Introduction
The British referendum on June 23rd, where 52% of their public voted to exit the Eurozone, remains a very contentious topic throughout the continent. To put in perspective, this vote is easily the most consequential in Europe in the 21st century and possible since the end of World War II.
Overview
I cannot believe that either officials in the United Kingdom or the European Union would allow countries to exit based upon a one-time simple majority. When I consider the hurdles required to pass an amendment to the American constitution, I believe our procedures for enacting monumental changes are preferable.
Secondly, the general opinion that the Brexit vote is perpetually binding and that its results should remain unchallenged is preposterous given the enormity of the negative fallout. Stated differently, the European Union could enact relatively few changes to obtain a different outcome. The immediate changes that would likely lead to a different British resolution would be
Limiting the number of immigrants that any EU member must admit on an annual basis
Reduce the red tape that the EU has introduced. Since 2010 the EU has introduced over 3,500 new laws affecting British business, costing some $12 billion per year
Eliminating the Financial Transaction Tax (FTT) on equity and bond trades. Britain, given its trading prowess, suffers disproportionately from this tax.
Tough Treatment of Britain for Exiting EU
Treating Britain harshly for leaving the EU opens up a Pandora’s Box that could impact the other 27 countries that make up the EU. That is, a British slowdown will negatively impact a number of European countries, opening up their own willingness to abide by EU regulations.
For example, a majority of British immigrants come from Hungary and Poland. A British recession will negatively impact citizens of these countries opting for better working conditions.
The economic slowdown in Britain will slow down Italian economic growth prospects and exacerbate their banking problems. Currently, 17% of Italian bank loans are sour. Current, EU laws require that Italian shareholders and bond holders to take a haircut before the Italian government can provide some $50 billion in help. Thus, EU law prevents Italy from taking steps that will modify their problems. The prospect of widespread bankruptcy of Italian banks has horrendous consequences not only in Italy but other European countries.
Greece, Portugal, and Spain are near a financial breaking point. The EU limits on government deficit spending prevents these countries from undertaking fiscal steps to ameliorate their economic plight. Instead of hamstringing these countries domestic policies, European Union leaders should begin taking steps to let these three countries get out of the Euro, go back to their native currencies, and let domestic exigencies dictate monetary and fiscal policies.
Dissatisfaction with the EU has attracted widespread support in France, the Netherlands, and Austria. Far right parties seeking sovereignty for their countries has widespread appeal given growing disenchantment with Brussels bureaucracy.
Thus, I would warn any EU politician wanting to enact severe terms on Britain that the precedent could be unfortunate given the tenuous nature of EU membership currently.
Conclusion
By any standard, Britain is in a state of unrest. Instead of forming a government of unity—their actions during both World War I and World War II—to deal with the crisis, the Conservative and Labour Parties are preparing for new leadership. Scottish leaders have clearly stated their preference for leaving Great Britain following Brexit.
I disagree with British and EU politicians who feel that the Brexit vote should stand. Instead, I implore concessions on both sides of the English Channel.
The political outcome for Europe of Brexit remains haunting. For thousands of years, Europe suffered ongoing military conflicts. The post World War II peace (Russian invasion of Ukraine and Yugoslavia are exceptions) is due in part to the political stability provided by the Eurozone. A reasonable person would argue that concentrating on the benefits of a free trade zone for 28 countries should be an economic goal that has positive political ramifications.
