22 June 2016
By George Friedman
This piece was created in collaboration with Geopolitical Futures. George Friedman is the Founder and Chairman of Geopolitical Futures. The views expressed are the author's own.
That the Scots voted down independence should comfort no one who wants the United Kingdom to stay intact. The Scots were sufficiently troubled to want to vote on the question of secession, and 45 percent voted to secede. On the surface, nothing has changed. Underneath, the idea of secession is likely a permanent feature of Scottish political culture, and every political step taken in Britain will include an awareness of the United Kingdom’s fragility.
The same can be said for the European Union, save that British secession is only one of the challenges to the Union. No matter which side wins, a substantial part of the population of one of Europe’s major powers thinks so badly of the European experiment that they want to leave. The mere fact that a large portion of the public in such a country is so disillusioned with the European Union that an exit is possible is a blow to the idea of a united Europe.
Back in 2006, a forecast that a major European power would hold a referendum on EU membership whose outcome is too close to call would have been amazing. But it would not have been surprising that the major power would be Britain.
The European Union has been catastrophically managed since 2008, and to a great extent its apparatchiks have refused to acknowledge how badly they have done. Eight years after the 2008 crisis, unemployment in the Mediterranean region still stands over 20 percent. In Germany, unemployment is 4.5 percent. The idea that an entity dedicated to “peace and prosperity” can hold together in the face of this massive divergence of fates is difficult to take seriously.
And nothing captures the depths to which Europe has fallen better than the fact that the Eurocratic political elite and the leadership of the European Union’s technocratic apparatus do not see the situation as untenable. They still periodically congratulate themselves for having done so well, and extraordinarily, they believe it.
Britain has never been comfortable with its membership in the European Union. When there was discussion of the creation of a European Community dedicated to increasing integration and coordination, Britain founded a competing group, the European Free Trade Association (EFTA). This group was committed to free trade, but not to the kind of integration the French and Germans were talking about. EFTA resembled the North American Free Trade Agreement, or NAFTA, in that it permitted free trade but left national sovereignty intact. The EFTA foundered over the fact that it consisted of one major power, and six other fairly minor economic powers. The sheer weight of the European Economic Community broke them. Even so, while Britain joined the others in what became the EU, it refused to adopt the euro. That would have required giving up too much sovereignty.
Britain’s national strategy stretches back for centuries. It protects itself from Europe by supporting competing parties on the Continent, pushing them to balance and block each other. The more Germany dominates the decision-making process in Europe, the more this strategy breaks down. Germany is the world’s fourth largest economy and the largest in Europe. It was inevitable that its voice would become decisive.
Germany was the key player in the 2008 crisis response strategy of imposing austerity on Southern Europe and on countries elsewhere in a weakened position. The assumption was that this would yield economic health. But in the end that wasn’t what the Germans cared most about. Their concern was their own national interest. They did not want to underwrite the economic recovery of Southern Europe. To do that was politically impossible in Germany -- its population would not accept such a decision.
Because of this policy, Germany remained prosperous while other parts of Europe went into depression, and the European Union fragmented. A faction in Britain wants to get out. They see two things. One, obviously, is that the European Union is simply not working. For them, the argument that remaining linked to Europe is central to British prosperity seems dubious. How could a link to an entity that is failing economically help the British economy? It seems more likely to drag Britain down.
But it is the second point this faction sees as decisive. In looking at EU decision-making in areas outside of economic matters, it seems to them that the less effective the European Union is, the more it intrudes into a country’s internal decision-making. The refugee crisis is the very large straw that broke the camel’s back. The European Union, heavily influenced by Germany, began to issue edicts on what nations must and must not do with the refugees coming from the Middle East and North Africa.
This is not an economic problem. One of the fundamental rights of a nation-state is the right to national self-determination. This means that the citizens have the authority to create governments that follow their wishes. Among the things that remain under their authority seemed to be the right to determine who may enter their country. The European Union is now making rulings that appeared to have been under the authority of the nation-states and their voters. From the standpoint of some Britons, if they no longer had the right to determine who to give refuge to, they had lost too much sovereignty.
Nothing in European history gives this faction the comfort that ceding some sovereignty to Europe would protect British interests. The British have a very long history with the Continent, and an instinctual wariness is well deserved on both sides. The constant pressure of the EU regulatory system on them, particularly on trivial matters, gives a sense that, in things large and small, Britain would become what it had always avoided: a nation dominated not just by the Continent, but by Germany.
Those who oppose a Brexit assert that leaving the EU would lead to economic catastrophe for Britain. That is hard to believe. Germany sells an enormous quantity of goods to Britain and is not in a position to do without those sales, given how dependent it is on exports. If Germany wants to export to Britain, it will not be able to interfere with British exports. They will go on as before, and if the EU were to throw up tariff barriers, Britain would reciprocate.
There have also been threats that banks might leave Britain and move to Frankfurt. That could happen even if Britain stayed in the European Union. And if Britain left the EU, why would the banks then leave? European borrowers will go where the money is. One of the reasons the money is in London is because American investors are far more comfortable there than in Frankfurt. So are Chinese and Middle Eastern investors. Patterns of international investment depend on the taste of investors. Empirically, they prefer London. Going to the expense and discomfort of relocating to the Continent would be considered if the Europeans placed blocks on capital from Britain. But the Europeans can’t afford to to do that. So they won’t.
The economic relations between Europe and Britain are rational and sustainable and exist whether or not Britain is a member of the European Union. It is not so much a Brexit that is the danger, as an irrational reaction from Europe. What would, however, be adjusted is the right of British self-determination and the limits of EU involvement in the internal affairs of Britain.
It is clear why this is a vital issue for the Europeans. If Britain leaves without consequences, then so can others, particularly in countries where anti-EU sentiment is high, such as Italy. And if others leave, what will be left of the EU? And if little is left, what happens to free trade? For a country like Germany, which exports almost 50 percent of its gross domestic product, that is an existential question. And then follows the most important question of all: Without the EU, what will happen to the peace that has been the European reality -- excluding Yugoslavia, Armenia and Azerbaijan, and Ukraine -- since 1945?
That in the end is the fundamental question. But it was always assumed that peace would follow prosperity and prosperity would follow the EU. What happens to peace without prosperity? If prosperity disappears, and Europe returns to its brutal past, then it becomes doubly important to protect national sovereignty to give room for maneuver.
I have no idea what will be the outcome of the Thursday referendum. The polls are close, but they have been off in Britain of late. It is important to understand the viewpoint of the Brexit supporters, because they will be nearly half of Britain’s voters, and they will likely not go away even if they lose. They are posing the fundamental challenge to the EU. That question, ultimately, is what is the European public’s view on how the EU is doing. That judgment appears to be harsh, at least for a very large minority. Or perhaps, over time, for the majority.
http://www.realclearworld.com/articles/2016/06/22/the_logic_of_brexit.html
