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For Britain, exiting the EU might turn out to be a bad decision only if other countries from Europe emulated its example
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This article will be published on the 102nd anniversary of the assassination of Archduke Franz Ferdinand (heir to the Austro-Hungarian throne) in Sarajevo on 28 June 2016. That triggered the beginning of World War I. It is quite possible with his call for referendum on 22 January 2013 on whether Britain should remain part of the European Union (EU), David Cameron had set in motion events that were waiting to be unleashed. Just as the assassination crystallized the underlying issues that were fermenting, the referendum outcome had drawn attention, yet again, to the social and economic divisions that the decades leading up to 2007 had generated. The crisis of 2008 was a warning that had been ignored. Worse, its handling had widened the schisms. The Brexit vote of 24 June 2016 was another warning as was Greece in 2015.
Unsurprisingly, just as it has been the norm since 2008, early signs are that the message that British voters have delivered is not being heeded.
The result of the referendum has confounded both sides. Many Britons are dismayed by the possibility of their country being reduced to England with Scotland and Northern Ireland pressing for independence. If it happened, that would be a karmic pay-off for the British Empire carving up nations. There is a petition going around in Britain calling for a second referendum. In other words, there will be referendums until the desired result is obtained. Then, there is a proposal not to invoke Article 50 of the Lisbon treaty that would formalize Britain’s divorce from the European Union. That is, the outcome of the referendum would not matter. These are illiberal proposals. The sensible and the morally correct thing to do would be to accept the verdict and look ahead.
There are claims that Boris Johnson, one of the leaders of the ‘leave’ camp, did not have any proposal to deal with the verdict that they have secured because they thought that they would not win. May be it is true. If so, it is clear that both sides had massively underestimated the fact that some 17 million Britons think differently. It reveals that they are not only out of touch with their voters but also are prepared to reject them when their preferences do not match with theirs. Liberal (pun intended) contempt for the interests and concerns of the ordinary people is hard at work nurturing divisive and xenophobic tendencies and personalities around the world.
In reality, just as Mark Twain remarked that news of his death was vastly exaggerated, the demise of Britain as we know is vastly exaggerated. They are merely scare tactics deployed by campaigners. Indeed, the exaggerated swoon in the sterling might have been unnerving and wholly disproportionate. But, the pound is on its way to becoming a super competitive currency, if it has not become one already. It may even spark some manufacturing revival in the country. The fear that British current account deficit would not be funded is overblown. A cheap pound sterling provides global investors with an option in a world of few worthwhile investment options. In any case, those who argue that the British economy would be plunged into a terrible recession cannot simultaneously argue the case for a persistent current account deficit and an inflation scare in the UK. They have not gotten their economics right just as they did not get their politics right.
The challenges for EU countries are greater. The union looks increasingly stressed and irrelevant. Recent mayoral elections in Italy delivered solid victories for the Five Star Movement. As I write this, Spain is voting in a general election barely six months after the last one. The straitjacket of EU is leaving many breathless. For Britain, exiting EU might turn out to be a bad decision only if other countries from Europe emulated its example. Then, competitive currency devaluations from all the leavers will neutralize Britain’s cheap pound advantage. Therefore, from Britain’s standpoint, it would be good if the EU succeeded in keeping the rest of the flock together. But, the odds on that outcome have considerably lengthened in recent years. On its part, Britain has to work on stopping Scexit and Irexit.
In the last chapter of his book, The End of Alchemy, Mervyn King wrote that a long period of zero interest rates was unprecedented and that if real rates remained close to zero, the imbalance between savings and spending would continue, resulting in turbulence in the world economy and another crisis. However, central bankers in the West appear set to grab the opportunity afforded by Brexit to persist with failed monetary policies. King feels that only a new world order can stop the next crisis which, he reckons, can be economic or political or even a military conflict. But, King concedes ominously that changes to the way the world is governed take place after periods of war than in times of peace.
In times to come, the British referendum outcome will be seen as an inevitable milestone in the ineluctable journey of history that shapes human beings rather than the other way around.
V. Anantha Nageswaran is an independent financial markets consultant based in Singapore.
Comments are welcome at baretalk@livemint.com. To read V. Anantha Nageswaran’s previous columns, go to livemint.com/baretalk
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