by Robert Harris (August 2016)
The fallout came soon after news of the result of the Brexit vote arrived. Markets reacted sharply due to an excessive hedging of bets on Sterling. Matters calmed somewhat after the 27th June, but would again sink days later, with investors attempting to pull out of the UK property market, etc., inevitably forcing some companies to suspend trading. Markets have stabilised but are expected to dip repeatedly in the coming years with the protracted release of news of economic slowdown. Some Brexit voters probably have buyers remorse, while the ‘Remain’ camp went into ‘we told you so’ mode, but the very negative sentiment espoused by ‘Project Fear’ will play no small role in taking the UK economy into recession.
The British establishment made the same mistake two years running: polls suggesting a hung parliament were accepted as truth, prior to the re-election of the Tory Party in 2015. In view of political uncertainty, the government could have decided to postpone the referendum until 2018. Such a move would have met with objection from the Tory’s Euro-sceptic contingent, and a surging UKIP electorate, but fire-walling the economy would have benefitted a Brexit stance in debate: the Treasury would have had the opportunity to pay down a substantive swathe of its immense sovereign debt, issue long-term bonds, and then be in a position to impose a policy of currency devaluation to bolster trade.
The government has rejected the notion of a second EU referendum, but the crisis may bite sufficiently for it to become politically inexpedient to initiate a formal exit without establishing a further mandate from the electorate. Teresa May’s new cabinet could also come under immense pressure if Scotland continues to push for a UK-exit, and if Labour achieves a resurgence by dumping leader Jeremy Corbyn, where the leftists can position themselves as the true pro-EU ‘Bremain’ party. If a very substantive economic crisis hits in the coming months, there may be pressure to call a further general election, which would easily metamorphasise into a second referendum.
The EU appears to be moving toward ever-closer integration, even though a number of member-states are attempting to grapple with a resurgent euro-scepticism. There are indications that the EU’s reaction to the Brexit crisis may be an intensification of the integration process, perhaps as a defensive measure – to make it nigh-on impossible for member-states to step away from the entity without the most substantive economic pain, even though the 2008 crisis has shown that such a highly centralised one-size-fits-all economic union is problematic in the face of challenging economic climates. The EU feels politically unable to impose substantive economic fines on member-states that breach established fiscal rules governing debt, while nations at the periphery of the Eurozone will have little mobility to weather the numerous economic storms that will inevitably develop into this century.
The EU’s hectoring reaction
The language of the EU members, after the shock-result of the 23rd June UK Brexit referendum, was starkly revealing. Leaders would waste little time delivering ultimatums, in every public forum at hand.
EU Commissioner Jean-Claude Juncker was barely able to contain his fury, at an initial Brexit press conference on the 24th. He called upon Britain to initiate an exit “however painful that process may be,” and refused to take questions from the assembled media. EU figures started their incessant demands for Britain to invoke Article 50 of the Lisbon Treaty, to begin the separation process from the EU with immediate effect, even though the move to invoke the Article is entirely within the UK’s gift.
The perceived wisdom suggests that the EU’s real muscle is to be found behind the scenes, when German and French national leaders meet, to make decisions on policy direction, which other member-states tend to follow, although some have argued that the Franco-German axis is coming unstuck, with France’s diminishing economic strength. The democratic deficit at the core of the EU was illustrated, albeit unwittingly, in the aftermath of the Brexit vote, when the influential six founder members (Belgium, France, Germany, Italy, Holland and Luxembourg) of the ‘European Economic Steel and Coal Community’ (ECSC), and of the subsequent (1967-93) ‘European Economic Community’ (EEC) framework, met behind closed doors on the 25th of June, to discuss the success of the Brexit vote. They decided to push for greater union at a time when Euro-scepticism is at an all time high.
A ‘Big-Three’ meeting on the 27th, with French PM Francois Hollande, Germany’s Angela Merkel, and Italy’s Matteo Renzi, reiterated that talks on a deal between the EU and the UK could only begin after the latter invokes Article 50, which allows a two year limit to disentangle a given nation from the EU institution. Merkel voiced the most conciliatory words toward the UK Brexit, but even she affirmed that there could be no ‘formal’ or ‘informal’ negotiations before that point.
Hollande reasserted the demand for greater political and economic integration, which he echoed at the EU ‘Leaders Summit’ the following day. Some leaders at day-two of the summit expressed interest in further integration, to apparently make the EU more relevant to European citizens, although some of the politicians conceded on the public’s migration concerns with respect to breached EU borders.
A number of British politicians signalled that the commencement of talks would have to begin after a new prime-minister and cabinet was formed in the Autumn, However, the EU’s response to this timeframe was mixed. Irish minister Dara Murphy, argued that the UK needed time. Belgium’s prime-minister, Charles Michel, lashed out at the UK, before attending the EU summit meeting, stating that he would not tolerate being endlessly blackmailed, with Europeans being “messed around.” President Donald Tusk advised the media that they are ready to advance the process “even today.” The summit meeting with former PM David Cameron was cordial, but afterward Jean-Claude Juncker pressed for as a rapid a divorce as possible. Planning for the following day’s summit excluded Cameron’s attendance.
Likewise, at a meeting of the EU parliament on the 28th, Juncker strayed from a speech, to wonder aloud: why UKIP members were still attendant at the Parliament? It is surely obvious that the UK electorate deserves representation while the State remains a member of the EU for several years to come. The parliament passed a resolution calling for the UK to begin the withdrawal process forthwith.
Jean-Claude Juncker reiterated that there could be no talks whatsoever until Article 50 was invoked, and ordered EU commissioners, officials and employees not to discuss any issues with the British that appertain to a subsequent deal before the UK’s declaration to leave would be formally affirmed. This startlingly public gesture of contempt exemplified the ugly post-Brexit mood at the EU.
The hostility of many parliamentarians, toward the British, startled commentators, although RTE’s Tony Connolly apologetically suggested it was a mere venting against former UKIP leader Nigel Farage. The provocative but entertaining MEP was singled out, for a rather extraordinary barrage of personal insults. Some claimed Farage, and the broader Brexit camp, are liars. The campaign message cited: £350 million a week going to the EU could be spent improving the National Health Service. However, it is difficult to convincingly argue that this claim was somehow akin to an electoral promise for government. The claim was that such a sum could be spent on the NHS, since the money would be controlled by the British government, rather than being directed toward the EU budgetary mechanism.
The Brexit campaign was also lambasted as racist, with some comparing Farage’s campaign with NAZI propaganda, due to a poster of an image of a large line of migrants walking through Eastern Europe, with the probable purpose of reaching Germany, presented in the camapign’s final week. The words “Breaking point? – The EU is failing us all” were attached. The image was taken as anti-refugee but could also allude to the prevalent belief that the migrant crisis will lead to the eventual break-up of the EU, with Western and Eastern nations moving in opposing directions. This attack on Farage was rather ironic because, only days earlier, the European Parliament applauded a speech by Palestinian Authority President, Mahmoud Abbas, in which he invoked an ancient anti-Semitic blood-libel, for which the EU leaders appear to have taken no corrective action.
Juncker’s bitterness would not diminish to a significant extent when speaking next at that forum, on July 5th. He attacked the Leave camp, for all supposedly resigning. He claimed that Johnson, Farage, and others, were not real “patriots” – rather they are what he termed “retro-nationalists.” He would also continue to query why there was no plan to exit the EU. Juncker’s criticism is hypocritical, because the EU heads do not appear to possess any substantive contingency plan either. In truth, few within the EU, or the British establishment (including some “Brexiteers”), expected the Brexit vote to win out.
EU President Donald Tusk would echo the views of the EU leaders, who at the “Leaders Summit,” a week earlier, had “made it clear that access to the single market means acceptance of all four freedoms… we will not sell off our freedoms, and there will be no single market a la carte.”
After Teresa May became the new prime-minister, she selected Boris Johnson as Foreign Secretary. France’s equivalent did not appreciate the choice, labelling him a “liar.” Johnson also had to contend with a broader reception from Europe, which was remarkably abusive: he was deemed to be a “coward” and a “clown.” It is difficult to recall a time when such diplomatic language has been so widely used to greet a senior political appointee, especially one who is expected to be engaging in sensitive talks with some of the very people who have personally attacked him.
After May indicated that Article 50 would be invoked next year, Hollande publicly stated that he would demand an explanation for the delay hours before he was due to meet her in Paris.
Ireland’s economic crisis: a lesson from the past
The United Kingdom crashed out of the ERM in 1992, causing substantive economic instability through the early years of that decade, whilst giving rise to a powerful Euro-scepticism within the Tory Party, which prime-minister John Major fought tooth and nail to defeat during his tenure. Today, with the successful Brexit referendum vote, the UK is facing a greater economic crisis, but perhaps lessons can be learnt from a few examples of the recent past, to forge an arrangement that may please both the “Remain” and “Leave” camps, and ultimately heal the divide within the British political establishment.
The European Union often uses the language of consensus, but the undemocratic nature of the body is deeply ingrained, to such an extent that overt contempt can be expressed toward the democratic mandate of sovereign nations, when important matters do not progress according to the EU’s liking. The EU was outraged when the Irish electorate did not pass the Lisbon Treaty in a referendum. The referendum likely failed because the Treaty was not designed to be read by anyone without the skills of a legal specialist. Another referendum was forced on the Irish public, with the threat that Ireland would be excluded from the EU. Why then have any options on the ballot, other than “yes,” and “yes please”?
Ireland’s 2010 bailout is an apt example of prior EU conduct toward a member-state experiencing difficulties, because its impact also brought about a level of EU-wide market contagion, as per Brexit.
The EU reacted poorly to the 2008 international financial crisis. Europe’s markets were dragged down by political indecision and disunity over Greece’s largely self-imposed financial crisis. Contagion spread to other countries struggling with excessive dept. Ireland was pressured by the failure of Anglo-Irish Bank, and would struggle to stay above water despite several austerity budgets. Being a member of the Eurozone, Ireland did not have sufficient economic sovereignty to effectively address the crisis.
Europe’s banks were exposed to the economic crisis due to substantive investment, but the EU refused to provide further assistance in 2010. Although Ireland still possessed sufficient financial reserves to weather the storm for several months, the EU would achieve its EU/IMF bailout goals, helped on by unofficial press-briefings from Europe. The crisis pushed the Irish State to adopt immense debt, expected to take decades to pay off. Negative pronouncements, emanating from anonymous sources, helped push Ireland’s borrowing interest rate to unsustainable levels, peaking at 15% in the summer of 2010. The statements to the media were motivated by a desire to undermine and force Ireland into the bailout.
The IMF actually tried to impose easier targets on Ireland than the EU, even though it can still be seen as an example of the nastier side of capitalism. Ireland’s friends in Europe not only imposed massive sovereign debt, but charged circa 6.5% interest, while the IMF charged substantively less. The EU rate would be reduced by circa 2% in 2011, after intense pressure, but Ireland has since been able to borrow far more cheaply from the markets to promptly pay down these loans. In a rather rich irony, at the time of Ireland’s bailout, the EU was developing a banking resolution mechanism, which would facilitate “bail-in” provisions, where member-states could impose cuts on the bond holders of banks in crisis. The EU has pressured Portugal and Spain to utilise this mechanism rather than impose debts on taxpayers.
Latterly, ECB head Jean-Claude Trichet threatened Ireland economically, when finance-minister Michael Noonan wished to impose a haircut on unsecured bonds in a failed bank. It has also been revealed that former IMF head, Dominique Strauss-Kahn, sought to allow Ireland to burn bondholders at the time of the bailout, but this strategy was prevented by the ECB.
The Irish State was also humiliated when annual budget measures were first shown to the Bundestag, the German parliament, before being presented to the Irish parliament.
Ireland would quickly return to economic growth, but thanks largely to a pre-bailout economic policy. Elements within the EU placed significant long-term pressure on Ireland to increase its corporation tax rate. The competitive tax rate was singular in allowing Ireland to manage the economic crisis, so the State could have easily ended in penury, a la Greece, with a few ill-judged moves to mollify the EU.
Ireland’s poor treatment is particularly alarming because the EU’s moves made such little sense economically. Disregarding any sense of decency and good neighbourliness toward a member of one’s own club, it still made sense to genuinely assist the Irish State. An Ireland in a long-term state of deep crisis would have a substantive contagion effect on larger debt-ridden economies, e.g. Italy and Spain.
Clearly an institution so willing to throw one of its ailing members under a bus, without having been at all provoked, is indicative of a profound problem, perhaps at an elementally cultural level within the organisation. Such moves demonstrate that the EU can be motivated by ill-will when matters go askew. As such, there is no guarantee that it will act pragmatically, even with respect to its own best interests, because a desire to control member-states can potentially trump the most commonsensical of moves.
EU member states export into Britain more so than the other way around. Thus, a tariff-free deal with the EU makes a lot of sense, as many in the Brexit camp argued. However, the lesson from Ireland suggests that political considerations can surmount economic practicality. It is widely believed that certain EU leaders, and states, will attempt to teach the UK a lesson, to discourage other states from entertaining an exit. At the 24th July G20 meeting, the US suggested that EU leaders ought to be more patient with respect to Brexit talks, and that a temperate non-confrontational tone is more important than mere timetabling. However, Juncker would then appoint Michael Barnier, as the EU’s lead Brexit negotiator, which does not augur well for a peaceable exit process.
Single market a la carte: Serving up the ‘Breisket’
Given the EU’s record, the continual demand to invoke Article 50 ought to be seen as a signal of bad faith. Although the Lisbon Treaty indicates that an official signal to quit should come before talks on an exit solution, there is no authentic reason why talks to find some means of understanding cannot be forthcoming. Many in the EU are worried about continuing economic instability, so such a provisional agreement could steady the ship substantively. Why then does the EU resist such an obvious move? All portents indicate that the EU wishes to impose punitive measures, to discourage any further divorces.
The British government should be as conciliatory as possible, and indeed it has abandoned the position of EU presidency for 2017, as requested. However, if the benefit of time does not moderate the EU’s confrontational stance, the UK must be prepared to adopt a strong diplomatic position, by playing their negotiating card: the fact that Europe must wait for the UK to initiate the process, leaving the Union open to substantive market instability. Given the oft-harsh signals sent from the EU elites, through the rather more confrontational method of public discourse, it is important that the British insist upon robust terms of understanding before invoking Article 50, with its limited two-year time-frame.
It would be politically difficult for Britain to accept the full terms of the single market, because it liberalises the mobility of Europe’s labour force. It would also be difficult to contribute the sort of substantive sums previously demanded for membership. Health secretary Jeremy Hunt proposed access to the single common market with border controls, which Merkel effectively rejected in a 28th June Bundestag speech. This would be an ideal solution for Britain but it would constitute an extremely bitter pill for the EU to swallow because integrationism will be undermined by restricting mobility.
However, it remains that Norway already has a potentially “a la carte” arrangement with the EU, whereby it may invoke migration controls in exceptional circumstance. It seems feasible for the EU to have a similar, albeit strengthened, arrangement for the UK, because it is a major trading partner with the rest of Europe. After a lengthy stand-off, an accommodation may be found where the UK accepts all EU regulatory requirements, and a moderated cost of membership, for accessing the single market.
There is an argument for the rest of the EU to reduce the single-market’s four-freedoms to three. Freedom of movement, labour, and residence for all EU citizens, follows the integrationist agenda established with the passing of the contentious Maastricht Treaty of 1992. However, it is also a fundamentally unfair necessity, because migration will follow wealth, and will affect nations that apply open liberal employment regulations. Some nations, that experience migration pressures, may, as a result, decide to adopt more restrictive practices, to indirectly control flows. Restrictive employment regulations slow growth, because such policies can lead to an avoidance of initial job expansion. Enforced employment can become punitive to firms during economic contraction, because it is difficult to reduce workforces.
Deaf to the voices from below: A matter of identity
Many on the left attempted to claim that the Brexit referendum vote was a response to Tory austerity. However, the claim is improbable since Britain’s Labour Party sunk, both at a national and a localised council level during the 2015-16 period. By contrast, the Tory’s continued to grow while attempting to curb the UK’s national debt. If it can be said that the referendum sends any collective message, it must be an advisement that there is a meaningful disconnect between the ordinary person, and the political elites, so often aligned with the politicised narratives of academia, and the mainstream media. This phenomenon is found across many parts of Europe, with the rise of politics no longer relegated to the fringe. It will not somehow evaporate with trenchant media hostility, and further European integration.
The EU is perhaps a paragon of this disconnected politically-correct elitism – an entity that has no real identity of its own, other than a vague sense of progressivism, assimilationism, bureaucracy, and a will unmoved by the people of Europe. The EU/EEC grew because the body was unduly independent from sovereign parliaments. It was in the organisation’s own interest to grow, just as government grows when controlling its own tax-spend. The EU’s other chief problem is a systemic democratic deficiency, where little-known politicians and faceless bureaucrats make laws that cannot subsequently be repealed by democratically-elected national parliaments. The EU’s democratic parliament has limited power.
Even if the democratic element were somehow beefed-up, the EU’s existence would be hard to justify because the electorate of most member-states do not make a lot of effort to vote for members of the EU parliament. Disenchantment with the EU is marked by consistently poor voter turnouts across the much region, which has continued to deteriorate since the 1970s.
To compare the most recent regional parliamentary elections (rounded off to whole numbers and 1/2s), with equivalent EU Parliament elections, only Belgium had an identical electoral result. Greece, Lithuania, and Luxembourg had moderate percentile reductions of 4% to 6.5%. All other nations had a differential of upwards of 10%, except for Romania (9.5%).
Twenty of the twenty-eight nations however, present stark contrasts in terms of voter turn-out for European Parliament elections. Compared to national parliamentary elections, Bulgaria, Germany, and Italy had slightly more than 2/3rds that turnout for European Parliament elections. Cyprus, Spain, Sweden, Portugal, Finland, and Estonia, had less than 2/3rds of turnouts. Austria, Latvia and the UK had turnouts of nearly 50% less. Croatia, Denmark, Slovenia, the Netherland, Poland, and Hungary, had less than a 50% turnout. The Czech Republic had less than 1/3 of the national election turn-out, while Slovakia did worse with less than ¼ of the national election turnout.
In many countries, the turnout is so low that it is arguably not electorally representative, with only nine member-states obtaining a turnout of 50% or over. These electorates are disconnected when it comes to the EU. This should not come as a surprise because the voting public don’t really regarded themselves as part of a European collective – national identity trumps any such notion immeasurably. It is perhaps telling that the sole country where the electorate takes as much of an interest in the EU, as their national parliaments is Belgium, where the EU’s defacto capital (Brussels), is located. Identity, inexorably tied to the substantive history of a given people struggling against their neighbours, makes the kind of 18th Century federalist moves in the United States an impossibility. It is no coincidence that a sense of identity’s loss (in a nationalistic largely post-racial sense) was a core motivation of many a Brexit voter. The free movement of migrants necessarily threatens national identities when substantive.
Attempting to vote for EU Commissioners would also fail because the electorate would be voting for figures that they know next-to-nothing about, except in the nation-state of the candidate. The problem may change if the European integrationist drive suddenly jumps to a level akin to US federalism, but such a move would be resisted across Europe since national identity trumps Europeanism. Therefore, as matters stand, the so-called “European Project’”is inherently incoherent to most Europeans!
The old European Economic Steel and Coal Community (ECSC) was of genuine service because it was designed initially to facilitate good relations between nation-states, most notably Germany and France, which warred intermittently since 1870. Yet Europe is no longer in the grip of militarism – the West truly has moved on from the war-mongering of the late 19th and early 20th Century, with its corrosive colonial competitiveness in Africa and Asia. In this sense, its achievement has led to its redundancy.
The philosophy behind this economic project favoured a unified Europe, in the aftermath of the ultra-nationalism that led to such destructive effect in the World Wars. Such a philosophy must necessarily push not only sovereignty, but national identity, aside. In this broader sense, the EU was utterly failed.
The Brexit message will be largely ignored by the EU, at their own peril, since the drive toward independence is not a phenomenon solely found in Britain. The heeding of political divergences should illuminate the paths toward saving a substantive level of European co-operation into the 21st Century.
EUxit: toward diversified co-operation
If national Euro-sceptic movements gain greater impetus, as a result of Brexit, the drive toward ever-greater integration, with associated derogation of sovereignty, will be contested with greater vigour during periods of crisis, forcing questions at the highest political levels. In such circumstance, it would follow that there is a greater prospect of the integrationist agenda being successfully challenged. If the EU remains unstable, dramatic market responses to political and financial uncertainty may force the member-states to challenge the integrationist agenda. Such a political reality would do much to mitigate the fear member-states possess, when deciding whether to push against powers within the EU.
Suggested forms of future economic co-operation would vary. One obvious proposal would be the reversal of the EU to an earlier incarnation, perhaps as a stripped-back version of the ECSC, albeit with explicit limits placed upon all eventual expansion. Levels of necessary political integration would only be motivated by the needs of economic collaboration – communal co-operation replaces assimilation. The European parliament and commission can be replaced by ministries within sovereign parliaments. The departments would collaborate with other member-states on permanent committees. Practicalities of implementation would involve a permanent trans-national body, operating in a civil service capacity.
Any such proposal likely requires the deconstruction of the Eurozone and associated currency because Eurozone arrangements manifestly failed to withstand the shudders of the 2008 economic crisis. States will regain their political and economic sovereignty, which will allow the implementation of policies to better weather the economic storms of the future. In such a laissez fair environment, those nations failing economically can be easily excluded, to a lesser level of membership, to minimise contagion.
Tariffs, and normative travel restrictions would necessarily be excluded, while standards of production, and associated environmental effects, would remain universalised. Fully unrestricted movement of workforces is unnecessary unless pursuing an integrationist agenda. Permits for work and long-term residency can be relatively flexible, but not unrestricted, to enforce the substantive sovereignty rights of all member-states, thereby ultimately allowing control over migrant flows between members.
The EU ban on bi-lateral trade deals is a further encroachment on economic sovereignty. Member-states should be entitled to make trade deals outside of those already established by the organisation, thereby allowing a new collective to fit more easily within the globalised world of the 21st Century.
Robert Harris contributes articles to several websites on contentious political issues (not to be confused with the popular English novelist (1957-) of the same name). He also blogs at eirael.blogspot.com and lives in Ireland.
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