NEW DELHI: In 2013, with the euroskeptic faction in his party growing louder and the right fringe UK Independence Party (Ukip) breathing down his neck, British Prime Minister David Cameron promised a referendum on the UK’s European Union membership if his Conservative Party won the 2015 polls. In the wake of the June 23 referendum—and as Cameron’s political career tails into ignominy—it will go down as one of the most egregious instances of political opportunism and mismanagement in living memory.
The full ramifications of Brexit will take months if not years to unfold. The bloodbath in the immediate aftermath—global markets took a $2-trillion hit the day after the referendum and the British pound fell to its lowest level in over three decades—is alarming, but markets will eventually stabilize. The medium-term prognosis for the EU, however, is not sanguine.
With global deflationary forces and its sputtering economy, the EU is under a great deal of stress. In this situation, the ripple effect of the hit the UK economy will take—as per the UK Treasury, Moody’s and the International Monetary Fund, among others—and the uncertainty over the terms and timeline of the UK’s exit will cause damage even before the deed is done. Capital flows will seek safer havens and private investment is likely to be delayed as it waits for more clarity. This, in turn, will weigh on the inflation the EU so desperately needs—and with policy rates already negative, the European Central Bank is running out of maneuvering space for more stimulus.
The UK’s exit also has the potential to change the EU’s internal dynamics for the worse. At its best, London has acted as a necessary counterweight to a Brussels dominated by Berlin and Paris, and a bridge between the US and the EU. Take it out of the equation, and Brussels’ weaknesses become more apparent—whether it’s continental Europe’s rigidity on data privacy and regulatory barriers that are relegating it to the status of an also-ran in the evolving digital economy or uncertainty in dealing with strategic challenges in West Asia and Russia.
In all of this, the UK’s Leave politicians and voters have come in for much opprobrium. They have been painted with a broad brush as xenophobic and racist. This schoolmarmish disapproval is both reductive and unfair. Certainly, there is a strain of xenophobia in the euroskeptic movement. While the Remain faction campaigned on economics, the Leave faction did so on immigration. In the case of hard-right elements like Ukip, this turned ugly. But on the whole, EU apparatchiks must cop a fair share of the blame.
Economist Dani Rodrik has posited a “political trilemma of the global economy,” where democracy and deep economic integration are compatible only if democracy is transnationalized as well. The latter is simply not feasible. A Brussels dominated by the powerful northern economies failed to recognize this conflict and tread carefully. Its policies in the wake of the financial crisis instead created divisions and resentment.
When the Mediterranean region, for instance, has an unemployment rate of over 20 percent compared to Germany’s 4.5 percent, the promise of the European project must seem a chimera. In return for this chimera, voters in the UK and other EU nations were asked to accept regulations and immigration policies created outside national boundaries. It must have seemed an unfair trade.
Concerns such as sovereignty and national identity might seem atavistic from Brussels, but that does not make them less real. The logic of market efficiency and the aggregate economic benefit brought by immigrants are cold comfort in the particular when economic inequality has created disenfranchisement. In these circumstances, immigrants—up from 7 percent of the UK population in 1993 to 13.1 percent now as per the Migration Observatory at Oxford, with the rate of the influx growing in recent years—are bound to be seen as an unsettling force.
Brexit will boost euroskeptic and fringe factions across the EU. Geert Wilders in the Netherlands and Marine le Pen in France have already spoken of referendums. The economic churn caused by Brexit is likely to make the EU seem even less attractive; various polls show that euroskepticism is widespread in the EU in any case.
That said, this paper is of the view that rumors of the EU’s demise and the end of the post-World War II liberal democratic order are exaggerated. The Union has much to recommend it still and too much invested in it to fail easily—as long as its political leaders keep a fundamental truth in mind when crafting economic and immigration policies that could run afoul of popular will and conceptions of national interest. There is no post-national consensus and there is unlikely to be one in the foreseeable future.
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