by Frank Schnittger
Mon Jun 13th, 2016 at 09:30:42 PM EST
The Pollster average of polls has just put the Brexit side ahead for the first time, which given the trend those polls have been taking, means we now have to talk about the probability of the Brexit process starting in 10 days time. In To Brexit or not to Brexit: That is the question I examined the ramification of Brexit for the UK, and in A Tale of Two States I looked at the implications for Northern Ireland in particular. In this piece I will embark on a speculative journey envisaging how a post Brexit Europe might evolve.
First of all, I am working off the assumption that the result will be tight, with Scotland and N. Ireland voting to remain in the EU but being swamped by the Brexit vote in England. There is therefore a strong probability that Scottish nationalists will seek a new referendum on Scottish independence in order to remain within the EU, and Sinn Fein will call for a new referendum on a united Ireland to enable N. Ireland to remain within the EU.
Whether either referendum will be carried is open to conjecture, and much will depend on the timing and circumstances of the vote, but there is no doubt that the UK itself will be destabilized as a result. (The position of Wales is more ambiguous with many blaming the EU for the failure to support the Tata steel works in Port Talbot, as if any Tory led Government outside the EU would have done any different...)
Next comes the 2 year exit negotiations provided for by Article 50 of the Lisbon Treaty. If Wolfgang Schäuble has anything to do with it, it seems that the EU will take a hard line: No preferential access to the single market without a significant financial contribution and the free movement of labour: both factors Brexit was supposed to avoid. Therefore we can expect the re-erection of trade barriers between the UK and the EU.. Regardless of the outcome, the two year negotiation period could result in a lot of uncertainty, volatility and postponement of investment decisions resulting in reduced growth all round, but especially in the UK, even with a much devalued Pound.
The OECD expects Brexit to send shockwaves through the global economy and expects the UK economy to be some 5% smaller by 2030 than would otherwise have been the case:
The next most heavily impacted economy would be Ireland, with GDP growth expected to be 1.25% less by 2018. A detailed study (PDF) by the ESRI think tank puts the effect on bilateral trade flows at c.20% heavily concentrated on the food and pharmaceutical sectors and estimates that this will be only partially offset by Ireland's increased attractiveness as a location for FDI with a major competitor for FDI, the UK, no longer in the single market. Any disruption of the single all Ireland electricity market might also require the building of inter-connectors with France to lesson dependency on the UK in a crisis situation. The situation regarding 400,000 Irish born people in the UK and the 288,627 British born people resident in Ireland would also be the cause of some uncertainty and anxiety - but no more so than the estimated 2 million British Expats in France and Spain, many of whom will be voting for Brexit to stop immigration into Britain!
The lie that immigration has depressed workers wages by 10% and that it is immigrants rather than government cutbacks that are responsible for NHS overcrowding will soon be exposed if a significant proportion of these often elderly expats end up returning to Britain post Brexit. The Economist concludes that there are no good trading models for the UK to follow post Brexit, which is why the Brexit side have shifted the debate to the emotional low ground of barring immigrants and blaming them for the pressure on health services - a shift which has provoked a senior defection from the Brexit campaign.
But the EU as a whole would also suffer, with the OECD putting the impact on growth at c. -1% by 2018. So might this not provoke a more pragmatic attitude towards post Brexit negotiations with the UK? My belief is no: Even at some cost to themselves, EU members will unite around the notion of making Brexit as painful for the Brits as possible, as otherwise they would only encourage other nationalist groups in other member states and risk the disintegration of the EU as a whole. It will be a fight for survival at that stage, and anyway, why would Frankfurt or other financial centres continue to allow The City in London easy access to the single market when they could pick up that business for themselves?
Almost alone in opposing this hard line will be Ireland, anxious to maintain previous bilateral deals underpinning deep trading and cultural ties with the UK, and concerned, above all, to prevent the re-erection of border posts on the North-south boarder. Any setting up of border posts would simply be to invite a return of terrorism to the North by nationalists sensitive to any symbols of separation, North and south. This is an issue on which Ireland may and should be willing to use its veto. Maybe some compromise will be found, allowing a tacit back-door trading of UK goods provided they are routed through Ireland, but it is hard to see how there will not be some escalation of trade and migration controls, bureaucracy, delays and costs.
Northern Ireland agriculture will also be hugely disadvantaged relative to the south which will lead to all sorts of smuggling, fraudulent paperwork, and ultimately, a need for even greater subventions from England. But will England wear it, especially if Scotland leaves and the much closer Scots-Irish ties become manifest? I can see a shrinking English Treasury simply dumping Northern Ireland at the first opportunity, leaving it with no ultimate destination or transition plan. A recipe for disaster.
Perhaps the rest of the EU will be galvanised into some kind of concerted action to offset the deflationary impact of Brexit, anxious to head off nationalist movements, and a slide into quasi fascism. A very great change of mentality and leadership would be required. In many ways the UK will be withdrawing just as it has vanquished Europe, having gotten English accepted as the de facto lingua franca, and Anglo American neo-liberal economics and neoconservative politics as the dominant ruling ideologies.
It is difficult to foretell how the absence of the UK will shape EU policy, but a greater willingness to consider state intervention (at an EU level) may be one consequence. We may therefore see re-energised EU regional, structural, and cohesion policies and budgets together with a greater willingness to consider major inter-state infrastructural development projects part funded by the European Investment Bank. We can but hope.
Meanwhile, in England and Wales we will see competitive devaluations of the Pound, rising inflation, a sharpening of the class war to prevent wages following inflation, a deepening of regional and social inequalities as a cash strapped exchequer cuts spending, a lowering of environmental standards, and a reduction in the "red tape" which protects worker's rights: A right wing bonanza with key business interests much more influential in determining government policy.
Labour may well decline into irrelevance as it loses its Scottish, Welsh and northern English industrial power bases. Attempts will be made to turn the Commonwealth into a "common market" and to gin up the "special relationship" with the USA. Great play will be made of the tiniest advances in foreign relations and England's role in World affairs "punching above its weight". No doubt the Queen will be used even more to provide a focus for nationalist sentiment and national unity. Tourists will flock in encouraged by the cheaper Pound.
A tacit competition will take place between the EU and the UK to establish which model of governance will be the more successful. England will flaunt the flexibility of a floating currency, the importance of local democracy, and the abandonment of red tape in promoting growth. But they also won't have the "Brussels Bureaucracy" to kick around any more in order to deflect attention from their own ruling class and the increasingly sharp divide between the comfortable middle class proud to have "re-taken control from Brussels" and the great unwashed, unemployed on minimal benefits, on zero hour contracts, and relatively declining wages. England will have to find a new war to fight in order to bleed off the young and deflect the masses from blaming their own masters for their plight. No doubt some future US President will create one for them.
The EU as a whole? Not so much. It's very inchoate size and diversity prevents it moving rapidly in any one direction. The EPP will gradually lose its grip beset by nationalist movement to its right and younger protest parties to its left. More comprehensive trade agreements (short of actual membership) will be negotiated with Turkey, Russia, the Balkan states and major trading partners world wide. Because of the size of the single market, these deals will be much more advantageous than anything the UK will be able to achieve on its own. Negotiations with the US and global corporates will be much more robust than those conducted by an obsequious UK retaining illusions of empire and anxious to play with the big boys on its own at almost any price.
Some writers even suggest Ireland would be better off re-joining the UK thus re-uniting Ireland and attaining greater representation in Westminster than it ever could in Brussels. This is delusional thinking. It's not going to happen, whatever the close and cordial relations which currently exist between the two states. Ireland is not going to turn its back on a hard won independence and much closer ties to the rest of the EU.
However the EU needs to be aware that in Ireland, as in the rest of the EU, there is increasing disillusion with the European project and the perceived centralisation of power for the sake of it in Brussels. Some new vision for the EU needs to be found, something more substantial that the elimination of roaming charges or the common availability of emergency healthcare. Unless the EU starts to deliver more concrete benefits, it's authority and prestige will continue to wane.
My suggestion would be that it needs to start developing common taxation systems, public healthcare, procurement, education, social welfare, pensions, energy, governmental computer systems architectures and consumer protection policies which individual member states can adopt or not at their own pace, but which provide a basis for better and more efficient administration, healthcare, inter-operability and transferability of educational standards, economies of scale and sharing of research. Perhaps one member state can become the lead developer for each area.
Yes this will involve an element of fiscal transfers, but on a basis that is transparent and fair to all. The EU has to start demonstrating that it can be more than the sum of its parts, and that every member state can, in one way or another, become a net beneficiary. It has got to stop being a case of "us and them", and the departure of the UK, which has consistently refracted its own class tensions onto a European plane will actually facilitate that process. There are actually times when smaller is more beautiful, and certainly a lot more workable..