The consequences of Britain leaving the European Union might not be as dire as many are predicting. But this is part of a bigger earthquake and we're only feeling the first shake.
After reading tweets on Britain’s vote to exit the European Union (“Brexit”) into the wee hours of today, I bring one certainty. Some intellectual humility is in order. Nobody knows what will really happen.
With that caveat, let’s tour the horizon:
The sun still came up this morning. Britain is still a member of the EU. Exiting will be a long, complicated negotiation under Article 50 of the Treaty on European Union. Still, the vote carries heavy weight on expectations and uncertainty. Hence the selloff on global markets (the Dow is down about 2.8 percent as I write — not too bad).
The conventional wisdom is that Brexit would leave the UK poorer, both because of the eventual loss of “frictionless” trade with other EU nations and the long slog of negotiating new trade agreements, and the effect on the City of London as a world banking center. A recession in Britain is a near certainty, with big ripples in a slow-growth world economy. Sterling has fallen. And maybe all this is true.
European Union exit
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- Concerned area businesses in wait-and-see mode on Brexit impact
- Stress test? With Brexit, the world faces the real deal | Jon Talton
- UK leader David Cameron to resign after Brexit humiliation
- David Cameron's resignation to set off leadership scramble
- EU's task No. 1: Stop further unraveling in other EU nations
- Global stocks tumble after Britain votes to leave the EU
- Advice as markets react to Brexit: Take a deep breath and don’t do a thing
- Vote adds uncertainty to an already shaky global economy
- Britons celebrate, bemoan EU exit vote
- How the UK could remain in the EU despite a vote to leave
- Scottish leader: New independence vote highly likely
- Trump applauds decisions by British people to bolt EU
- Brexit generates a mix of reactions among Seattle-area residents
- Obama says U.S. respects United Kingdom’s decision to leave EU
- Brits Googling ‘What is the EU?’ after voting to leave it
On the other hand, the Bank of England (and the Federal Reserve) stands ready to provide liquidity and act as lender of last resort. Britain kept its own currency, a huge advantage for borrowing. The bigger wound might be on the continent, as other nations rethink the European project and weigh costs and benefits. Angela Merkel, Berlin and the technocrats in Brussels helped seed this crisis with the treatment of Greece, perceived unfair benefits to German exports and handling of the refugee crisis. The eurocrats made it worse when they warned that they would make Brexit “hurt” if the UK dared to vote for it.
Pace my Twitter pals, the EU is not a federal constitutional republic like the United States. It is a collection of sovereign nation-states, each with its national interest. Those interests are increasingly pulling against the goals of the Europeanists. Nowhere is this more true than the UK, which only joined the community in 1975 (partly because France’s Charles de Gaulle, mistrusting Perfidious Albion, had vetoed membership before). But Britain had a much longer history of standing apart from Europe. Margaret “There Is No Alternative” Thatcher was ambivalent at best.
Yves Smith put it this way on Naked Capitalism:
“Brexit is a crippling blow to the neoliberal order of unfettered trade and capital flows, and citizens being reduced to being consumers who have to fend for themselves in markets, and worse, increasingly isolated workers who are at the mercy of capitalists who are ever more determined to reduce labor costs and hoard the benefits of productivity gains for themselves. Whether they recognize it or not, and we’ll find out over the coming months and years how well different Leave voters saw the choice they made, they have chosen a lower standard of living as a price worth paying for a hope of more control over their destinies. Sadly, these voters are likely to realize the first part of that equation rather than the second.”
While we’re talking about damage, don’t forget the unneeded austerity forced on the UK by Prime Minister David Cameron and the Tories. Economist Dean Baker argued last month it was far worse than Brexit. And as I understand it, Cameron is resigning but not leaving office for 90 days. This is unprecedented and a bit suspicious. Would he try to leverage Brexit remorse into a second referendum — or let the Commons ignore it entirely?
Meanwhile, this would be an excellent time for Brussels and Berlin to take stock. Blaming the British is no substitute for a good look in the mirror, at overreaching, bullying and the destructive Merkel austerity regime.
Yes, Brexit gives Scotland another reason to depart. But a less examined reason for Scottish discontent is subjugation to Tory rule (or Tony Blair’s Third Way) for decades. Scotland wants more of a social democracy (Cascadians lick their chops). Northern Ireland, no. Unionists far outnumber those who want to unite with Ireland (which is very fearful of losing out with its biggest trading partner, the UK; but a bilateral trade-and-investment treaty could solve that fairly quickly).
As for the United States, the uncertainly alone will stay the Fed’s hand on interest rates. We must always worry about contagion in finance and trade. The UK is Washington state’s ninth-largest trading partner, with merchandise exports valued at nearly $2.6 billion in 2015. And this doesn’t count the big services surplus, including tech services.
The Transatlantic Trade and Investment Partnership (TTIP) is probably dead. With the dollar as a safe haven, exporters may feel greater headwinds. But the flow into Treasurys and low rates makes this an even better time to borrow for the major infrastructure investments we need. These would do far more for us than monetary policy alone. (Imagine the feds paying for 90 percent of Sound Transit’s light-rail expansion on a quick-step timetable).
I disagree with those who attribute Brexit to simple bigotry on the part of old white people; the issues were far more complex and shaded. One might wonder if Brexit foreshadows a Trump victory in the United States (with catastrophic economic consequences)? I guess it’s possible, even though the real-estate developer couldn’t even explain Brexit. In a nation so polarized and misinformed, I guess anything is possible.
As I wrote in this newspaper eight years ago, discontinuity is our future. The next 30 years are not going to be a replay of the past three decades. Get used to it.