Brexit is happening: 5 points on what to expect next
The outcome of yesterday’s vote took many by surprise, this author included. For months, indeed until the first results started coming in, betting markets had been consistent in showing a more or less substantial lead for the Remain camp. So were the recent polls, including those conducted on the day of the referendum. Here’s what to expect from Brexit in five areas:
1. Global economic crisis
A sterling crisis is already underway, as is a fall in stock prices around the world. Markets are not overreacting — they are simply adjusting to the expectation of a potentially disruptive, acrimonious divorce between the UK and the rest of the EU and a prolonged period of policy uncertainty.
The UK may or may not remain a part of the single market. UK-based financial institutions may or may not be able to operate throughout the EU. Businesses operating under the assumption of the existence of common rules on both sides of the Channel might be in trouble, and thinking about their next steps. The UK will also face an uphill battle in either grandfathering, or negotiating on its own, trade agreements with 53 countries around the world, which currently have trade agreements in place with the EU. In short, there are going to be real economic costs — and not just for the UK economy.
2. The sovereignty delusion
Worse yet, these costs are not going to be outweighed by long-term benefits. Today has been heralded as “independence day” by some of the Leavers. Yet, under the most optimistic of scenarios, in which the UK becomes a member of the European Economic Area, it will end up applying at least 21 out of 35 chapters of EU law — without having any say in its content. The British will have less, not more, control over their own laws. And, needless to say, the conversations in Brussels about the rules of the EU’s single market — largely a British creation — will be radically different, and less friendly to free enterprise, without the UK’s voice at the table.
While the UK can certainly prosper, if not flourish, on its own, for most countries on the continent their membership in the EU is a matter of existential necessity…
3. The EU’s eventual disintegration
What makes the prospect of Brexit genuinely scary is not its effect on the UK. Rather, it is the precedent that it sets for other European countries. While it is in everybody’s interest for the UK’s departure to cause as little disruption as possible, the EU’s leaders have also a direct incentive to dissuade any other country from following the UK’s example. But no matter how much hardball Messrs. Tusk and Juncker decide to play, nationalists on the continent are more than keen to emulate the example of the UK’s referendum. Only a few weeks ago, the Czech Parliament held a vote over a motion to organize a referendum about the Czech exit from the Union.
While the UK can certainly prosper, if not flourish, on its own, for most countries on the continent their membership in the EU is a matter of existential necessity, shielding them from energy dependence on Russia and from a coopting of their political elites by the Kremlin.
4. Transatlantic ties will be weaker, not stronger.
The UK will remain the closest friend and ally of the United States. However, a significant part of the UK’s clout in the world — and of the importance of the “special relationship” — has to do with the UK’s influence over European affairs. Very often, both on economic and strategic matters, the UK has been setting the tone of the European conversation, in a way that resonated with America’s commitment to free markets and liberal democracy. Following Brexit, that will be no longer be possible. It is equally illusory to think that the US-built institutional infrastructure in Europe will remain untouched — NATO and the EU are populated, for the most part, by the same European countries. The acrimonious disintegration of the EU will inevitably erode trust between members of NATO as well and will make the alliance as a whole less credible.
5. Europe still needs to fix itself.
Regardless of yesterday’s vote, it is important that Brexit does not become a distraction from the much greater challenges facing Europe today — namely the economic problems in the Eurozone and the incomplete architecture of the Schengen. Fixing these problems requires imagination, leadership, and a genuine understanding of international federalism — something that is in short supply in today’s Europe. Yet the alternative –a complete meltdown of the European project — is too terrible to imagine.
