A Populist Referendum and the Price of Being Single
By Anthony de Jasay
Grave consequences are likely to follow the “Brexit” referendum. Less likely, but quite possible, is that nothing much will follow.
52 per cent of British electors who wanted to leave the European Union are older than the 48 per cent who wanted to stay.
48 per cent of British electors who wanted to stay spent more time in formal education than the 52 per cent who wanted to leave.
The constitution of the European Union laid down in the Lisbon treaty of 2007 is as long as it is full of clumsy contracts. One of them, Article 50, is the provision for a member state to leave the Union. The “member” can leave the “club”, but the “club” cannot force out the member. The result is that a member that wanted to leave has a more than an agreeable bargaining position, as long as it has not yet formerly left the “club” but only signalled that it intends do so. As long as a member is just considering leaving, the “club” may not want the member to leave. It may not be popular with the rest of the “club,” but unpopularity does not “break a leg” and would not last very long anyway. To try and remedy this uneven bargaining position, at least one of the members of the “club”, France, has tried to change the rules. Ever trying to be logical even in a position where common sense logic was against her, France declared that Great Britain must not lose any time but must leave the union, even if it had not yet received even preliminary assurances as regards the conditions under which she would be prepared to leave. The condition of “must not” had no force in, nor could it have any sanction. All it really meant was that Great Britain “must not” hesitate because Paris would like her to throw away the fabulous bargaining position that she has under the Lisbon treaty.
Initially, the scenario was that the new leader of the British Conservative Party, and therefore the new Prime Minister, Theresa May, would activate Article 50 of the Lisbon treaty formally, signifying that Britain had decided to leave the EU. While the recent referendum itself has no legal force, the Prime Minister may have the constitutional right to invoke the treaty; hence, she can trigger Article 50 and begin the formal process to leave the EU. Its status, such as it is, would be decided during a two year period by the remaining 27 members of the “club,” in consultation with the British government. Prime Minister May on taking office had declared her decision to invoke Article 50 without undue delay so that it would become operative, and Great Britain would have burnt her bridges perhaps as soon as October or November of 2016. She has not set any preliminary conditions under which the “club” would make the burning of the bridges by Britain look a little less frightening. France and at least one other member of the Brussels commission maintain that no preliminary conditions can be set before Article 50 is in fact invoked.
At this point, the British position was divided. On the one hand, it holds that “the people have spoken,” and the government must fulfil its wish: as Theresa May said, “Brexit is Brexit”. On the other hand, there is some pressure for the Prime Minister to seek Parliamentary approval before invoking Article 50, and as things stand there might be no Parliamentary majority for such a motion. A cynical government that wanted to get rid of its moral obligation to invoke Article 50 might even generate the political pressure to provoke such a motion and its failure in the two houses of Parliament. Prime Minister May could hardly be suspected of even considering such a manoeuvre, but pressure from Paris and Brussels to outlaw preliminary negotiations with London before the “bridges are burnt” could make such a defence acceptable. That would leave Brexit no leg to stand on.
A somewhat surprising accord between Prime Minister Theresa May and German Chancellor Angela Merkel has now produced a new position. Under it, Britain would activate Article 50 some time in the New Year, giving her ample time to consider her position. Obviously enough there is a good deal more than can be fitted in over half a year or more. Real negotiations may also fit in, without anyone calling them preliminary or anything else. Real negotiations once Article 50 has been activated would then look rather less frightening. French President Francois Hollande, finding himself before this Anglo-German agreement had no choice but to accept it. He has nevertheless made it clear that France will have her own words to say once the real negotiations start. Presidential advisors talked about revenge.
An Anglo-French Divorce
General Charles de Gaulle in 1963 vetoed the entry of the British into the “Six Nation Club” of Rome, believing that the British presence would threaten the hegemony of the French. The veto was only lifted in 1972 after the death of de Gaulle by then President Georges Pompidou. The Anglo-French marriage did not start under good auspices.
Jacques Delors, President of the Brussels Commission between 1985 and 1994, has left his strong personality and his socialist convictions indelibly on the institutions of the European Union. He placed elite members of the French administration in key position in Brussels so that French interests and French prejudices could be transformed into European policies. When the Brussels commission gradually lost its virtual French monopoly as British civil servants became more influential and German ones a little more self-assured, the European Union opened up to more open positions. Nevertheless, “Anglo-American” economic thinking has still remained somewhat strange to the Brussels spirit.
French thinking about matters of the state and the economy, however, has much deeper roots than a mere two generations. It goes back as far as the very birth of the French nation state. Throughout her history, France was always heated by strong ambitions. It nearly always used to play a weak hand—that is, weaker than the position she was aiming to occupy. The most characteristic incidents of her history were embodied by two of her heroes, Louis XIV and Napoleon Bonaparte. Under their reigns, France reached the premiere position among the countries of Europe, only to lose it soon enough by virtue of its underlying force being too weak relative to the position she was trying to hold. For the average Frenchman, however, it was all the fault of the English. Louis XIV was frustrated by the Duke of Marlborough, and Napoleon was defeated by the Duke of Wellington at Waterloo. France was getting weaker as England was getting stronger and stronger in the 18th and 19th centuries. Its superior long-distance maritime trade and all the world’s largest colonies that she acquired gave her wealth beyond any dreams. It was perhaps not unexpected that a French public opinion poll found 44% approval for the surprising “Brexit” result—the departure of the British from European community.
The Price of Becoming Single
As long as “Brexit” remains only a contingency, investment and recruitment on both sides of the English Channel tend to be postponed, because it is often more comfortable to defer a decision to the uncertain future than to make it. This prevarication has been estimated to cost about 1.2 to 1.4 per cent of the gross national product of the 27 countries, and rather more in Great Britain. This is one reason why everybody would have been in a hurry to see Article 50 invoked, as that would have been one uncertainty removed.
The negotiations, if that is the right word, will no doubt be entrusted to the Brussels commission which, in turn, will take its instructions from Germany and France. Germany has one allegedly non-negotiable position concerning the free movement of people. The rest of the German position appears to be more open. France, on the other hand, is showing a hard boiled stance. As president Francois Hollande has shown with a “poker face,” if you are out, you cannot have what you have left inside.
For more on these topics, see “Freedom and Duties, the Uninvited Guests”, by Anthony de Jasay, October 5, 2015; and “Europe in Disarray”, by Pedro Schwartz, September 1, 2014. Library of Economics and Liberty. See also After Brexit–why not unilateral free trade?, by Alberto Mingardi on EconLog, and European Union, by Marian L. Tupy in the Concise Encyclopedia of Economics.
Britain in 2015 had net immigration of 330,000 persons and has a government policy of reducing this to less than 100,000—a totally unrealistic target which would be economically very costly in terms of students, technicians, scientists and other valuable persons. Respecting the free movement of EU citizens would, of course, make the 100,000 target totally impossible. Some compromise solutions about free movement would have to be found, but it is not clear what such a position would look like. This would in fact be the hardest of the hard nuts of the Brexit negotiations.
One great difficulty with “Brexit” which has not really been remarked on in the commentaries is the future trade of Great Britain with the rest of the world apart from the EU. Up to now British trade in various non-EU countries has been governed by treaties with the EU, which very soon may not be so. Great Britain would have to negotiate treaties in its own name, which may not be favourable and may need endless bargaining to be concluded. It has been noted ironically that 1,400 British administrators will be released from the Brussels commission and all will be given new jobs negotiating hundreds of trade treaties between Britain and all the countries of the rest of the world.
Under reasonable assumptions, it is a truism that the 28 countries of the EU as they now stand form a more efficient economic unit than a group of 27 plus 1. Thus, one would expect to have a total loss from the divorce of Great Britain and the Union with Britain taking more than its arithmetical proportion of the loss. Because its merchandise exports are not as competitive as its competitors, its current balance of payments will continue to be unfavourable. Some of this will be offset by exports of a variety of services, such as banking, securities trading, insurance, legal advice management consultancy and intellectual property—services in most of which the City of London is a world leader. Some of these services can be freely sold in the EU while others will have to conform to regulations and licences. After Brexit some of the City of London services would require “equivalence” with the EU regulations which they may have to wait many months or even years to obtain. They run the danger that new regulations in the “European” rather than the “Anglo-American” spirit will be invented to make “equivalence” more difficult to obtain and to induce City of London firms to leave London and settle in Paris or elsewhere.
For the basics of the capital and current accounts, see Balance of Payments, by Herbert Stein in the Concise Encyclopedia of Economics.
Britain’s structural foreign account deficit is offset by its capital account surplus. This surplus may not be maintained if foreign investors no longer settle in Britain as the English—speaking and common law jurisdiction gateway to the continent. In sum, both the current and the capital account may require some extra effort and sacrifice in terms of more exports and fewer imports, effects that a decline in the value of the pound sterling would have to bring about. Economists forecast an almost immediate decline of the price of sterling from $1.30 to $1.20, with some further decline the next year. This would hardly do more than just maintain British exports and would make British imports more expensive in terms of the domestic price level. With economic recession in the wake of “Brexit”, this may translate to zero growth for the British economy overall in the next few years with about 30% of the lowest income earners suffering an actual decline in their level of consumption. The poor would thus be paying a price for getting rid of a marriage which they declared no longer to want.
“With ‘Brexit’, Brits older than the average have voted to leave because they hated to be older, and those having lesser education have voted because they dislike to be unskilled.”
With “Brexit”, Brits older than the average have voted to leave because they hated to be older, and those having lesser education have voted because they dislike to be unskilled. They blamed their government for “austerity”, and the EU for not offering them brighter opportunities instead of the opportunities that it has opened for immigrants. As far as we can judge today, their vote is likely to cost them a good deal of disappointment.
We are learning to reproach democracy in its usual representative form for many of the dysfunctional results in the last two or three decades. Representative democracy for all its popular demagoguery however, looks almost innocent compared to another democratic form, the referendum. Without a very precise and very clear question to be answered, voters are likely to reply to questions in their own imagination, and the end result could well be disastrous. We can only hope that it will not be so in reply to the “Brexit” question.
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