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The Ostrich Effect Of Britain`s Brexit And The Royal Prerogative Of Britain`s PM - The Obvious Elephant In The Room

You have read it in the news, Mishcon de Reya, a top London law firm, said it is representing a group of British Business men threatening legal action against the British government if the Prime Minister tries to initiate the process of leaving the European Union without consulting parliament. Furthermore, the law firm is trying to put pressure on the British Government by announcing this lawsuit all over the world wide media.

So what now? May the PM invoke Article 50 without formal vote by parliament whether to invoke Article 50 or may he not? Well folks, this question has been answered long before the Brexit was put to a vote by the public and you can read it here from the constitution unit (

Parliament has no formal say over whether or when Article 50 is invoked, as this lies within the royal prerogative powers that are exercised by government. (Source: Article 1.5 of the Cabinet Manual of the United Kingdom, 1st Edition October 2011, signed into law by David Cameron) Government's powers in matters of foreign policy are very extensive, and parliament has veto rights only in respect of treaties. If parliament were to pass a motion calling on the Prime Minister not to invoke Article 50, we might nevertheless expect him (or perhaps, by then, her) to respect that. But the Prime Minister could claim the authority of the popular vote to justify ignoring such pressure. In the end, the Cabinet Manual will be the governing rule by which to act, and as David Cameron stated in its foreword: "... the Cabinet Manual is not party political - it is a record of fact."

Parliament would, however, be able to vote on the withdrawal deal, as that would be a treaty. Parliament would expect to be updated regularly on the negotiations and to have its views heard, perhaps through votes on specific issues. The large majority of MPs currently favour staying in the EU. If they wanted a post-Brexit deal involving substantial ongoing integration with the EU - perhaps akin to Norway's arrangements - they could potentially have the power to reject any deal that did not provide that. Whether they would do so would depend in part on the political situation and the state of public opinion at the time, both of which are highly unpredictable. It would depend also on the withdrawal timetable: if the two-year window were near to closing, rejecting the deal on the table could be very risky.

Parliament would also have a great deal of legislating to do. Withdrawal would require repeal of the European Communities Act (NYSE:ECA) of 1972 - the legislation that underpins the UK's EU membership. But there would also be two much larger tasks. First, a great deal of legislation has been passed over the last forty years that enacts provisions required under EU membership. Parliament would presumably wish to review - and in places amend or repeal - this body of law during or following withdrawal. Second, EU 'regulations' apply directly in the UK without domestic implementing legislation and would automatically cease to apply upon repeal of the ECA.

There you go. But what about the media articles that a newly elected government is legally required before Article 50 could be invoked, meaning the current PM David Cameron can not invoke Article 50 and Britain is bound to stay in the EU until the outcome of the next general elections in September, right?

Nope, not right. Again, the constitution-unit has addressed this question long in advance before the Brexit was put to a vote by the public: The legally binding written law, the Cabinet Manual, explains, what will happen and how it needs to happen:

Prime Ministers hold office unless and until they resign. If the Prime Minister resigns on behalf of the Government, the Sovereign will invite the person who appears most likely to be able to command the confidence of the House to serve as Prime Minister and to form a government.

Historically, the Sovereign has made use of reserve powers to dismiss a Prime Minister or to make a personal choice of successor, although this was last used in 1834 and was regarded as having undermined the Sovereign. In modern times the convention has been that the Sovereign should not be drawn into party politics, and if there is doubt it is the responsibility of those involved in the political process, and in particular the parties represented in Parliament, to seek to determine and communicate clearly to the Sovereign who is best placed to be able to command the confidence of the House of Commons. As the Crown's principal adviser this responsibility falls especially on the incumbent Prime Minister, who at the time of his or her resignation may also be asked by the Sovereign for a recommendation on who can best command the confidence of the House of Commons in his or her place.

The application of these principles depends on the specific circumstances and it remains a matter for the Prime Minister, as the Sovereign's principal adviser, to judge the appropriate time at which to resign, either from their individual position as Prime Minister or on behalf of the government. Recent examples suggest that previous Prime Ministers have not offered their resignations until there was a situation in which clear advice could be given to the Sovereign on who should be asked to form a government.

So the Cabinet Manual is clear (at paragraph 2.10) that the PM cannot go until he can advise the Queen on who should form the new government. But to be very clear, there is no general election required. The Cabinet Manual sets out an internal process of the ruling party to make a decision which is then forwarded by the PM to the Queen as formal notification and advice.

Looking at Conservative party rules, these set out a two-stage leadership election process: first, the parliamentary party, through successive ballots, whittles the field down to two candidates; then the party membership, by postal ballot, chooses between these. Recent experience suggests this would take two to three months.

Lessons to be learnt: Do not believe any kind of agenda that is pushed through media channels in order to form an opinion regarding a financial decision. Anyone who were to form an opinion for a financial decision based on media articles that are clearly contrary to written law and represent rather political agenda and noise making would be well advised to read the written law instead of media articles. Because if you hold stocks with UK exposure or trade any GBP currency pair, it is this kind of nonsense articles that are quickly read and quickly lead to a hasty push of a buy button on the trader`s keyboard. Having fallen for a wishful thinking trap is regretted painfully when reality sets in.

Do get a grip on reality, not wishful thinking, read the written law. It`s here, no need to speculate:

Now you can start to speculate: legally there is no requirement for a debate in parliament, there is no requirement for a general election to wait for a new Prime Minister. The legal procedure forsees an internal election within party rules and for the outgoing PM to advise the Queen as Sovereign who shall be a Prime Minister instead of the current PM before a new general election in September. Will David Cameron do that? And if so, will that new PM trigger Article 50 without letting parliament decide over it?

If you come to think about it, it looks like that in reality all Leave-voting citizens have just become part of an enormous reality test: if democratic principles are adhered to, the currently acting PM would invoke Article 50 without putting this matter to a vote in parliament, then follow Conservative Party Rules, have an internal ballot regarding an internal PM candidate, then nominate this Candidate to the Queen and then this new acting PM would formulate an agenda for negotiations with the EU that are do be discussed within the Parliament. Should the EU make any indications whether to accept any offer or make any counter-offer, the content of such offers were to be discussed in parliament until content for a new treaty has been established. Before such treaty were to be signed, parliament would indeed have the right to vote on such treaty.

If it does not happen in this order or the current PM does not invoke Article 50 and just hangs on for another 60 days and then waits for new general elections and then waits if the new PM follows the Brexit vote or ignores it, which again were his Royal Prerogative as new PM, who alone acts as Representative of Britain`s Sovereign, the Queen of England, then Good Night Democracy in Great Britain. If that really were to happen, no matter how positive it might be for certain firms and businesses, it were a catastrophe in terms of public voting reality. Because it would mean that no matter what the will of the people is, it can be ignored.

Think about it. Is it the fault of the voters that democratic votes are simple majority votes in general and not absolute majority votes by 2/3rd or even supermajority voting rules with say 3/4th? Of course not. The framework of democratic voting is set at 50/50 in order to reach decisions and avoid impasses, no matter how close the outcome, no matter how inconvenient the outcome for the vote-losing half. There is always an uphappy half, because the framework for democratic voting is set at 50/50. Period.

Lesson to be learnt: Do not let anyone fool you into believing that the exact procedures for the UK leaving the European Union are not setout in written law and could be in any way ambiguent. There is no ambiguity, all legal procedures and processes, internal and external are all planned, known and set out, it has all been planned by many legal commissions and constitutional working groups. The only true and correct statement in regards to ambiguity regarding the Brexit is indeed the meaning of the non-legality of the public Brexit vote itself. This, in its pure form, is also the Royal Prerogative of the acting Prime Minister. Never forget, the UK has a ruling sovereign, that has not executed a Royal Prerogative directly for over 80 years, but the execution of the Royal Prerogative lies with Britain`s acting Prime Minister in this case. Which acting Prime Minister will actually invoke Article 50 will tell you a lot how the reality of power is actually structured.

Now, that you as reader are better informed than the general public after reading this information, what are your thoughts? Please comment, if you believe the current PM must follow the law or if in the end the framework itself with 50/50 votes is flawed as the polarization prohibits acting and encourages rather the PM to bury his head in the sand and do as if the problem does not exist for him, so he can pass it on to another PM, and in the end it is better to do, because ... ?

Those of you, who have never heard of the Ostrich Effect, a term from Behavioral Finance, here it goes: Originally the term was coined by Galai & Sade (2006), and was defined as "the avoidance of apparently risky financial situations by pretending they do not exist", but since Karlsson, Loewenstein & Seppi (2009) it took the slightly broader meaning of "avoiding to expose oneself to [financial] information that one fear may cause psychological discomfort".

Another way to see the situation is to view it as Obvious Elephant In The Room: In 1814, Ivan Andreevich Krylov (1769-1844), poet and fabulist, wrote a fable entitled "The Inquisitive Man" which tells of a man who goes to a museum and notices all sorts of tiny things, but fails to notice an elephant. This "Obvious Elephant In The Room" is the Royal Prerogative. It derives from the fact the the UK has a sovereign and the PM acts on behalf of that Sovereign with that Sovereign`s Royal Prerogative. Britain`s PM is by absolute legal standards a Monarch`s PM, not parliament`s PM and only to a relative legal standard the public`s PM. This Elephant, namely that the UK has a different PM with a different legal framework than say France or Germany, is interestingly not addressed in the media or by the acting PM - as he is bound by written law!

Let`s see if this is going to turn out as the one case in history where the right of a Royal Prerogative derived of a Monarchy helps to actually save Democracy. Or, if the voter`s wish will lead to the Ostrich Effect with endless passing-around of the problem to act on the public vote itself, hoping that if the non-binding legality of the actual public vote itself is debated over and over, the vote and therefore the problem of the public`s opinion as such may just go away by itself - which it won`t, of course. But please do comment your thoughts below!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.