The UK decision to leave the EU has been both a political and economic
shock. The near-term focus now shifts to the constitutional crisis
that has ensued. The key issue is what role does parliament have, and it
is crucial because the House of Commons is less enthusiastic about
Brexit. Recall that those favoring to leave the EU won the referendum
51.9% to 48.1%.
Prime Minister May recognizes a role for Parliament but less what many of
them would like. Specifically, claiming royal prerogative, May says
it is her call when to trigger Article 50 of the Lisbon Treaty that formally
begins the separation negotiations. She also claims the right to set the
strategy.
The British High Court begins hearing the case today. It is
expected to finish on Monday. Regardless of the ruling, the losing side
will appeal to the Supreme Court, and
this will be fast-tracked for a decision before the end of the year. While, the specific issue involves
a treaty, which the High Court has often been reluctant to interfere with, the more general issue is the role of
Parliament. Following a non-binding referendum, does Parliament need to
pass a new law to implement the outcome?
The Financial Times reports that the constitutional committee of the
House of Lords concluded recently that it
would be “constitutionally inappropriate” and create a troubling
precedent to act o the results of the referendum without Parliament’s
approval. The judicial review at the High Court will conclude on
Monday. The appeal is taken for
granted. However, if a parliamentary act is needed to trigger Article 50,
it could slow down the process, i.e., delay the formal negotiations until after
Q1 17.
Some argue that the referendum was about empowering the UK Parliament
over Brussels. While it is an interesting narrative, to the extent
sovereignty was the issue, it is about the UK government. The
parliamentary system is different from the presidential system in many
respects. One key way is that the party/coalition with a legislative
majority has control of the executive branch. In the presidential system,
like the US, the one party can control the legislative branch, which the
Republicans do now, and the other party controls
the executive branch, which the Democrats do now.
Even with the likely appeal of the High Court’s decision, there could be
a market impact. Sterling’s
depreciation has gathered pace since May indicated Article 50 would be invoked by the end of Q1 17 and that
priority would be given to controlling
immigration over preserving access to the single market. The
prospects of a hard exit from the EU weighed on sterling. The possibility
of a delay and a softer exit could spur some position adjustments that could help
sterling recoup some of its recent
losses.
Separately, Scotland’s First Minister Sturgeon has announced she will
publish a draft Scottish Independence Referendum Bill next week. She
said, “I am determined that Scotland will have the ability to reconsider
the question of independence–and to so so before the UK leaves the EU–if that
is necessary to protect our country’s interest.” To be sure, the
publication of the bill does not mean the referendum is imminent, but it
maximizes Sturgeon’s options. Sturgeon argues that there is a
difference between leaving the EU and exiting from the single market.
Scotland may use this crisis as an
opportunity to secure more powers, including over immigration.