Is the ‘Brexit’ all Talk?


Is the ‘Brexit’ all Talk?

Illustration by Global Risk InsightsIllustration by Global Risk Insights

By Stelios Papadopoulos for Global Risk Insights

On May 8th, the Conservative party in the UK won a surprise victory, gaining an unexpected outright majority of seats in the British Parliament.

The big losers of the election were the UK labor party and the Liberal Democrats, while the big winners, beside the Conservatives, were the Scottish National Party and the UK Independence Party, both of which advocated EU independence positions. Significant support for the idea of breaking from the EU has also been growing within the Conservative party itself, where a well organized wing calls for an outright break from the EU.

Yet what the British election reflects is a loss of support for social democratic and centrist parties across Europe, offering room for challengers on the left and the right. European electorates are not receiving any solutions to their economic problems from centrist parties, forcing them to look for solutions elsewhere.

The Conservative party managed to address the independence issue cleverly by leaning to the right during the election and promising an EU referendum. Such a promise resonated with voters, even if it is economically risky.

Consequently, the Conservative victory was more the product of the broader collapse of the center rather than anything else. It is, therefore, highly likely that the party will drift rightwards on immigration issues for the foreseeable future.

Prime Minister David Cameron’s strategy, however, complicates his ability to renegotiate the UK’s EU membership. The contested issue of any future renegotiation is, naturally, immigration. But it is clear that the free movement of labor is a non-negotiable premise of the EU’s treaties.

The problem is further compounded by the UK’s slow economic recovery and the banking sector’s opposition to the EU’s banking regulations. This, however, does not raise the risk of a British exit from the EU. Analysts agree that the economic and financial consequences would be traumatic, with significant elements of the UK’s institutional and constitutional framework needing to be dismantled.

Given the stakes involved and the extent of the uncertainty as to the precise consequences of a “Brexit,” it is unlikely that voters will opt for something other than the status quo. The more recent experience of the Scottish referendum, as well as the Greek electorate’s reluctance for a Grexit, tells us something about the effectiveness of the “uncertainty factor.”

Yet immigration does matter, and in a time of economic difficulty, one cannot disregard it. One way to tackle this issue is through an examination of survey data. A recent BSA study shows that the proportion who think that the country should leave the EU has increased 13% in 1997 to 26% now. But the study concludes that this mood is but an intensification of a climate of opinion that has been evident since the mid 1990’s.

Moreover, despite the electoral success of UKIP since 2012, support for leaving the EU has not increased during the last few years, and is still not as high as it was in the early 1980’s. Furthermore, not all aspects of the EU’s role and activities have become less popular. Support for giving British workers the same employment rights as their European counterparts has actually increased, while the right of British workers to find employment in the rest of the EU is looked upon no less favorable than it was in the 1990’s.

Overall, when considering the “uncertainty factor,” the Brexit Scenario seems unlikely. Yet the situation is far from certain. Internal party pressures could leave Premier Cameron with no other choice but to raise demands and expectations so high that the EU’s rejection will pave the way for an exit. It is this analyst’s contention that, even under this scenario, the economic uncertainty will keep Britain in Europe.

If the Brexit Scenario does materialize, the chain reaction will have significant ripple effects throughout Europe. It could trigger a referendum on Scottish independence, which may, in turn, trigger referendums in Catalonia in Spain and elsewhere. The resulting political instability would have detrimental effects for the integrity of both the EU and the Eurozone.

one comment
jon livesey
jon livesey

A lot of people still live in the past, when the EU was a fast growing market for UK exports.  Thirty years ago, the EU took 60% of UK exports, but today that has fallen to 46%, while the proportion of UK exports to the World outside the EU has risen from 49% to 54%.

There is no mystery to this. Europe's fast growth period was before globalisation, when Europe and North America were the World's two big manufacturing centres.   Now Europe is stuck with serious compettition in Manufacturing, and unlike the US has not yet made a break-out into high tech.

The result is that the euro zone is stuck with zero to one percent growth, it has 11-12% chronic unemployment, it has no universities in the World top fifty, it has lost ten percent of GDP since 2007 and four million jobs.

By contrast, the UK has added a million jobs since 2007, its GDP is well above its 2008 peak, and its growth rate is 2.5-3%.

But to continue to grow, the UK simply cannot reply on the EU.   A static euro zone export market is not going to drive the UK's growth, and exports outside the euro area will.   Exports to China have risen 37% in the past two years and China is now the UK's seventh export market.

This isn't about sentiment.   It is about the UK making a living.   If you asked most Britons if they would be willing to lose Scotland rather than see the UK's economy grind to a halt, what would they say?   They would say let the EU take on the problem of Scotland and welcome to it.   Irish independence didn't harm the UK in the long run, and neither will Scotland.

What will harm the UK in the long run is being shackled to a declining Europe that can't run its own affairs efficiently.

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