Brexit For Idiots

No pun intended, Great Britain…well, maybe a little bit intended.

Great Britain, in a non-binding referendum held on June 23, 2016, voted 51.9% in favor of leaving the European Union (EU). While the vote was non-binding, the government had pledged to abide by the results. And so, here we are.

So, exactly what is the EU, again?

The European Union is a grand and largely successful experiment demonstrating that nations that trade and prosper together do not go to war and slaughter one another’s citizens. Finding a way to live peacefully together was the cause célèbre of the entire EU experiment. This was no small accomplishment given the centuries of slaughter that had characterized the European continent for so long.

Today, the EU comprises roughly 513 million people living in relative harmony in, essentially, a single market in which all nations are obligated to abide by certain laws and regulations on matters in which all members have agreed to act as one. It is the world’s largest trading block. The essence of the EU model is that every member country is committed to the free movement of people, goods, services and capital within its collective borders. There are no tariffs between EU members. The EU is now comprised of twenty-eight nations, nineteen of which have adopted the Euro as their national currency. The Euro has done remarkably well as a newly created currency. As we go to press, $1.00 will buy .89 Euros. Most economists agree that the Euro is the only currency that could arguably replace the US dollar as the world’s reserve currency. So far, so good.

But there are problems. Specifically, the free movement of citizens who reside within the EU has resulted in serious immigration problems throughout the EU. Citizens of one EU country can pick up and move to another EU country, and millions have. Once an immigrant has established citizenship in one EU country he or she is free to move throughout the entire block of nations. Also, the EU Parliament which considers and passes laws to which EU countries are subject, has become a political lightning rod, igniting nationalist and nativist passions within some member countries. The Brits, in particular, do not appreciate being subjected to regulations hammered out in Brussels, even though Great Britain is represented in the European Parliament.

All EU countries can attest to various pros and cons of EU membership, but the pros have far outweighed the cons. The European Union is an immense market, and the ease of commerce within the EU has been a boon to those countries that manufacture and sell products and services. The less industrialized countries, specifically, those in southern Europe such as Greece and Spain have had a rougher go of it. No country that has adopted the Euro can print its own currency any longer. On the other hand, when Greece was on the verge of bankruptcy and couldn’t pay its public debt, the EU central bank stepped in and guaranteed Greece’s debt. The terms were tough, but Greece didn’t default.

With little to gain, and a lot to lose, Great Britain, on March 29, 2017, formally advised the EU of its decision to withdraw from the European Union. That started a statutory, two-year countdown to severance. That clock ran out one week ago. 

British Prime Minister Theresa May, having utterly failed to gain her Parliament’s approval of the withdrawal plan she had negotiated with the EU, asked the EU for an extension until June 30^th. The EU, instead, agreed to extend the deadline to May 22^nd provided the British Parliament approved, by March 29^th, the withdrawal plan that had been negotiated. Parliament immediately and overwhelmingly rejected the plan once again. So now, the deadline for withdrawal, agreement or not, is next week on April 12^th.  As of now, it appears that Great Britain’s membership in the EU could very well lapse with no agreement in place.  Prime Minister May has asked for yet another brief extension of the looming deadline, to which the EU is not apt to agree. The EU negotiators do not believe anything constructive can be accomplished with a parade of short extensions. Instead, there is speculation that the EU may propose a one-year delay with a firm drop-dead severance thereafter, if Great Britain still has not gotten its act together.  

Great Britain, which is not a Euro-currency country, has maintained its own currency (the pound sterling), and while but a fading memory of what she once was, Great Britain still punches far above her weight. Great Britain is second only to Germany as a European economic power, still maintains a strong, nuclear-armed military that can project its power beyond its shores, has a permanent seat on the UN Security Council, and has closer ties to the United States than any other nation in Europe.

What is idiotic about Brexit, is that as of this writing there are NO agreements in place regarding Britain’s economic relationship with any of the EU block nations once Brexit occurs, which could be next week. Absolutely no trade agreements, no border agreements, no customs agreements, no immigration agreements…no nothing. Furthermore, it seems clear that Britain will owe the EU tens of billions of dollars in assessments for its share of commitments she made (and from which she has benefited) while she was a member of the EU.

Then, there is the matter of tariffs that, unquestionably, will be charged on all British manufactured goods exported to the EU following Brexit. This is a huge issue if there is no Brexit deal. As a member of the EU, British goods are exported with no tariffs to EU countries. If there is no deal, tariffs on British goods are a certainty. This would be particulaly devastating to the British automobile industry. Many auto manufacturers operate plants in Britain from which they export to the continent. Six months ago, Moody’s estimated that in the event of a no-deal Brexit (and remember, as of now there is no deal) Britain would fall into recession, the pound would collapse and shop prices would skyrocket.

Another very serious issue should there by a no-deal Brexit is that of border control. There are, essentially, no barriers between EU countries. Remember, goods, services, people and capital flow seamlessly within the EU. Well, Great Britain does have a border with an EU country even though it is an island nation. The Irish Republic is a member of the EU, while Northern Ireland is part of Great Britain. Given the long and agonizingly deadly conflict between Ireland and Great Britain, the last thing either country wants to see is the imposition of barriers, inspections and long lines as trucks and automobiles que up to clear customs should there be no deal.

So, all in all, as of now Brexit is a mess. All of the talk of exiting the EU by populist politicians in other countries where nationalism has been on the march has grown silent. Everyone is watching Great Britain, and no one wants to emulate this spectacle. What had been a loud populist issue on the continent is, for the moment, nowhere to be heard.

Great Britain is teaching the rest of the nations that have joined the European Union that there is probably no turning back.