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Brexit: Will the EU Botch It Again?

Boris Johnson, Conservative Euroskeptic prominent leader of the Brexit campaign, was expected to replace David Cameron as prime minister after winning the referendum, but he was unceremoniously dumped by his colleagues. Like everyone else, he had no plan for what to do if he won. (Photo: theguardian.com)

Boris Johnson, Conservative Euroskeptic prominent leader of the Brexit campaign, was expected to replace David Cameron as prime minister after winning the referendum, but he was unceremoniously dumped by his colleagues. Like everyone else, he had no plan for what to do if he won. (The Guardian)

The roiling stock markets and the plunging value of sterling on the day after the United Kingdom’s vote to abandon the European Union are not necessarily the last word in assessing this historic event. These specific trends are short-term reactions, and first reactions rarely settle an issue. Yet it is hard to predict a positive outcome. If nothing else, the U.K. is likely to become less productive and relatively poorer over time because of the vote, with the working-class people who voted overwhelmingly to leave likely to suffer the worst from the consequences.

Beyond that, the contagion of exiting could spread to other countries with disgruntled populations, and Britain could feasibly face the double disruption of losing Scotland while leaving Europe. Conflict could be rekindled in Northern Ireland, where the 1998 peace agreement was premised in part on both parts of the island being in the EU. Meanwhile, both of the U.K.’s major parties have been split by the vote, both are undergoing leadership crises, and no one—not even the leading Brexit* campaigners—has a plan for what to do now that the referendum has actually passed.

The next question—or one of the many next questions that Europe and Britain now face—is how the EU will arrange the U.K.’s exit (if it in fact comes about). European leaders face at least two dilemmas. The first dilemma concerns timing. On the one hand, the Brexit vote cast many aspects of the continent’s economy into uncertainty, and with the European economy barely holding itself together eight years after the 2008 crisis (despite repeated announcements of breakthroughs), uncertainty is the last thing that the continent’s leaders want to see. Some European leaders thus hope to dissolve the relationship with Britain as quickly as possible. On the other hand, the ties holding Europe and Britain together at all levels have grown over the course of decades and are now numerous, complicated, and interwoven. It seems reasonable to assume that any effort to rush the unraveling of this relationship could also have dire consequences.

At the same time, European leaders must face their second dilemma, how severely to treat the U.K. A harsh, vindictive approach, even if satisfying to some, could be counterproductive if it undermines the fragile British and European economies. On the other hand, an accommodating approach might encourage other member states in the belief that they, too, could rewrite their rules of participation or even abandon the EU with a minimum of disruption, thus encouraging the EU’s further unraveling. In addition, the desire to nudge banks and corporations into relocating from London to Paris, Frankfurt, or elsewhere on the continent could also militate against accommodation.

It would be difficult for anyone to fashion an optimal approach among these cross-cutting pressures. All the more worrying is the fact (or, at least, my perception) that the EU has botched one decision after another over the past several years, which inspires little confidence in how it will handle this one. The EU has serious problems, which are rooted at two different levels: structure and policy.

At the structural level, many of the EU’s issues grow from the fact that the continent has integrated itself economically and socially but not politically. There is a disconnect between the unified continental economy and the disjointed system of national governments. Thus 19 of its members share a single currency, the euro, and a single monetary authority, but for years they engaged in separate and often contradictory fiscal policies. Those 19 all sell euro-denominated bonds, but the bonds carry different risks depending on the government issuing them. The continent has open borders internally but is forced to rely on bankrupt Greece to control the flow of refugees from the Middle East and allows Belgium—a country with a weak, underfunded central government and multiple police forces that barely cooperate—to become a haven for terrorists.

Decision making at the continental level lacks an efficient mechanism; it requires building a consensus among 28 (soon to be 27) member states. Major decisions must often be ratified by all 28 parliaments. Thus every member has a veto, and the member least interested in an outcome can set the terms of debate. The difficulty in making decisions may well explain the tendency of European institutions to focus on long-term integration projects of little interest to most people while devoting relatively little attention to day-to-day citizens’ concerns that require quicker solutions.

This situation could theoretically be resolved by establishing a single, continental democratically elected government, but that would require citizens who think of themselves as Europeans first, rather than as Britons, Germans, Poles, or Greeks, and the Brexit vote shows how far they are from that.** In the meantime, multiple “small” decisions are relegated to EU regulatory agencies, which seek to enforce uniform standards to facilitate free-flowing trade, fueling resentment in places like the U.K. that people’s lives are governed by faceless, unaccountable, foreign bureaucrats in Brussels.

At the policy level, European decision makers have made a mess of their response to the 2008 financial crisis. Their focus has been on enforcing austerity to bring budget deficits under control and prevent inflation. In this they have been guided above all by Germany, the continent’s largest and strongest economy and a country with paralyzing memories of its experience with inflation in the early 1920s. (One U.S. dollar, worth about 4 marks in 1914, was worth more than 4 trillion marks in November 1923.) Europe’s current economic problems, however, are the opposite of inflation.

The consequences of austerity have been real. The IMF has estimated that for every $1.00 that Europe saved through fiscal consolidation (spending cuts and tax increases) during the crisis, economic activity declined by a larger amount, a realization that has caused the IMF, but not the EU, to revise its policy approach. Because of austerity and tight money, Europe fell into a second recession in 2011–12, and its pace of recovery has actually been slower than it was in the 1930s.

It avoided a currency crisis in 2012 only because the European Central Bank unilaterally discarded its mandated inflation obsession and promised to buy the government bonds of countries that could not sell them elsewhere. (More recently, the ECB, an outlier in EU decision making since 2012, has established negative interest rates, paying private banks to borrow money if they will, in turn, lend the money out for productive investments, while charging a fee to let money sit idle in deposits.) The U.K., which quietly eased its austerity policy around 2013, has done better than many other European countries, but some analysts have highlighted the irony that Prime Minister Cameron, who led the political fight against Brexit, is largely responsible for the economic malaise that fueled much of the Brexit enthusiasm.

We shall be waiting anxiously to see how the EU responds to its newest crisis. Perhaps it will react by addressing some of its deeper problems. Indeed, past crises have served as catalysts for advances in integration. Jean Monnet, one of the founders of the European Project, once predicted that “Europe will be forged in crises, and will be the sum of the solutions adopted in those crises.” We trust that the EU’s actions will be rational rather than emotional, but then many expected that of the British voters as well. In any event, let’s hope that its performance is an improvement on the past.

*The term Brexit, or British exit, was modeled on the earlier term Grexit, or Greek exit. Brexit, however, has always been seen as a voluntary phenomenon, whereas the notion of Grexit grew from the idea that the EU might expel Greece for its perceived failures to abide by the organization’s rules.

**This lack of legitimate institutions at the continental level is often described as the “democracy deficit.”

 

Author

Scott Monje
Scott Monje

Scott C. Monje, Ph.D., is senior editor of the Encyclopedia Americana (Grolier Online) and author of The Central Intelligence Agency: A Documentary History. He has taught classes on international, comparative, and U.S. politics at Rutgers University, New York University (SCPS), and Purchase College, SUNY.

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