The Unintended Consequences of a Brexit

On June 23, British voters will decide if Britain will leave the EU—but either option carries serious economic and social consequences.

Jeff Faux

(Alamy)

On June 23, British vot­ers will go to the polls to accept or reject a pro­pos­al that Britain leave the Euro­pean Union. The lat­est polls show the vote in favor the British exit, or Brex­it,” nar­row­ly ahead.

After an initial shock, the prolonged economic uncertainty following a win for Brexit will hit the UK economy much harder than its promoters expect.

The case for get­ting out has large­ly been dri­ven from the polit­i­cal Right, on the grounds 1) that drop­ping out of the EU would allow Britain to close off immi­gra­tion and 2) that it would free British busi­ness­es from rules made in Brus­sels that pro­tect labor and the envi­ron­ment. A lib­er­at­ed inde­pen­dent Britain, goes the argu­ment, would have the free­dom to pur­sue poli­cies that would bring it more prosperity.

But after an ini­tial shock, the pro­longed eco­nom­ic uncer­tain­ty fol­low­ing a win for Brex­it will hit the UK econ­o­my much hard­er than its pro­mot­ers expect. It will take at least two years to nego­ti­ate the terms of the pull out with the remain­ing 27 coun­tries, who are unlike­ly to give Britain any where near its cur­rent priv­i­leged access to their cus­tomers or to their finan­cial mar­kets. It will then take even longer for the UK to find and nego­ti­ate trade deals for oth­er export mar­kets at a time of spread­ing defla­tion and ris­ing pro­tec­tion­ism through­out the globe. Pile on the polit­i­cal com­pli­ca­tions of dis­en­tan­gling British busi­ness reg­u­la­tions from rules made in Brus­sels, and the adjust­ment process could take as much as a decade.

By that time, Britons may well end up with less sov­er­eign­ty over their lives than they have today. Mem­ber­ship in the EU comes with con­straints, although the British already have an arrange­ment that gives them spe­cial flex­i­bil­i­ty. But it also pro­vides the aver­age Brit some pro­tec­tion against the bru­tal­i­ties of unreg­u­lat­ed glob­al mar­kets. Divorced from the bar­gain­ing pow­er of the EU, Britain’s social safe­ty nets could be fur­ther sac­ri­ficed to future gov­ern­ments’ des­per­ate search for new trade and invest­ment deals to com­pen­sate for the loss of mar­kets on the continent.

Per­haps the most seri­ous dan­ger is the poten­tial dis­mem­ber­ment of the UK itself. Scot­land is very pro-EU, and the Scot­tish First Min­is­ter has already promised that in the event of a Brex­it win there will be a new ref­er­en­dum on inde­pen­dence to allow Scot­land to join Europe as an inde­pen­dent nation.

Iron­i­cal­ly, a rejec­tion of the Brex­it might also have some unin­tend­ed con­se­quences for the UK con­ser­v­a­tives who put the ref­er­en­dum in play. Depend­ing on its mar­gin, a re-affir­ma­tion that Britain’s future is tied to Europe might ulti­mate­ly move the ide­ol­o­gy of the British elec­torate clos­er to the social democ­ra­cy of its con­ti­nen­tal neigh­bors. Thus, for exam­ple, rein­forc­ing the efforts by Jere­my Cor­byn to return the Labour Par­ty to its social­ist roots.

Across the Chan­nel, a divorce from Britain might ulti­mate­ly ben­e­fit the EU. In the short run, dis­rup­tion and uncer­tain­ty will take its toll on both sides. But with­out the drag of British neolib­er­al ide­ol­o­gy, the core con­ti­nen­tal gov­ern­ments might be freer to tack­le the eco­nom­ic con­tra­dic­tions that have stunt­ed their col­lec­tive growth and led to the revival of the nation­al­ism that the EU was designed to over­come. The Euro­pean pol­i­cy paral­y­sis that fol­lowed the 2008 – 9 reces­sion showed the fol­ly of inte­grat­ing mar­kets with­out cre­at­ing suf­fi­cient col­lec­tive polit­i­cal author­i­ty for macro­eco­nom­ic sta­bil­i­ty. The result has been a default pol­i­cy of aus­ter­i­ty. A Brex­it might just be a cat­a­lyst for a new grand bar­gain — per­haps involv­ing only the Euro­zone — that would mar­ry author­i­ty for com­mon fis­cal and mon­e­tary pol­i­cy with a com­mit­ment to ful­ly shared prosperity.

Jeff Faux is the founder of the Eco­nom­ic Pol­i­cy Insti­tute, where he is cur­rent­ly a Dis­tin­guished Fel­low. His lat­est book, excerpt­ed in this issue, is The Ser­vant Econ­o­my: Where America’s Elite is Send­ing the Mid­dle Class.
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