Last Thursday, the UK held a referendum on its membership of the European Union. The options were quite simple:
What wasn’t so simple were the ramifications of a possible Brexit win. Even I, who hoped in part for a Brexit, expected the status quo to prevail. My desire to see the leave campaign win was due to the need to shake up the political establishment in developed markets, whose politicians and central bankers continue to prop up global asset prices with ZIRP and NIRP, avoiding necessary reforms to reduce excess risk taking and force them to improve accountability from a political and economic standpoint.
No one can deny that the bailouts from the last crisis failed to help the middle and lower income classes. Great wealth has been concentrated in the top 1% of developed economies and it has become difficult for small businesses to prosper, due to increased regulations, higher minimum wages and reduced access to financing.
The Brexit referendum resulted in a close win for the Leave campaign, 52 to 48%. The fallout has spawned a petition for a second referendum, which was originated last week by a Leave campaigner who thought that Thursday’s results would point to Remain. It is important to remember that the referendum is non-binding. If the vote had been more one-sided, it would be sensible to expect the UK to proceed quickly to the invocation of Article 50. The results were close enough to make a statement to the EU and may well end up being used to bring about change in EU policies regarding immigration and leadership, which after a long drawn out and contentious debate with EU leadership may allow the UK to remain in the EU.
If you still do not know the contents of Article 50 of the Lisbon Treaty of 2007 (which went into effect in 2009), here they are:
1. Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.
2. A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.
3. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.
4. For the purposes of paragraphs 2 and 3, the member of the European Council or of the Council representing the withdrawing Member State shall not participate in the discussions of the European Council or Council or in decisions concerning it.
A qualified majority shall be defined in accordance with Article 238(3)(b) of the Treaty on the Functioning of the European Union.
5. If a State which has withdrawn from the Union asks to rejoin, its request shall be subject to the procedure referred to in Article 49.
The UK must complete exit talks in two years, if unable to do so and no extension is granted, it must revert to world trade terms, requiring tariffs to be imposed as non-EU member.
As you can expect, the results led to many reactionary and less thoughtful responses. the UK prime minister, David Cameron immediately announced his resignation. Not to disappoint in their heavy-handedness, EU leaders, namely Donald Tusk, Jean-Claude Juncker, Martin Schulz and Mark Rutte (presidents of the European council), immediately voided an agreement regarding the UK’s special status within the EU (Feb. 2016), yet the UK may remain a member until exit negotiations are concluded and expect the UK to trigger Article 50 as soon as possible.
Others, such as the German chancellor, Angel Merkel, seem to take a more moderate tone, expressing “great regret” and opines that the EU should not draw “quick and simple conclusions”. Even, Francois Hollande of France, stated “To move forward, Europe cannot act as before”. The EU leadership fears that other countries, such as Greece, Spain, Cyprus, Sweden, Czech Republic and even Germany may fall prey to Euroscepticism among its citizens.
Brexit is far from a being cooked pie. British parliament must first repeal the 1972 European Communities Act and a vote to not repeal is effectively a vote to remain in the EU and an outright rejection of the referendum. My expectation is that the UK will not leave the EU, but will use the referendum as a tool to improve EU leadership and policies. Then again, the EU called Greece’s bluff and could again end up winning that game of chicken with the UK.
What does the UK gain by leaving the EU? Why did the Leave campaign succeed in the referendum? Surely, many of my readers and colleagues are aware of the inequities of EU policies. It is a union that has some representation, but the vast majority of decisions are made without consulting the member states. The result is many of its constituencies are impacted negatively without proper representation.
In the UK, for example, many of the areas that voted against the EU are those that depend on traditional fishing grounds, the steel industry, aluminum and energy, all due to EU quotas. The data is conclusive. What happened to reallocation of resources and opportunities for those who lost their businesses to EU policies? It didn’t happen and, honestly, the UK government is partly to blame for this.
In summary, the referendum was not a complete rejection of the EU, but a cry for a more equitable distribution of policies and better control of immigration. The UK is a melting pot, but recent developments in the Middle East have made immigration a very real issue for the entire euro zone. Public policies regarding welfare and opportunities for migrants in a low growth economy make accommodation and assimilation of thousands of foreigners very difficult, which also adds fuel to xenophobic attitudes. It is a very heavy burden on Eurozon finances, when certain countries, such as Greece, have not carried their weight. So, naturally, there is some hesitance to being a major part of a union that has members constantly shirking their responsibilities.
One of the best philosophical commentaries regarding Brexit was penned yesterday in an unusual source, the Rolling Stone magazine. The author, Matt Taibbi, highlights how elites have historically condemned too much democracy, because it means that the less informed masses are capable of disturbing critical decision making of those “informed parties”. Therein lies the answer for the revolt of the populace. Democracy suffers when “Very Smart People” get too smart for the common good.
Needless to say, Wikileaks, Panama Papers, and Edward Snowden have made public many of the actions and policies undertaken by our leaders that seem to overstep the boundaries of ethics and privacy. The Arab Spring was the beginning of what is a global phenomenon. Quoting Warren Buffett, “Only when the tide goes out do you discover who’s been swimming naked.” This is true in investments, but it has particular relevance in global policies. When opportunities for growth and survival for middle and lower classes diminish, our leaders are made responsible for not having the foresight to undertake actions that take into account the masses, not just the 1%.