Brexit: Considerations Going Forward


2016-08-07 By Harald Malmgren

Although the British government, the Bank of England, the IMF and a variety of US and European think tanks had warned an extremely bad, even catastrophic downturn of the UK would ensue if British voters decided in favor of exit from the European Union.

The June 23 majority vote in favor of exit stunned politicians and prognosticators, but markets adapted after a few days of turmoil.

The Pound Sterling took a hit, but then seemed to find a new trading range relative to the Euro, dollar, and other key currencies. The Bank of England cut its base interest rate and introduced new monetary stimulus to cushion the UK economy during what looks likely to be a multi-year process of consensus building and detailed negotiations with the European Commission.

Unelected bureaucrats in the EU Commission are eager to begin “hard” negotiations with the UK at the earliest possible time. Under the Lisbon Treaty of the European Union there is a provision for possible exit by a sovereign member of the EU.

This provision is known as Article 50, and it explicitly delegates to the EU Commission authority to conduct negotiations with an exiting member state. Article 50 sets out a two-year time frame for such negotiations, but it also provides for indefinite extensions on the basis of mutual agreement.

Among European Union capitals many national leaders want the European Council, made up of member state leaders, to undertake political discussions with the UK that will help guide the EU Commission’s negotiations on specific issues like customs practices, tariff provisions, application of EU standards, etc.

It should not be surprising that the EU Commission wants to press ahead with negotiations, which it will itself conduct.

Most of the Commission participants want to ensure strict adherence to the elaborate body of EU Commission regulations that they themselves laboriously drafted over decades.

The UK government will take time to work out its basic objectives in the development of some kind of UK-EU economic, commercial and juridical accord.

In parallel, political pressures are building within many of the EU member states for curbing the authority and aggressive bureaucratic interventionism of the Brussels Commission. The European Council leaders now must now address growing localism and nationalism which threaten to disrupt the European Union as a whole.

Most politically explosive is the issue of how leaders of Continental Europe will deal with the tsunami of refugees from Syria and peoples of nations surrounding Syria, together with refugees flooding from North Africa and beyond.

Treatment of refugees and openness of border are now becoming core political issues within each of the EU member states.

German Chancellor Merkel’s rigid stance on keeping the EU as an open society ready to assist refugees in need is incurring strong resistance inside several of the EU member nations and even within Germany itself.

Costs of handling refugees are only a small part of the political controversies.

Of growing concern is the rising wave of crimes and violent behavior of many of the refugees, and fear that among the refugees are many terrorists preparing for continuing waves of destruction and deaths in diverse locations in many parts of Western Europe.

National elections are coming next year in France and Germany, as well as in several other member states. A swing to the right in several capitals could be encouraged if no amicable consensus can be reached on treatment of refugees, including limits on their numbers, and ability to punish and expel terrorists and other troublemakers.

UK voters in favor of exit had similar concerns about unlimited refugee flows, so the European Council will have no choice but to weave talks with the UK into talks with the rest of the EU on treatment of refugees. In this process, it is doubtful Merkel’s hard line will prevail next year. Either she will be forced to step down or she will modify her position on freedom of access for refugees.

During the remainder of this year and in the months leading to French and German elections next year much rethinking about the future of the EU will take place.

Discussions with the UK will inevitably be entangled with deliberations on how the rest of the EU is managed. Several of the EU members are now seeking to slow the process of centralization of EU governance and restore greater “subsidiarity” or localization of laws and policies affecting daily life.

A push for “more Europe and less Brussels” will likely be an unfolding theme.

In this context, it is unlikely that Article 50 will be invoked by the UK and the Commission before the middle of next year.

Invocation might even be delayed until after the French and German elections.

Much to be discussed, much to be adapted in the governance of the EU in 2017 and subsequent years.

Editor’s Note: It should be remembered that what tore apart the United States in the 19th century was a very emotive issue around which all Americans had politically charged views, namely the extension of slavery to the new states.

Slavery in the South was largely accepted in the North; but its extension to the new territories and new states was not.

The twining of current migration from the Middle East with a real threat of terrorism is a similarly politically charged view.

The making of regulations and laws by Brussels bureaucrats behind closed doors may soon generate an implosion of the long quest for a stronger Union of the many existing democracies.

Only the European political leaders can address these fundamental issues of how the Union is to be governed and how it will interact with its neighbors and the rest of the world.

The gradual emergence of an unelected shadow government in the form of the Brussels Commission no longer seems a viable alternative path to greater political and social integration.

A new concept of Union is also critically needed to deal with “external” challenges associated with the Middle East, Ukraine and other nations lying between Western Europe and Russia, and more remote potential disruptions to world order that may be posed for European well being in the future.

Emergence of a different, improved model of the European Union is inevitable.

How the UK fits in, not only as an economy, but as a world security power needs to be addressed long before specific commercial, financial, and juridical issues of interest to the Commission can appropriately be addressed..