Why Brexit Is a Mistake

The British government announced that they would set a referendum for the British people to decide whether to leave the EU for June 23. The saga started when prime minister Cameron promised his voters that he would get a better deal out of Europe and then let the voters decide whether that deal is acceptable to them. Because he set the referendum, he thought that he would have sufficient leverage over the EU, whose leaders would be scared to see the British off from the EU. I strongly oppose the Brexit, and hope that the British people will vote to stay in. We need a better and more social Europe, not a Europe divided by nationalism and suspicion.

The recently negotiated package involved the following points:

  • An “emergency brake” on migrants’ in-work benefits for four years when there are “exceptional” levels of migration. The UK will be able to operate the brake for seven years

  • Child benefit for the children of EU migrants living overseas will now be paid at a rate based on the cost of living in their home country – applicable immediately for new arrivals and from 2020 for the 34,000 existing claimants

  • The amending of EU treaties to state explicitly that references to the requirement to seek ever-closer union “do not apply to the United Kingdom”, meaning Britain “can never be forced into political integration”

  • The ability for the UK to enact “an emergency safeguard” to protect the City of London, to stop UK firms being forced to relocate into Europe and to ensure British businesses do not face “discrimination” for being outside the eurozone (BBC 2016)

There was a lot of fanfare about restricting social benefits to EU and non-EU migrants. The British certainly got scared when all these refugees made their way to Greece and other parts of the EU. But the scare and the treaty changes for the UK are nowhere near proportionate to the number of refugees they take into their country compared to Germany, Sweden, Austria or Hungary (see here for a nice visual).

The British had usually conceived of themselves as relatively aloof from the continent, and they never had to face the full force of German or French invaders in their own country (except when the Normans came in 1066). The channel protected the British way of life. The UK was also not a founding member of the European Community, which really began as an organization to reconcile France and West Germany. West Germany needed the legitimacy to recover as an economic power after the end of World War II, and France wanted to prevent an independently strong Germany, and so both spearheaded the European Community in the 1950s. The UK joined the EC in 1973.

Among the top leaders in Brussels, there never has been a British person. The architects of EU policy are France and Germany. It was these two countries which hatched out the monetary union and they also advanced the Schengen agreement and the enlargement of the Union to Eastern Europe. The only time the British really made noise was when Thatcher banged her handbag against the table and said to EU officials, “I want my money back!” She was referring to the UK contributions to the EU budget, and the UK eventually got a rebate. The official reasoning was that much of the EU funds went into agriculture, and most of these funds were given to farming intensive countries, especially France, and the UK should not have to foot that bill. In addition, the EU budget is mostly funded from VAT, which tends to be higher in the UK than in other EU countries, which naturally means higher UK contributions.

The UK is one of the main reasons why the EU is a helpless sovereign. Instead of gradually growing into a supranational entity with strong fiscal, administrative and legal power, all major EU decisions still need the consent of every single member state government. It is the intention of every UK government that this fragmentation in EU decision making remains as such in order to retain the full sovereignty of the member states. It is okay to have a Europe with different speeds, as the logic goes.

I cannot disagree more. It was one of Britain’s finest political philosophers, Thomas Hobbes, who said that for a social contract to work, a country needs a sovereign, who can keep the different social forces in society under control, or else there would be anarchy. We don’t have anarchy, because the nation states fulfill the role of the sovereign. If there were no EU that would be the end of the story. (Though I find it questionable how well individual nation states hold up in the global economy.)

But the danger is that the EU has some sovereign functions (e.g. a centralized currency and monetary policy), but it lacks the full sovereignty that the US federal government has, even as much legislation is determined on a state by state basis. A semi-sovereign entity results from the simultaneous will to a political union, but disagreement over details. It is ultimately self-defeating for the EU if it cannot act the way that a sovereign can. Friedrich Hayek promoted a supranational entity because the central entity has sufficient power to have sovereign rights transferred to it, but not enough power to make full use of it. Because there would always be uncertainty and disagreement about what powers the central entity has, and because there is a unanimous vote decision that is necessary (rather than majority vote), only the lowest common denominator decisions can be made. The lowest common denominator usually is related to less regulation, less state influence, and would produce the kind of market freedom that Hayekian libertarians have desired.

This discourse might sound like some abstract philosophical concern, but it is not. The Eurozone crisis and refugee crisis are good examples for why semi-sovereign power does more harm than good. If you create a monetary union without centralizing fiscal power to compensate for member state current account imbalances (usually affecting net importers), then you create a financial crisis with debt, austerity, unemployment, poverty and permanent economic crisis, as we have seen in Greece. If you don’t have a strong EU government, who can impose a distribution key for the millions of refugees entering the continent, you will have a lopsided distribution of refugees.

The solution to all of this is a stronger central government in the EU, not a weaker one. It is the semi-sovereignty rather than the full sovereignty of Europe which produces the displeasing socio-economic and political results, which give credence to the nationalists and Euroskeptics. Countries with more pronounced Euroskeptics like the UK will declare the alleged power grab of the EU as the source of their problems, and will demand an exit.

Could the EU live without the UK? Yes, but it would lose an important country. But more important than any material or economic problems, a Brexit might exacerbate the political climate in Europe and make the exit of further member states more likely. The same reason has been applied to a Grexit from the euro, which was also supposed to have such negative consequences for the precedent that it sets that the euro is a dispensable currency. I am more sanguine about a Grexit, because in the absence of a better EU agreement to handle the Greek debt and economic crisis, it would have been the less painful option, and we have long not seen the last of it. I am less sanguine about a Brexit, because leaving the EU can weaken if not destroy the credibility of the entire EU project.

The economic consequences for the UK as a result of Brexit would be much more negative, because the trade agreements which are negotiated by the EU will no longer apply to the UK, and they have to attempt their own negotiations. The UK will likely want to insist on maintaining free access to EU markets, but if it wanted to do so, it would have to join the non-EU European club of countries like Switzerland and Norway, who have to submit to EU regulations without any capacity to affect the direction of these laws.

There will be a rather passionate debate in Britain about where the country should be going, and the referendum will also force the other EU member states to consider how they should advance a more sovereign EU. Unfortunately, I very much fear that the UK referendum actually makes the technocratic leaders less willing to consider further steps toward integration. Given the unresolved nature of the debt, economic, unemployment and refugee crisis, it becomes even easier for nationalists to clamor for a return to strong nation-state boundaries. A no-vote in the UK might not improve the situation at all, because it will send the signal to other European leaders that business as usual can be continued. How wrong they are.

For now, I hope that the UK will opt to stay within the EU.

 

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