Nigel Farage, MEP, speaks to reporters outside the Houses of Parliament in London, U.K. (Photographer: Luke MacGregor/Bloomberg)

Three Necessary Steps to End Brexit Madness

(Bloomberg Opinion) -- The first time we discussed the U.K. leaving the European Union (EU), the momentum looked like it was behind Team Exit. But the Brexit negotiations proved problematic, in part due to the oversimplified promises made during the lead-up to the referendum vote.

Then, the last time we discussed Brexit, I violated one of my favorite principles, when I made this prediction: “No Brexit! In other words, the U.K. will not exit the European Union. By 2023, we will look back at the entire ridiculous affair as if it were a rediscovered lost episode of ‘Fawlty Towers.’”

Before this issue can be resolved, a brief caveat for investors: The time to read the emergency card in the seat pocket in front of you is before the plane takes off. With one engine on fire at 36,000 feet, the best opportunity to think calmly and clearly about your options has passed.

What is true for investors is also true for politicians and policy wonks.

Since we are not passengers on this mad flight (don’t worry, we have our own headaches on this side of the Atlantic), let’s try to consider what can be done about this mess:

1. Recognize your opponents’ beliefs: In any negotiation or debate, each side needs to acknowledge the views of the other side. Failure to do so leads to stalemate and gridlock. That’s why hardcore partisans typically fail to govern well.

Those who support “stay” shouldn’t be so glib as to declare the “leave” crowd devoid of merit or virtue. Sure, the leave side exaggerated and lied while campaigning for the referendum (see this, this, this, this, this and this); they also used racist scaremongering and fear of foreigners to unnerve voters (sound familiar?).

But once you strip away the inciteful rhetoric and excesses, at its core the primary issue is the right of any sovereign nation to engage in international relations, control its borders and determine who may become a citizen. These are real and complex issues, and the EU and the remain crowd have not always deal with them in a frank and forthright manner.

The leave supporters need to acknowledge that their claim that an exit would be fast, cheap and easy was at best, wishful thinking and at worst, delusional. The intervening two-plus years have revealed exactly how complex and expensive leaving will be. The leave crowd, by refusing to acknowledge this, has contributed to the current impasse.

2. Reboot the debate: All of that hard work crafting a credible Brexit? Throw it away, and recognize that it was wasted effort. It’s a sunk cost.

Prime Minister Theresa May had the impossible task of coming up with something feasible; given the promises made, that was doomed from the start. Not surprisingly, she has failed to accomplish anything; therefore, for the good of her country, she must go, regardless of the outcome of any vote of confidence or not.

A new prime minister needs to acknowledge what each side has to offer, perhaps even calling for a new referendum. Only instead of a straight up and down vote, it needs to reflect the complexities and realities of the real world. Hence, any referendum shouldn’t be just a binary choice between stay or leave, but must acknowledge two very real things: the actual price tag of leaving and the long-term economic harm, and an explanation of what the EU must do to address genuine issues of national sovereignty if the U.K. stays.

Regardless, the nation must confront the pre-referendum promises made by leave advocates, strip out the ones that have since been proven false, and work with what’s left.

3. Improve the European Union: Game theory explains in part why the EU had to draw such a hard line with the U.K., lest other member countries see advantages in leaving. But that point has been made, and second-order thinking provides another opportunity: to use the Brexit mess to address the legitimate challenges of foreign affairs, sovereignty and security that affect all EU member nations.

What might that look like? Reaffirm the commitment to NATO and its shared obligations; address the refugee crisis from Africa and the Middle East on an EU-wide basis; consider ways to deal with the Russia security threat and the economic challenge posed by China. All of these represent both a danger and an opportunity.

The bottom line remains this: The British population has learned that Brexit will be neither cost-free nor easy; numerous credible issues have been raised that the EU needs to resolve for the good of the entire union. And so I am sticking with my prediction that another solution beckons. A fresh start will help. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Barry Ritholtz is a Bloomberg Opinion columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He is the author of “Bailout Nation.”

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