Brexit: The Biggest Story Being Ignored In the U.S.

A referendum—basically a vote in which everyone (or nearly everyone) of voting age can take part, normally giving a “Yes” or “No” answer to a question—is being held on Thursday, 23 June to decide whether Britain should leave or remain in the European Union. Brexit

(Brexit is a shorthand way of saying Britain leaving the EU). The referendum is in response to growing calls from Prime Minister Cameron’s own Conservative MPs(Members of Parliament) and the UK Independence Party (UKIP), who argued that Britain had not had a say since 1975, when it voted to stay in the EU in a referendum, and because Prime Minister David Cameron promised to hold one if he won the 2015 general election.

Background:

The European Union – the EU – is an economic and political partnership involving 28 European countries (click here if you want to see the full list). It began after World War Two to nurture economic co-operation, because countries which trade together are more likely to avoid going to war with each other. It has since grown to become a “single market” allowing goods and people to move around, as if the member states were one country. It has its own currency, the euro, which is used by 19 of the member countries, its own parliament and it now makes uniform rules for members – including on the environment, transportation, consumer rights and even mobile phone charges.

The biggest obstacle for the EU from day one is that trying to run a conglomerate of disparate countries each with it’s own fiscal policies, but one monetary policy, is challenging, to put it very, very mildly.

Back in January and February David Cameron sought and received an agreement with other European Union leaders to revise Britain’s membership terms. The deal, which will take effect immediately if the UK votes to remain in the EU, gives Britain “special” status within the 28 nation union, and will help placate what many British people say they don’t like about the EU…high levels of immigration and the sacrifice of minor capacity to run their own affairs. So, to date, not only has Britain received “special” treatment to keep their own currency, now the EU has agreed to give them unique privileges for fiscal and immigration policies.

But naysayers complain that this deal will make little difference and falls short of what Cameron promised when he announced his plan for the referendum.

The main points of the “Cameron” deal are:

  • Child benefits – Migrant workers will still be able to send child benefit payments back to their home country but the payments will be set at a level reflecting the cost of living in their home country rather than the full UK rate
  • Migrant welfare payments – Cameron says cutting the amount of benefits to which low paid workers from other EU nations are eligible when they take a job in the UK will remove one of the reasons people come to Britain in such large numbers. Instead, new arrivals will not be able to claim tax credits and other welfare payments right away, but will gradually gain the right to more benefits the longer they stay.
  • Keeping the pound sterling – Cameron has said Britain will never join the euro. He secured assurances that the eurozone countries will not discriminate against Britain for having a different currency. Any British money spent on bailing out eurozone nations that get into trouble will also be reimbursed.
  • Protection for the City of London – Safeguards for Britain’s large financial services industry to prevent eurozone regulations being imposed on it
  • Running its own affairs – There will be a clear commitment that Britain is not part of a move towards “ever closer union” with other EU member states – one of the core principles of the EU–which will be incorporated in a revised EU treaty. Cameron also secured a “red card” system for parliaments making it easier for governments to unite in blocking unwanted legislation. If 55% of national parliaments object to a piece of EU legislation it will be renegotiated.

Polling to date indicates that the British public is almost evenly split, according to the latest opinion polls.

The UK Independence Party, which won the last European elections, and 13% of votes cast, campaigns for Britain’s exit from the EU. About half of Conservative MPs (Members of Parliament), including five cabinet ministers, several Labor MPs and the DUP (Democratic Unionist Party), are also in favor of leaving.

They believe Britain is being held back by the EU, which they feel imposes too many rules on business and charges billions of pounds a year in membership fees for little in return. They also want Britain to take back full control of its borders and reduce the number of people coming in to live and/or work. One of the main principles of EU membership is “free movement”, which means you don’t need to get a visa to go and live in another EU country. They object to the idea of “an ever closer union” and what they see as moves towards the creation of a “United States of Europe”.

Prime Minister David Cameron wants Britain to stay in the EU now that he has regained some powers from it. Sixteen members of his cabinet also back staying in. The Conservative Party has pledged to be neutral in the campaign – but the Labour Party, SNP, Plaid Cymru and the Lib Dems are all in favor of staying in.

Among the reasons cited for staying in the EU are that it gets many advantages from membership – it makes selling things to other EU countries easier and the flow of immigrants, most of whom are young and needing work, fuels economic growth and helps pay for public services.

Big business tends to favor Britain staying in the EU because it makes it easier for them to move money, people, and products around the world. But others disagree, and say the UK would be more able to negotiate trade deals independently.

Pros and Cons of Brexit

So, what are the views of macro economists?

There is a real chance that in two weeks’ time Britain could be casting off from Europe’s shores (euphemistically).That would be grave news—and not just for Britain.

A vote to leave would certainly injure the economy, at least in the short term and possibly in the long run.  It could imperil Britain’s security, especially with threats from terrorists at their most extreme in years. Britons would be forgoing clout, by giving up membership in a powerful alliance, which hardly sounds like reclaiming sovereignty and more like empty bluster. Even outside Britain anyone admiring this proposed act of self-mutilation should worry about the wide-ranging effects. Brexit would deal a gut-shot to Europe as well, a continent already on the economic ropes. It would disengage the world’s fifth-largest economy from its biggest market, and the fifth-largest defense spender from its allies. As a weaker ally, the new EU would be more reliant on the balancing forces of America and Europe.

The pro-Brexit case is that Britain is held back by Europe and could prosper as an open economy that continued to trade with the EU and the world. I suppose in theory it’s possible, but historically it is not how similar instances have worked.

At a minimum, the EU would allow full access to its single market only in return for adherence to rules that Euro skeptics are keen to throw out. If Norway and Switzerland are examples, the union would also demand the free movement of people and a big payment to its budget before allowing unconstrained access to the market.

Worse, the EU would have a strong motivation to levy a harsh settlement to discourage other countries from following. The “Leave” camp’s claim that Europe needs Britain more than the other way round isn’t evidence-based: the EU is the buyer of approximately half of Britain’s exports, whereas Britain takes less than 10% of the EU’s; and the British trade deficit is mostly with Germany and Spain. They would have to agree on a new trade deal with the other 25 countries individually.

In the globalized reality, power is pooled and merchandised: Britain gives up some of its sovereignty, but in exchange for influence through its memberships of NATO, the IMF and countless other power-sharing, rule-setting institutions. Britain outside the EU would be on the sidelines: theoretically independent from, but in reality still constrained by rules it would have no role in formulating. It would be a purer but less influential sovereignty.

The exception is immigration, the area over which many Euro skeptics most long for control. Half of Britain’s migrants come from the EU, and can do little to stop them. It would almost certainly mean losing full access to the single market, and reducing the numbers of immigrants would hurt Britain’s businesses and public services, which rely on French bankers, Bulgarian builders and Italian doctors.

The long-term costs would go beyond economics. Brexit could easily break up the United Kingdom itself. Scotland, is again clamoring for its own split; if Britain decides to leave, then the Scots may have a model at which to point. Brexit could also perilously unsettle Northern Ireland, where the peace process over two decades has relied on Ireland and Britain being members of the EU. The Irish government is among the most vocal foreign supporters for Britain to stay in.

European leaders know Brexit would weaken an alliance already in trouble over migration and the euro crisis. And Europe would be even more dominated by Germany; and, surely, less liberal, more protectionist and more inward-looking. Europe’s links to America would become shakier. Above all, the loss of its biggest military power and most significant foreign-policy actor would seriously weaken the EU.

Whether it concerns a nuclear deal with Iran, the threat of Islamist terrorism or the imposition of sanctions against Russia, the EU has become an increasingly important part of the West’s foreign and security policy. Without Britain, it would be harder for the EU to pull its weight—a big loss to the West from Russia through Syria to north Africa which is why Vladimir Putin is pro-Brexit—and Barack Obama is not.

The benefits to Britain’s membership in the EU have never been in much doubt. But skeptics must recognize that Brexit would also weaken Europe and the West. The stakes in Cameron’s great gamble are high and would affect an already weakened global economy.

We’ll know Thursday whether or not the west will be weaker or at least the same.

Harvey Gold