mr Johnson because it believes it is facing an existential crisis. Pressured by Nigel Farage’s Brexit Party, they have turned to the man they believe is their own populist. Mr Johnson’s bravado on Brexit and his stated willingness to go for “no deal” if he cannot get the concessions from the EU that he wants, is also highly popular among the Conservative members.

In the past, Mr Johnson has been referred to as the “Heineken candidate”, capable of reaching into areas of the UK that other Conservatives cannot. He won two elections for Mayor of London in a generally Labour city. His ascent to power now is in many ways appropriate: three years on from the Brexit vote, the man who may well have had the decisive role in winning it for “leave” now has the chance to finish what he started. 

Risks of no deal are high

This is an act of desperation by the Conservative Party, and like all such acts, it comes with enormous risks. The likelihood of the EU giving serious concessions, along the lines that Mr Johnson would like, is very low.

The EU may possibly introduce some cosmetic changes to the agreement, and Mr Johnson may be able to use his skills to sell these domestically. Under these conditions, it may then be possible to get the Withdrawal Agreement through the UK Parliament (something the previous Prime Minister Theresa May tried and failed to do three times).

However, this is a lot of “ifs”. The chances of this scenario playing out are shrinking by the day. It may already be too late: the UK is due to leave the EU on October 31st. In that case, unless Mr Johnson mounts a serious climb down (not impossible), the central scenario will become “no deal”.

This would have serious economic ramifications for much of Europe. Despite various attempts to model this, the complexity is too great for these quantitative outcomes to have much validity. All that can be said with certainty is that the economic impact would be negative, and probably quite seriously so, especially for the UK and Ireland. The UK’s strong trade links with Germany mean that the ripple effects would spread much wider, including into Eastern Europe. It is likely that the multi-year uncertainty of Brexit has already had an impact on Germany.

New election looking increasingly likely

Mr Johnson is set to become Prime Minister with a tiny majority in parliament, which will limit his room for manoeuvre. He will have to have some former remain campaigners in senior positions, which could introduce more caution in pursuing a possible “no deal” option. However, these colleagues are also aware of the potentially existential threat that the Conservative Party is facing, and in particular the challenge from Mr Farage. Very few are comfortable going into another election without Brexit having happened.

The question then is what role can parliament play. Previous votes suggest quite a large majority in the UK parliament against no deal. Recently, the parliament took action to prevent Mr Johnson side-lining it in pursuing no deal. If it comes to a vote on “no deal”, the result is likely to be very tight. Some Conservatives have already said they will vote against the government in that scenario. However, on the other hand, some non-Conservatives are likely to vote with the government. This includes at least a couple of pro-Brexit Labour MPs, and feasibly independents who previously defected from Labour or the Conservatives, and would likely lose their seats in an election.

If the government loses a vote of no confidence, and a new election is called, then a lot depends on the EU. Under this scenario, the EU may well grant another extension. Previously, French President Emmanuel Macron was isolated in his willingness to accept a “no deal” scenario. However, it cannot be assumed that this situation will persist indefinitely.

If the EU does grant another extension, then Mr Johnson will campaign on his “no deal” promise. He will say that he tried and failed to get an acceptable deal from the EU, and that “no deal” is the only option.

It is quite unlikely that running on this policy would get a majority of votes in the UK general election. However, for Mr Johnson to secure a majority of seats in parliament, it would not have to. At the previous election, in 2017, the Labour Party managed to take most of the “remain” vote, thereby preventing the Conservatives from winning an overall majority (they have been propped up by the DUP). This time, it is questionable whether Labour would be able to repeat this feat, such have been the unwillingness of its leader Jeremy Corbyn to take a clear pro-remain position. As a result, the “remain” vote may well end up being split between a number of parties, paving the way for a Conservative majority under the UK’s first-past-the-post system.

UK political crisis may be only at the beginning

The unwillingness of many Conservatives, including Mr Johnson, to accept the constraints faced by the UK is what lies at the heart of the Brexit mess. Theirs is a world where Brexit is more important than maintaining the union, and where the UK can become some kind of new Singapore, attracting major investment via low tax rates and signing trade deals with the whole world. The hard details of how trade agreements work in 2019, and of how a country like the UK could fare on its own in trying to negotiate with superpowers like the US and China, appears lost on Mr Johnson and his allies.

However, behind this lies a more fundamental issue. The UK has been for over three years undergoing quite serious political volatility, certainly much more than it has been used to in recent decades. Moreover, it is quite possible that what we have seen so far is only the beginning of a much more fundamental political crisis that could last for a decade and create much more profound change in the country. Anger on both sides of the Brexit divide is high, and whether or not the UK eventually leaves, this is likely to persist. The two party system, even protected by the first-past-the-post voting system, appears to be under threat. Over time, a switch to proportional representation is a possibility.

A key aspect of the UK political system that is creaking is the union itself. Boris Johnson is toxic in Scotland, and if the Conservatives fight the next election with him as leader, they may find themselves wiped out entirely north of the border. From the perspective of the Scottish National Party (SNP), Boris Johnson as UK Prime Minister is excellent news (and therefore a disaster from the perspective of most Scottish Conservatives). Combined with Brexit (which most Scots voted against), this allow pro-independence forces to make a very strong case that their interests are not represented in the English-dominated union, and that independence is the natural solution.