Breaking Away: Britain and the European Union

Breaking Away - Now What?

INTRODUCTION

No one, especially the British leaders who advocated Great Britain leaving the European Union, have any idea what is going to happen.  But the short-run economic problems from the breakup are easier to deal with than the underlying social and political problems.  It is these underlying problems that could tear the EU apart.  

PRELIMINARY THOUGHTS

Some preliminary thoughts on Britain breaking away from the European Union:

Direct economic effects will be minimal, both for Britain and the EU.
     London will remain the financial capital of Europe.  The alternative isn't Frankfurt; it's New York.

     Much of Britain's trade with EU is part of complicated supply chains within or between multinational firms.  This will also continue.  Both sides need each either.

     This will accelerate the current trade negotiations between the U.S and the EU.  Both sides want a deal in place before President Obama leaves office.  Both sides, and Britain, see this as a partial solution to the problems caused by the breakup.

In longer run, lots of alternatives and economic agents (read multinational corporations) will adjust.

Adjustment process in Britain probably not too difficult because:

Britain not in Eurozone, so already controls own monetary and fiscal policy.

Britain did not sign the EU free labor movement treaty, so already controls borders.

Does get rid of stupid EU regulations but England has enough itself.

Getting out of EU will not bring back British coal mining, steel industry, shipbuilding, textiles or fishing.

The break weakens the EU more than Britain.  If all the uncertainty and panic leads to a global recession, Britain will survive. The EU might not.

The discussion about future EU-Britain trade agreements is mostly irrelevant.  The EU does not have trade agreements with China, Japan and the U.S.  Most trade is governed now by the WTO, and bilateral and multilateral agreements. Neither side can afford to disrupt financial and trade flows.

British voters may have also destroyed Great Britain.  Increases odds of Scotland leaving Great Britain and taking the North Sea oil with them.

Scottish National Party got creamed in last national election; basis for comeback?

Political effects in EU could be serious, with possible follow-on economic effects in the future.

Now OK for people in other countries to vote to get out of EU.
     Questions of national sovereignty and immigration not limited to Britain.

Continued attraction of nationalist parties appealing to racism and xenophobia, many anti-democratic.

Long-term danger of reversion to nationalist economic policies that would damage global economy.

Partial break-up of EU, maybe back to primarily free-trade zone agreement.

Reverse of drive to further European integration as expense of national sovereignty.

German economy depends critically on exporting to EU countries.  Would probably give up support of EU objectives to preserve free-trade zone.

Further erosion of influence of U.S. in Europe and U.S commitment to NATO.

           Signaled by weak U.S. response to Russian pressure on Ukraine.

Russia attempts to exploit EU weakness and eliminate economic sanctions.  Germany resists. European politics in the future will center on German-led Central European bloc, direct geopolitical rivalry with Russia.

           Poland becomes a major geopolitical player in Europe.

           If EU holds together, Germany becomes even more dominant.

Most of European national governments just as dysfunctional as EU.  Unlike Britain after Thatcher, they do not have national economic policies that promote economic growth.

Free markets and financial sector dominated by large, multinational corporations.  England becomes less attractive to foreign (non-European) multinationals as an entry point into the EU.

Maybe British MNCs got it wrong; maybe they'll be better off without EU regulations.

Overall, Europe and the EU are increasingly less important to the world, both economically and politically. 

The current American administration recognizes this with its “pivot” towards Asia.

Britain leaving EU part of this trend.

COMMENTS

This vote brings out some wider questions about the EU and European politics.

It is important to remember what were the original objectives of the EU:

Promote free trade (low tariffs, no quotas, less national preference), economic recovery and economic integration of Europe.  Why?

Reduce chances of another European war.

Promote economic growth and development through cooperation.

Promote democracy and democratic political institutions, often in countries where they were weak or historically non-existent.

Contain Germany in an economically-integrated Europe.

Provide economic foundation to oppose Soviet Union

Lessen appeal of Communist parties in Europe.

Has the EU fulfilled its original objectives and is less important today?  How relevant is it to the economic and political future of Europe? 

How effective has the EU been in defining and meeting its new objectives since the collapse of the Soviet Union? 

As the EU has taken on more ambitious objectives, become more complicated (bureaucratic?), and usurped more of the functions of national governments, has it become less effective and lost political support?

The EU is no longer a vehicle for economic growth for the more developed countries of Europe.  Structural unemployment has been high for the entire EU for a long time.  National governments have used EU assistance and loans to avoid domestic reforms.

It is the EU, not Britain, that is facing a political and economic crisis.  I would suggest that if the EU is to survive and be an effective set of institutions and policies in the future, it has to undergo a radical rethinking of its objectives, procedures and structure, including its relationship with the national governments of Europe.  And it has to do it now.  The British vote was a wake-up call.


FOOTNOTE. By coincidence, I've been doing a lot of reading about Europe during the generation before World War I and evolving German political objectives during World War I.  Much of my reading has been on the Austro-Hungarian Empire and the rising tensions in Central Europe.  There are some similarities to the current situation, including the class and social tensions partly driven by technological change.  

One way to understand what is happening, in Europe and throughout the world, is through geopolitical thinking.  Two place to start:

George Friedman, his articles in stratfor.com, Geopolitical Futures, and his book Flashpoints.

Robert Kaplan, The Revenge of Geography.  Half of the book is an introduction to past geopolitical thinking and the other half is an application of geopolitical analysis to current conflicts.

President Obama's announcement of a "pivot" towards Asia echoes the founding article of modern geopolitics, H. J. Mackinder, "The Geographical Pivot of History," 1904.  Copies are on the Internet.

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