Uncertainty and the risk of instability have dramatically gone up after the general elections. Theresa May’s bet has failed. She expected a triumph but she no longer have an overall majority. What are the consequences?
1 – Theresa May will stay at the 10 Downing Street for the moment and she will form a new government. The coalition with the Irish party DUP will give her the majority. DUP was a hard Brexit supporter.
The main question here is to know for how long she will have a majority. The Conservatives have 318 seats and DUP 10. The total is 328 and the overall majority is at 326. As there are 4 partial elections each year on average, then Theresa May may have a majority for two or three years if the Labour party remains strong and wins some of these partial elections. How will she manage this issue?
The stability of this majority is called into questions as many Tories want another leader and then another Prime Minister. There is also another point inside the Conservative party. This latter has gained seats in Scotland but these new MPs are pro-European. The question is to wonder how the Conservative will support Theresa May in coming months.
In other words, the new majority will not follow Theresa May as the former did it. This heterogeneity will tie her hands.
2 – What will be the prime minister credibility now? Beyond an overall majority, there is a need to have a strong leader to manage the huge transition the UK will face. She has not been the expected leader during the campaign then what could make her a strong leader now? It’s not her policy, it’s her personality that creates uncertainty. That’s what we can say after the campaign.
The point is that in a fracture like the Brexit can be there is a need to create a new momentum that will reduce all the British society antagonisms that appeared with the referendum last year and that were confirmed with these elections. I specifically think at the tension we have to anticipate between the “old” who voted for Brexit and for the Tories and the “young” who wanted to remain in the EU and who vote for the Labour. She will have to reconcile all of them instead there is a risk of instability and of defiance between these two categories of people. My guess is that it will be her main task to limit the risk for the British society in the period of deconstruction and of construction that is associated with the Brexit.
Will this reconciliation be consistent with the current austerity plan that will mainly affect the “old”? That’s another question
3 – The question related to the Brexit is now posed differently. Theresa May said at different time that she wanted a hard Brexit. With this new political configuration, will she have the power to go this way? Will she find support in her own majority for that? and what is a soft Brexit? Will she be able to find a support for that?
My point is the following: the European Commission will stay strong in the negotiation to avoid a precedent. Michel Barnier is on this mood and he will not accept a soft Brexit that would allow an access to the single market if the UK refuses the four liberties associated with the single market (on people, goods, services and capital). A soft brexit with management of migration in the UK is not consistent with the access to the single market. Brussels has to remain tough on this point.
On another point, the number of pro-Europeans MPs has increased in the Conservative party while the DUP is a strong Brexit supporter. Will the Prime Minister be able to take into account this diversity during the negotiation? In other words, Theresa May defined, alone, the Conservative party line on negotiations when she was named Prime Minister. She no longer has this possibility as she will have to negotiate inside her majority and because her credibility is now weaker. No one will follow her spontaneously. That’s the problem of lost leadership.
The line to follow has to be found rapidly as the negotiations are supposed to start on June the 19th and it will be interesting to know the position of the new government on what the UK has to pay to the EU. It is supposed to be between EUR 60 and 100bn.
4 – My perception is that Theresa May will be a transition Prime Minister, because her majority is too fragile (see point 1) and she lacks of leadership in a moment in which there is a need for a vision.
We have to expect a new leader in coming months instead new general elections will have to be organized.
5 – This period of uncertainty will not be good for business in the UK. There is now a strong uncertainty on how the Brexit negotiation will take place and necessarily on its impact on the economy. In this type of situation we have to anticipate a kind of wait and see behavior. This will be negative for business and for growth as no one will want to take a risk in this uncertain and may be unstable environment.
Due to this uncertainty and this risk of instability UK will no longer be on international investors dashboard for a moment.