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Saturday, June 18, 2016

Brexit Analysis (Why I Avoided It)

The United Kingdom is holding a referendum with regards to European Union membership on June 23rd (link to BBC explainer).  This  brief article explains in point form why I have largely avoided the topic. (UPDATE: Based on the results, I probably should have kept avoiding the topic...) I will return to the consequences of the vote once the dust settles.

  • Bias. Despite my Canadian accent and outlandish family name, I lived in the U.K. and was somewhat assimilated. My bias is to be pro-Brexit. Furthermore, I have a commercial interest in financial and economic crises (more page views!).
  • "Leave" unlikely to win. I have seen a lot of referenda close up, courtesy of living in La Belle Province. My experience is that there is always a big shift towards the status quo relative to poll results when you look at the final results. This is either the result of cold hard reflection when ballots are being cast, or the tendency of older voters with more "conservative" tendencies having a higher voter turnout. (UPDATE: The exit polls blew my theory about older voters out of the water; it was the older voter bloc in England that shifted the poll towards "Leave." I misjudged what these voters considered the "status quo.")
  • "Remain" analysis obvious. If anything moves in response to opinion polls, expect it to revert. (For Quebec referenda, the winning trade has always been to buy Quebec bonds.)
  • Even if "Leave" wins, nothing may happen. Referenda are betrayal of Britain's parliamentary tradition. (See what I wrote about assimilation?) They are not legally binding. Anyone who is pro-EU by definition does not care about the interests of individual nation-states, and so is going to have no qualms ignoring the result of a referendum. (See what I wrote about bias?)
  • What happens - who knows? Even if the U.K. tries to negotiate an exit, what will happen will depend upon the result of negotiations. Right now, tone deaf continental politicians are threatening the U.K., but the disastrous state of the euro area economy means that they have a weak negotiating position. An intelligent U.K. government could presumably cut a deal that limits the short-term disruption.
    UPDATE: With Cameron stepping down, the U.K. government will have a stronger bargaining position. The euro is currently being held together by spit and baling wire, and so the EU leadership should try to avoid too deep a confrontation, as the blowback onto their own economies could be disastrous. Whether they are intelligent enough to see that, or whether they will try to treat the U.K. like Greece, remains to be seen. Based upon centuries of European history, I am not entirely confident that the EU governing elites will follow a sensible course of action.
  • Short-term: so what? The IMF is apparently predicting a recession if Britain leaves the EU (Guardian article). The United States had a severe recession in 1948-1949, courtesy of post-war demobilisation. (This recession is infamous, as crackpot economists have used it as evidence that high high government debt levels cause deep recessions.) The correct attitude is: so what? Was the United States supposed to stay on a total war footing forever, so as to avoid a recession? Anything that disrupts the existing patterns of commerce is likely to cause a recession, but we cannot follow the same ruts forever. Nations have a welfare state to cushion the blow the recessions.
  • Long-term: depends upon your politics.  Pro-EU partisans will be happy to explain how being part of the EU has helped make the United Kingdom internationally competitive. Anti-EU analysts would question the wisdom of tying Britain to an increasingly autocratic, rigid EU that is strangling itself with austerity policies. The decision is a political decision, which is exactly what the referendum voters are being consulted upon.

(c) Brian Romanchuk 2016

1 comment:

  1. "Right now, tone deaf continental politicians are threatening the U.K., but the disastrous state of the euro area economy means that they have a weak negotiating position. An intelligent U.K. government could presumably cut a deal that limits the short-term disruption."

    That's perfectly put, but you're making the natural assumption that the Brussels autocrats and the UK's EUphiles are willing to be reasonable. The democratic will of the people is at best an irrelevance. As has been obvious for a very long time, this is a political project, and the European political elites are fanatical devotees. Greece is a case in point, although the same can be said of all who have been subject to the Frankfurt-Brussels autocrats. The EU could have easily cut a deal with Greece and the rest. They chose not to do so, even though it would have ended the crisis in short order. It was a political decision: disciplining the EZ is the objective.

    If we choose to leave the EU, what will happen to the UK? I suspect the Eurocrats will choose a similar course by trying to make life as difficult as possible. This may prove difficult given that nothing changes substantially for up to three years. But that is to forget the UK's political elites (the vast majority of Parliament, the Civil Service, etc) who are mad devotees, even worshippers, of the EU. Even after all that has happened, many wish to join the Euro! There is no possibility that these headbangers will meekly accept the results of a referendum: forty years of UK-EU political integration by elites isn't going to be overturned what they consider to be know-nothing plebs ticking a box for all of one second. After all, they positively loathe referenda, and only accepted one being called because they assumed with total certainty that they would win by a large margin, and in dong so make the issue go away for at least a generation, by which time a superstate may have been erected.

    The question is, what will the EUphiles do if we choose to leave the EU? Obviously they're not going to do nothing. That's unthinkable. They're readying for a nasty fight, and will try to make life as unpleasant as possible in order for us to change our minds. That seems to me an entirely reasonable assessment of their attitudes. George Osborne gave the game away when he said that he'd have to call an emergency budget, which would see tax increases and spending cuts. This wasn't just more of the incessant scaremongering from the remain camp but a sign of things to come.

    I'll be voting leave, but in the full knowledge that this is but the first step in a very long road to extricating ourselves from this antidemocratic corporate racket. If we are successful on Thursday, I also know that all our major political parties will do their best to make life as unpleasant as they can, at least until we acquiesce into rejoining.


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