BREXIT and European Reform


2016-06-29 By Harald Malmgren and Robbin Laird

There is little question that the result of the recent British referendum shocked most members of Parliament as well as politicians across the entire European Union. The unexpected referendum majority vote to leave the EU also shocked global financial markets.

Within hours after the vote count had been completed it became evident that the Prime Minister’s office, the Parliamentary promotors of “remain” or “leave”, and most businesses and bankers had made no plans for exit from the EU.

Throughout the month leading up to the historic June 23 vote Boris Johnson and other leaders of the “leave” movement had recited a litany of reasons why remaining was bad for the British people and promises of gains that would accompany exit. On the morning of the 24th neither Johnson or is fellow Brexiters were able to explain what would be the next steps, and when.

Financial markets naturally recoiled in disbelief that no plans had been made. Endless questions of when and how exit would take place spread through the media and the internet. A fear generated tsunami of selling the pound sterling and stocks of British banks was set in motion.

This spread to selloffs of entire stock and bond markets, not only in London, but throughout the world. Seemingly unrelated, a collapse of world oil prices started, spreading damage to Russia and Middle East oil producers, even threatening to reach the fledgling oil producers in North America.

It also became evident that the EU Commission, its supervisory superstructure, and the European Parliament were all unprepared.

When the dust settled over the following weekend, only the German Government was found to have a contingency plan in hand as well as a diplomatically deft encouragement to the British government to move cautiously and avoid irreversible actions.

A sharp split between the Brussels bureaucracy and leaders of the major national economies on the Continent appeared all at once.

British Life and Times in Europe. Credit: Economist
British Life and Times in Europe. Credit: Economist

Chancellor Merkel said let’s not be hasty. Let’s talk this through. Foreign Ministers of five governments issued a declaration on the 25th calling for recognition that different nations may have “different ambitions,” and that the EU as a whole must take account of that.

Brussels and the European Parliament demanded instant UK initiation of negotiations so that plans could be made for maximum punishment, ostensibly to discourage other growing EU exit movements appearing in Netherlands, France, Italy, Hungary and elsewhere.

The leader of the European Parliament, Martin Schultz, derided the British referendum as an undesirable legitimization of the uninformed masses in defiance of the work of decades wrought by Europe’s elites.

Much of the immediate outpouring of analyses of Brexit assumed an outcome to be put rapidly in place, without understanding that a lengthy political process would have to be set in motion to interpret what the legal standing of the referendum was for all of the United Kingdom, including restive Scotland and Northern Ireland.

Did the referendum legally require the British government to initiate formal action under Article 50 of the European Treaties, or could that formality be addressed at some future date?

When this question arose on the morning of the 24th, Prime Minister Cameron announced that he would step down in October, and it was best left to the next Prime Minister to make that decision.

This interim period would also allow other EU member governments to consider whether, in what manner, and when formal discussions should be initiated. The referendum by itself did not have legal standing under the EU Treaties. Rather, it was just an expression of public opinion until the British Parliament declared it to be a formal step.

While the Brussels Eurocrats want immediate clarification, it is likely that cooler heads among Europe’s other leaders will want to explore what this means for the political future of the EU. The trade and financial implications would be a secondary consideration for all EU members, not the primary driver.

And much of this has little to do with trade or macro-economics; much of has to do with the relaunch in effect of an earlier period in which the Council of Europe and the political leaders mattered more than the European Commission in negotiating and establishing policy.

The process launched by the Brexit vote will see the British and its neighboring European member states sorting out a wide range of issues of politics, law and sovereignty long before picking at the details of what is sold and bought among neighbors.

As long as Article 50 in the European Union treaty is not invoked rapidly, the focus will be upon what actually the vote means in concrete terms.

Article 50 of the Lisbon Treaty reads in part as follows:

Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.

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.

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.

Put in simple terms, the Treaty allows for a European style multi-layer negotiation to sort out a withdrawal process. This opens the aperture on European negotiations, precisely when a number of other member states are also under political pressure to seek changes in the relationship of national and local governments to the European hierarchy and its undemocratic European Court of Justice.

Indeed, one outcome of the Brexit vote could clearly be to relaunch a political process which has been frozen for some time, and in which the Commission has operated as a technocratic, aggressive regulatory force filling the political void left by national leaders preoccupied with other pressing issues including refugee challenges and financial market fragility.

In other words, rather than Brexit being seen as political closure, it can be seen as an opportunity for a political opening to a much needed, long overdue reform process. Much of the discussion of Brexit has ignored the reality of political sclerosis in Europe; the status quo is not stable; the Brexit vote can allow the British government working with other key states to re-launch Europe.

Recently, Secretary Kerry offered his services to negotiate between the UK and Europe. Not only is this a premature idea, but the US role in all of this is ambiguous at best. The last clear cut moment of positive US contribution to European construction was President Bush and his team working to shape a German reunification outcome. This was a crucial moment in post-war history, and the US assistance greatly helped a smooth political transformation.

US Administrations since that time have had at best a mixed impact on the evolving reality of Europe. The Clinton Administration pushed for NATO and EU expansion, introducing states whose entrance have undercut the processes of democratic support which had been a key element underlying European Union. George W. Bush led a war into Iraq, which unleashed an implosion in the Middle East and an outpouring of migrants into Europe. It was this threat of uncontrolled migration which was for many ordinary UK citizens a critical factor in their negative stance toward the EU’s rapidly evolving immigration policies..

The current US Administration has seen the President’s ill-received direct intervention into the British electoral process, turning out to be counterproductive, reducing US historical influence with its long-standing UK special relationship. The  Vice President added to the muddle by declaring the Brexit vote to be a racist vote, an interesting interpretation that reflects Inside the Beltway, not European realities.

The Brexit vote has direct consequences for the internal politics of several key European states.

For Germany, it puts further pressure on Chancellor Merkel but also provides her with an opening to lead a European political reform effort.

For France, facing a Presidential election in 2017, it provides an opening for a conservative candidate to embrace Britain and to isolate the French right wing by leading an effort for democratic reform in all of Europe.

The often publicized, so-called democratic deficit is really about an unelected EU Commission bureaucracy not only managing day to day Europe, but formulating rules which are routinely ratified by a supportive European Court of Justice, thereby becoming law without participation of elected political representatives of the people of each member state.

Politicians are gradually being phased out of leadership of the complex processes of governance of nations with centuries of cultural, legal, and language differences. What has happened is that the concept of sovereignty of elected governments has been overridden by elites not answerable to the people.  Brexit has put in place a reality check on this dynamic.

German Chancellor Angela Merkel arrives for a statement in Berlin, Germany, June 24, 2016, after Britain voted to leave the European Union in the EU BREXIT referendum. REUTERS/Hannibal Hanschke
German Chancellor Angela Merkel arrives for a statement in Berlin, Germany, June 24, 2016, after Britain voted to leave the European Union in the EU BREXIT referendum. REUTERS/Hannibal Hanschke

A thoughtful political reconsideration of Europe’s future could also have positive responses for North Atlantic defense. Clearly, a simple extension of European defense from the core of the European Union is off the table. And given the centrality of the UK to any European pole in the Alliance, its fate is central to determine what France and its European defense aspirations can amount to. And has Germany has promised to increase defense spending, clearly the partnership with the UK is part of determining where those investments would go and what new European platforms would emerge for the defense of Europe.

One consequence of the Brexit pressure point might be a emphasis on a North Sea coalition within NATO as well.

The Nordics and the UK have become more focused on the direct threat to them from recent Russian actions in the Baltic region. As the Russians build up force and become more activist, a clear response is required by the key NATO states.

Perhaps the common interests of the Nordics, Poland, Netherland and the UK will become highlighted, leveraging broader reforms to encourage a more effective North Sea defense coalition to deal realistically with the perceived Russian threat.

In short, rather than looking at Brexit as the beginning of the end, it can be looked at the beginning of a clearly needed European reform process.

Ironically, it is the democratic deficit which has spoken in the British referendum. Similar uprisings of disaffected citizenries are already emerging in at least eight other EU nations.

In each case the growing imposition of an unelected Commission-governed European overlord which rides roughshod over all issues of local and national sovereignty is at the core rising unrest.

An earlier version of this article appeared on Breaking Defense.

With regard to the video above which was released earlier this month:

In Extensive Interview, UK Political Giant Explains Why He Is Voting For Brexit

Any still undecided readers who have been bombarded by the “gloom and doom” of the “Remain” campaign are urged to listen to the following extensive interview courtesy of RealVision with renowned political heavyweight, Dr. Liam Fox MP, British politician and former UK Secretary of State for Defence, who was the first UK politician to come out in favor of Brexit. 

Fox speaks to Dr. Pippa Malmgren, former economic advisor to two U.S. presidents and founder/CEO of DRPM Group and H Robotics.  Fox explains why he stands behind Brexit for three main reasons largely surrounding sovereignty and control, including power over British law-making, borders, and spending. He strongly believes that choosing to exit the EU would not cause Britain, with its strong security forces, sophisticated economy and legal system, to suffer the devastating outcome predicted by all those in the “Bremain” camp.