El-Erian: UK voters reject the ‘muddled middle’

Mohamed A. El-Erian

This year’s elections for the European Parliament have sent very loud messages to the European Union’s politicians. Understanding these messages may prove a lot easier than acting on them. And nowhere will this be clearer than in the UK, where the two mainstream parties took quite a drubbing.

Frustrated by a Brexit process that has consumed almost three years of national debate and yet is still unable to reach a decisive outcome, British voters turned out in larger numbers to humiliate the established parties. Conservatives saw their vote tally slip to fifth place in an election won by the Brexit party, a new entity capitalising on political anger. While faring a little better than its traditional rival, Labour experienced a substantial fall in voter support, including among historically ultra-safe constituencies.

While some may disagree with this, I interpret this result as involving two clear messages to British politicians from their electorate.

First, an important part of the population is, to put it bluntly, fed up with the “muddled middle approach” to Brexit that has repeatedly gotten marred by indecision instead of opting for either leaving the EU – preferably via an orderly exit deal with the other member countries, but even without one – or holding a second referendum to create a more legitimate path for remaining in the European bloc.

Second, voters want to break out of a legislative paralysis that has seen British Parliament’s time consumed by endless Brexit debates and political manoeuvring, and this at the expense of virtually all other initiatives (including those needed to boost productivity and growth at a time when the UK is facing considerable challenges in a more difficult global environment).

The election could also be read as an endorsement of Theresa May’s decision to step down as prime minister after a tenure undermined by the inability of Parliament to pivot from what lawmakers do not want on Brexit to an iterative solution. Yet, despite the clear messages from the electorate, her successor – and there are already many in the Conservative Party who aspire to 10 Downing Street – will not find it hard to break the logjam unless the next prime minister insists on one of the “corner solutions” and, with that, underwrite tricky but inevitable trade-offs. Moreover, another protracted period in search of the elusive middle will be rendered more difficult by a worsening economic situation.

Absent a breakthrough, the cumulative impact of the last three years of economic and institutional uncertainty is likely to grow, leading to greater fragility in consumption decisions, investment activity and inflows of foreign direct investment. The impact on growth, productivity and the standard of living would be further challenged by what has become a much more fluid and unfriendly global economy, especially for an outwardly oriented economy such as the UK. As such, the journey to a Brexit outcome, whatever the destination ends up to be, is likely to become increasingly risky and costly for the UK.

The loud messages from the European elections were not limited to the UK. Indeed, they could even carry some insights for US politics in the run-up to the November 2020 elections.

In a vote that saw a significant surge in what historically has been rather low turnout, politicians in many other European countries should interpret the majority of voters as desiring a reform of the EU from the inside. Also, with the Green parties doing particularly well in several countries, including Germany, the emphasis on environmental sustainability came across loud and clear.

Like the UK, however, the problem that EU politicians will face going forward relates less to interpreting the electorate’s clear signals and more to acting on them.

Yet another erosion of the political middle (that is, centre left and centre right) means higher risk of fragmentation in the European Parliament and beyond, with the less centrist parts of the political spectrum – particularly the Greens and the far right – now entitled to greater voice, representation and influence on outcomes. Yet they, too, have very different views on priorities and timing.

Have no doubt, European voters have given clear messages to their politicians. Delivering on them, however, will be far from easy. Absent bold political leadership, the result could well be further frustration, political anger and economic stagnation – and the higher risk of national and regional polarisation that comes with all that.

Mohamed A. El-Erian is a Bloomberg Opinion columnist. He is the chief economic adviser at Allianz SE, the parent company of Pimco, where he served as CEO and co-CIO. His books include ‘The Only Game in Town’ and ‘When Markets Collide.’ © 2019, Bloomberg Opinion

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