Could Brexit be good for Europe?

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Published: July 5, 2016 6:21:56 AM

Absent the UK’s continued negativity, it can work faster and more effectively towards a political union

The EU will have to ride out the current volatility, which will certainly be exacerbated by “leave” noises in some member nations (Reuters)The EU will have to ride out the current volatility, which will certainly be exacerbated by “leave” noises in some member nations (Reuters)

Back in the 1970s, all the English people I knew were aggressively socialist—well, perhaps, aggressive is the wrong word; they were English after all. Their politics were deeply felt and you certainly knew where they stood on any social issue. I was living in New York at the time and most of my friends there were artists who were certainly anti-establishment, but their politics were much more wishy-washy. Europe, of course, was much more sophisticated—rather than socialist, they were all social democrats and there was no need to be aggressive since everyone acknowledged, and, indeed, were proud, that the basic foundation of their government was to ensure that nobody slipped through their tightly-knit safety net.

By the end of the 1970s, the UK economy was in pretty bad shape, caught as it was by the inflationary impact of the first oil-price shock and its own by-that-time wasteful policies, needed a kick in the pants. It was delivered, of course, by Maggie Thatcher, who, looking westward, saw the Promised Land in America, where the political ethos of self-interest echoed that of the historic British Empire. The Iron Lady changed England more than anyone could have imagined to where, in a little over a decade, the default political position became American, where the choice was between conservative (meaning right of centre, a la Clinton) and radically conservative (a la Bush). Of course, not all of the UK rolled over and played dead—Scotland and (Northern) Ireland remained resistant, responding partly to the knee-jerk antipathy to anything English but also, to be sure, retaining something of an ethos of a greater social good.

Through all this, Europe, despite some serious radical left-wing action (the Red Brigades in Italy, the Red Army and the Baader-Meinhof gang in Germany in the 1970’s), remained on an even political keel, with no fundamental threat to the belief that government is responsible to ensure a minimum reasonable living for all. Indeed, this European ethos is what holds the Euro together, fighting off, for instance, the threat of Grexit a couple of years ago, and what will solve the immigration problem in a way that does not compromise either the European way of life or their ethics.

While it is difficult to see the resolution given the dynamic and gruesome realities, a German friend of mine told me, “We’ll pay; we’ll pay what it takes.”

My short point is that, in its sensibility, the UK is much closer to and much more like the US than it is to Europe. Not only do they share a language, they also share a political cycle, the excesses of which resulted in the global financial crisis of 2008. Indeed, as Rocky Mohan (perhaps soon to be RBI Governor) once told me, it should be called the Trans-Atlantic financial crisis, because that’s what it actually was. And as the political cycle turns towards a more equitable sharing in the US, the UK will certainly follow.

In the immediate term, the cloud of confusion following Brexit makes it difficult to see anything. The one near-certainty is that Scotland and Northern Ireland will have more clout. Being part of the UK, it appears that they will be unable to stay in the EU despite the strong “remain” vote by their electorate. This will compel their politicians to either opt out of the UK or, more likely, hold the dagger of break-up to demand an increased social focus in the UK government. The City of London, which will, in any case, shrink as several banks and companies will limit their risk by creating assets in Europe, will have rapidly declining influence, which will be of a piece with the shift towards a greater egalitarianism as the UK will continue to follow the US pendulum, more so as it is cut adrift from Europe.

For Europe, Brexit can well be a very good thing. Absent the continuing negativity (from the UK, supported by Big Daddy) that it has had to manage, the European Union will be able to work more effectively together and drive faster towards the long-term goal of political union. In the immediate term, of course, the EU will have to ride out the current volatility, which will certainly be exacerbated by “leave” noises in different languages and possible referenda in the Netherlands, and, perhaps, France. But these will be roundly defeated, since, as I have argued and is apparent to anyone who travels through Europe, Europeanism is a reality. In parallel, ISIS (and its scattered relatives) will likely keep the pressure up, and I fear an increasing frequency of terrorist attacks; however, these will only strengthen European unity and may, indeed, accelerate the move towards political union.

The author is CEO, Mecklai Financial

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