08222017

Everybody’s Loss

With Great Britain leaving the EU, ideals of an enlightened international order are at stake as well as issues of security and economic interests…

© Ed Everett - Flickr Attribution 2.0 Generic (CC BY 2.0) https://creativecommons.org/licenses/by/2.0/

© Ed Everett – Flickr Attribution 2.0 Generic (CC BY 2.0)
https://creativecommons.org/licenses/by/2.0/

Article 50 of the EU’s Lisbon Treaty has been triggered. Britain will leave the European Union. Two years now remain to negotiate an exit deal that will satisfy all parties. This is not a lot of time, given the many issues that require clarification. But it is plenty of time to do harm to the ideals of an open and enlightened international order.
The outcome of the Brexit vote was in part the result of a highly emotional debate, but it also reflected more objective reasons that have to do with the European Union itself. The perception among European citizens that the “Eurocrats” have created a bureaucratic monster that is doing an end-run around basic issues such as security and migration reflects what is, at the very least, a failure of communication on the part of the EU.
Fear of uncontrolled migration, especially from Eastern Europe, which was stoked by the conviction that these new arrivals were taking British jobs, ranked among the top reasons given for leaving the EU. This is one of the perennial arguments in the protectionist repertoire. However, EU regulations do not permit restrictions on free movement of workers. Until now, this principle has been a sine qua non for membership in the EU. Countries that do not abide by this principle are not permitted to share in the economic benefits of the single market.
Leaving the single market is the biggest bomb that has been detonated by Brexit. Because all of foreign trade was regulated by the EU, Britain must now negotiate new agreements with all of its trading partners. This explains why Theresa May made haste to pay her respects to Donald Trump, who is known as a proponent of bilateral trade agreements, and to demonstrate the importance of Britain’s “special relationship” to the United States – a relationship that Britain itself had placed under strain.
Perhaps Britain will be able to benefit from the Commonwealth. But when it comes to the single market, Britain faces a dearth of options. One is the Norwegian model: Norway makes a financial contribution in order to have access to the single market, but must also accept its rules and standards, among them the free movement of workers, which Brexit’s supporters have already roundly vetoed. Britain could also opt for the Swiss model, which is based on bilateral agreements. This, however, would be extremely time-consuming and also create its own bureaucratic monster, since each individual state imposes different non-tariff conditions. Britain could also fall back on the “WTO option,” trading only under the rules set by the World Trade Organization. This, however, would entail extra costs for Britain in the form of tariffs or other trade barriers, which would ultimately come at the expense of consumers.
For a country in which large segments of the real economy are in decline, and which is highly dependent on the financial sector, this situation is unwelcome at best. Brexit now also raises the prospect that London will quickly become less appealing as a financial center, which makes it likely that Britain will pursue an aggressive strategy to maintain its dominance. Rumors of banking deregulation and a sharp reduction in the corporate taxation rate are already rife.

Financial market signals

Indeed, financial markets responded immediately to the Brexit vote. Moody’s downgrading of the UK’s sovereign rating allowed France to overtake Britain as the world’s fifth-largest economy. The British pound went into free-fall. Such currency volatility will naturally have an impact on the population. Certain kinds of bread will no longer be available in Britain, while Europe will be able to enjoy Scotch whisky at dumping prices. But Europe would be wise to imbibe with haste, since Scotland has its own opinion on Brexit and is searching for its own solution. And if Brexit means the restoration of what has become a nearly open border between Ireland and Northern Ireland, the political climate will also suffer as a result.
So is this all cause for celebration? We are often told that it is Britain who will “suffer more” than the EU. But how can we welcome this? After all, it was only a slim majority who voted for Brexit, and even today many in Britain are taking to the streets to demonstrate in favor of remaining in the EU.
For its part, the European Commission has already said that the UK will need to pay a €60 billion exit bill, a sum that encompasses existing financial commitments, including pension obligations and pledges to the bloc’s projects and budget. This gives the EU a strong basis for negotiations, but it would be wise not to take too great an advantage of this position of strength. €60 billion is the upper limit for the European Central Bank’s quantitative-easing purchases of public and private debt – per month. These facts will also shape the course of events. Britain will suffer more at first, but no one knows what will happen ten or fifteen years from now.
But it is already possible to say what we will lose – what Europe, the idea of Europe, and Germany will lose. Europe is more than just the common market, and it should mean more than just balance sheets and wealth.

Stronger together

For one, there is the issue of security. Security was once the driving force behind European unification. Until the Ukraine crisis, this security was virtually taken for granted. Brexit will mean that the EU will lose an important security partner at the European level. The UK will, of course, also bring issues of security to the negotiating table. It remains to be seen what impact the economic situation within the UK will have on the NATO defense budget.
What else will we lose? A tough negotiator, certainly. A country that always brimmed with self-confidence, or at least presented itself as such, even when this posture was not always founded in reality. A country that, together with Germany, advocated for liberal economic policies, that objected to the “transfer union,” and that had repeatedly exerted pressure on the EU regarding its terms and conditions. Brexit will thus result in a shift that will pose new challenges to the European project.
What we will also lose is our unquestioning faith in the idea that we can and should be stronger together. Of course, Britain always preferred to regard itself as a special case, engaging in tough negotiations when it came to efforts to advance European integration. Brexit thus represents an opportunity for Europe to reorient itself in important and necessary ways within the global configuration of power. PwC predicts that by 2050, China, India, the US, Indonesia and Brazil will be the world’s most powerful economies. Germany will decline from fifth place to ninth. France and the UK will no longer rank among the top ten, while Russia will overtake Germany on the top-ten list. All of this will have a direct impact on security and defense decisions and policies.
Above all, however, Brexit poses the question of the role which European political culture will play on the international stage. It is a political culture that appears to no longer be robust enough to appeal to its nearest neighbors. Every force that weakens the union also weakens the structures of democracy and the rule of law. This is something that Europe should have been able to predict, and Europe should have done more to strengthen the union as such, rather than its bureaucracy and its economic rationale. Brexit offers an opportunity for Europe to do exactly that. But it is no reason to celebrate.

Photo Credit: © Ed Everett - Flickr Attribution 2.0 Generic (CC BY 2.0)

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