Brexit and King Canute

Financial Mirror (Cyprus) - - FRONT PAGE -

The leg­end of King Canute de­scribes how an early An­gloSaxon king showed his sub­jects the lim­its of royal power. Canute set his throne by the sea and com­manded the ris­ing tide to turn back. When the sea rose as usual and soaked Canute, he told his courtiers: “Now let all men know how empty is the power of kings.”

Prime Min­is­ter Theresa May, whose motto is “Brexit means Brexit,” seems to be­lieve that Canute’s mes­sage was about democ­racy, not as­tron­omy: he should have held a ref­er­en­dum. Though May op­posed the United King­dom’s with­drawal from the Euro­pean Union, she now has a new mantra: “We will make Brexit a suc­cess be­cause peo­ple voted for it.”

This is non­sense. If Bri­tain be­comes the only Euro­pean coun­try apart from Rus­sia to ex­clude it­self from the EU sin­gle mar­ket, it will not suc­ceed eco­nom­i­cally, re­gard­less of how peo­ple vote. Democ­racy would not have pre­vented the ocean tides, driven by grav­ity, from drown­ing Canute if he had stayed on his throne, and a ref­er­en­dum will not turn back the eco­nomic tides driven by glob­al­i­sa­tion.

Busi­nesses un­der­stand this. That is why Bri­tain now faces what economists call “rad­i­cal un­cer­tainty,” a sit­u­a­tion where risks can­not be ra­tio­nally quan­ti­fied, mak­ing changes in in­ter­est rates, taxes, and cur­rency val­ues largely in­ef­fec­tive. As the Bank of Eng­land has noted, many in­vest­ment and hir­ing de­ci­sions will now be de­layed un­til Bri­tain’s trad­ing terms are clar­i­fied. If Brexit goes ahead, this will take many years.

As Bri­tain’s econ­omy sinks into re­ces­sion, and the gov­ern­ment’s prom­ises of a quick “suc­cess­ful Brexit” prove un­re­al­is­tic, pub­lic opin­ion will shift. May’s small par­lia­men­tary ma­jor­ity will come un­der pres­sure, not least from the many en­e­mies she made by purg­ing all of for­mer Prime Min­is­ter David Cameron’s al­lies from of­fice. The main de­ci­sions on Brexit will there­fore be made not in Lon­don but in Brus­sels and Ber­lin.

In mak­ing these de­ci­sions, Euro­pean lead­ers must an­swer two ques­tions: Should Bri­tain keep the main ben­e­fits of EU mem­ber­ship if it re­jects EU rules and in­sti­tu­tions? And should some of these rules and in­sti­tu­tions be re­formed to make the EU more at­trac­tive to vot­ers, not just in Bri­tain but through­out Europe.

The an­swers to both ques­tions are ob­vi­ous: “No” to the first; “Yes” to the sec­ond.

EU lead­ers should present a clear choice: ei­ther Bri­tain re­mains an EU mem­ber af­ter ne­go­ti­at­ing some ad­di­tional re­forms to sat­isfy pub­lic opin­ion; Or, it dis­en­gages com­pletely and deals with the EU on the same ba­sis as “any coun­try in the World Trade Or­gan­i­sa­tion, from Afghanistan to Zim­babwe,” which is how Bri­tain’s In­sti­tute for Fis­cal Stud­ies de­scribes the most plau­si­ble al­ter­na­tive to full mem­ber­ship.

By mak­ing exit con­di­tions non-ne­go­tiable, while of­fer­ing room for ma­neu­ver on the terms of con­tin­u­ing mem­ber­ship, Europe could shift at­ten­tion to the sec­ond, con­struc­tive ques­tion: can vot­ers be per­suaded to feel pos­i­tive again about the EU?

Ad­dress­ing this ques­tion se­ri­ously would fo­cus at­ten­tion on the many tan­gi­ble ben­e­fits of EU mem­ber­ship be­yond tech­no­cratic ab­strac­tions about the sin­gle mar­ket: en­vi­ron­men­tal im­prove­ments, ru­ral sub­si­dies, fi­nanc­ing for science, in­fra­struc­ture, and higher ed­u­ca­tion, and the free­dom to live and work through­out Europe.

By ex­clud­ing spu­ri­ous in­ter­me­di­ate op­tions such as the “Nor­we­gian” or “Swiss” mod­els – which May has, in any case, re­jected, be­cause they im­ply free move­ment of peo­ple – the EU could make Brexit’s eco­nomic im­pli­ca­tions un­equiv­o­cally clear. Lon­don would cease to be Europe’s fi­nan­cial cap­i­tal be­cause reg­u­la­tions would be de­lib­er­ately changed to shift busi­ness ac­tiv­i­ties into EU ju­ris­dic­tions. For the same rea­son, many UK-based ex­port in­dus­tries would be­come non-vi­able.

Fac­ing this prospect, busi­nesses on both sides of the English Chan­nel would be im­pelled to cam­paign openly for Bri­tain to keep full EU mem­ber­ship, in­stead of qui­etly lob­by­ing for spe­cial deals for their own sec­tors. The me­dia might even point out the con­sti­tu­tional ab­sur­dity of a rep­re­sen­ta­tive democ­racy treat­ing a nar­row ref­er­en­dum ma­jor­ity as per­ma­nently bind­ing on par­lia­men­tary de­ci­sions.

Hard-core na­tion­al­ists might pay no at­ten­tion, but enough mar­ginal Eu­roskep­tics would prob­a­bly re­con­sider their po­si­tions to flip the 52%-48% Brexit ma­jor­ity the other way.

The reversal of pub­lic opin­ion would be­come near-cer­tain if Euro­pean lead­ers gen­uinely heeded UK vot­ers’ mes­sage, not by fa­cil­i­tat­ing Brexit, but by rec­og­niz­ing the ref­er­en­dum as a wake-up call for EU re­form.

Sup­pose EU lead­ers in­vited the

Bri­tish gov­ern­ment to ne­go­ti­ate on the poli­cies that dom­i­nated the ref­er­en­dum and are also fu­el­ing re­sent­ment in other Euro­pean coun­tries: loss of lo­cal con­trol over im­mi­gra­tion; the trans­fer of power from na­tional par­lia­ments to Brus­sels; and ero­sion of so­cial mod­els that de­pend on strong bonds of ci­ti­zen­ship and gen­er­ous wel­fare states.

Imag­ine, for ex­am­ple, that EU lead­ers en­dorsed Den­mark’s re­cent pro­posal to al­low na­tional gov­ern­ments to dif­fer­en­ti­ate be­tween wel­fare pay­ments to cit­i­zens and re­cent im­mi­grants, or that it ex­tended to all of Europe the Swiss plan for an “emer­gency brake” against sud­den im­mi­gra­tion surges. Imag­ine them eas­ing the coun­ter­pro­duc­tive bud­get and bank­ing rules that have suf­fo­cated south­ern Europe. Imag­ine, fi­nally, that the EU ac­knowl­edged that cen­tral­i­sa­tion of power has gone too far and for­mally ended the drive for “ever closer union.”

Such re­forms are con­sid­ered un­think­able in Brus­sels, be­cause they would re­quire treaty changes and could be re­jected by vot­ers. But vot­ers who op­posed pre­vi­ous EU treaties for cen­tral­is­ing power would al­most cer­tainly wel­come re­forms that re­stored au­thor­ity to na­tional par­lia­ments. The real ob­sta­cle to re­form is not the dif­fi­culty of treaty change; it is the bu­reau­cracy’s re­sis­tance to ced­ing power.

The Euro­pean Com­mis­sion re­mains ob­sessed with de­fend­ing the ac­quis com­mu­nau­taire, the col­lec­tion of pow­ers “ac­quired” by the Union, which EU doc­trine dic­tates must never be re­turned to na­tion-states. Jean-Claude Juncker, the Com­mis­sion Pres­i­dent, and his chief of staff, Martin Sel­mayr, have even wel­comed Brexit as a chance to “strengthen the ac­quis” by cen­tral­is­ing power even more.

Juncker, like May, should re­call King Canute. The tide of na­tional democ­racy is ris­ing across Europe, and slo­gans about “ever closer union” will not re­verse it. Euro­pean lead­ers must ac­knowl­edge re­al­ity – or watch Europe drown.

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