Cheerful farewell

Bon Voyage, Britain!

british bus-getty pictures
Some would like to see Britain exit the European Union
  • Why it matters

    Why it matters

    If Britain leaves the European Union, it could suffer serious consequences, such as a sharp decline in the economy, capital flight and the loss of hundreds of thousands of jobs.

  • Facts

    Facts

    • Britain would become a relatively small player in the global economy, with less than 3 percent of the gross world product, if it left the European Union.
    • No country has voted against E.U. bills more frequently in recent years than Great Britain.
    • British finance ministry officials estimate that a Brexit would lead to a 3.6-percent decline in Britain’s GDP.
  • Audio

    Audio

  • Pdf

Brussels is tired of hearing the B word. A memo recently sent to the European Commission’s communication staff members urged them to avoid using the term Brexit.

The memo listed alternative terms that could cast discussions about the British referendum on June 23 in a friendlier light. It recommended using the term “British situation.”

The term suggests a stressful relationship but not a separation, like saying: “Okay, but let’s still be friends.”

But there is little evidence of friendship between the European Union and Britain these days. The tone is abrasive on both sides of the English Channel, and becomes more so with each day that Britain’s legendary bookmakers predict a majority voting to leave the European Union. Meanwhile, in Brussels, officials say post-Brexit negotiations would be “brutal.”

“If Greece leaves Europe, it is mainly a problem for Greece. If Great Britain goes, it is a blow to Europe's self-image.”

Brendan Simms, Cambridge historian

In Berlin, German Finance Minister Wolfgang Schäuble, a member of the center-right Christian Democratic Union, made a frank comment on the British referendum. “In is in and out is out,” he said.

And while the German news magazine Der Spiegel implores the British not to leave the European Union, the Financial Times scoffs at overly clingy Germans, “begging” the cool British to stay. How uncool.

So what has happened to Britain’s famous pragmatism in these tense times? There is no denying that a Brexit would be an enormous political challenge. Without  Britain, Europe would be substantially smaller in a globalized world. “If Greece leaves Europe, it is mainly a problem for Greece,” said Cambridge historian Brendan Simms. “If Great Britain goes, it is a blow to Europe’s self-image.”

The Brexit would be costly, but mainly for the British. The stock markets have already anticipated a Brexit in recent days. Experts say the economy could decline by about 20 percent, and warn of capital flight and a plunge in the value of the British pound.

But the biggest worry for many people is the uncertainty over future relations with the European continent. The United Kingdom exports 13 percent of its goods to the European Union, while only 3 percent of E.U. exports go the other way. The United Kingdom, with Scotland and Northern Ireland, would be a dwarf in the global economy, accounting for less than 3 percent of the gross world product.

There is a fear that financial brokers could turn their backs on London and migrate to Paris, Dublin, Amsterdam or Frankfurt. The head of Frankfurt’s business department recently said 1.2 million square meters of new office space would be available if needed.

In short, Britain would likely pay dearly for a Brexit, whereas it could be inexpensive for Europe, if undesired. “I’m not terribly concerned about the direct economic consequences for Germany,” a senior official in Berlin said, asking to remain anonymous. The odd thing is that Brexit proponents in Britain believe the same is true for their country.

schauble_reuters
German Finance Minister Wolfgang Schäuble: “In is in and out is out.” Source: Reuters

 

They believe that Britain is on the right track, while the 27 other E.U. countries have reached a dead end. It’s like the joke about the driver who, upon hearing an announcement that there’s a car driving the wrong way down the highway he’s on, says: “One? There are dozens!” The Queen’s subjects apparently feel invulnerable, not least because of their glorious past.

They have every right to feel that way. But the other countries also have the right to calmly allow the British to leave. For decades, the pro-European Germans, in particular, have noted that the British are irreplaceable partners for a viable European Union. But that isn’t true. This is a reality check.

A British lord was partly responsible for designing the internal free market. If the British leave, competitively oriented countries would have no blocking minority in the European Council. “So far, we have been lucky enough to have governments in Germany and Great Britain that think and work in market-oriented ways.” said Mr. Simms, the historian. “Since World War II, the Germans have believed that deeper European integration is the answer to all problems. The British see this completely differently.”

European fans of Cool Britannia overlook the fact that in recent years no country has voted against E.U. bills more frequently than Britain. The supposed guardian of market-based rules has unleashed the financial markets, while all but giving up on itself as an industrial base. Great Britain has a higher budget deficit than Greece, and yet it is uninterested in a national debt ceiling, the remedy German Chancellor Angela Merkel’s administration is keen to export.

Not surprisingly, this attitude has many on edge in Brussels. “Then they should leave,” the ambassador of a large member state said, asking not to be identified. The British, he pointed out, have repeatedly demanded changes to bills, only to reject the legislation at the end of the negotiating process. For instance, Britain wants nothing to do with the European Public Prosecutor’s Office, even though one of its goals is to prosecute the misappropriation of E.U. funds.

The British literally no longer have a lobby in Brussels. For more than a decade, their politicians have rarely missed an opportunity to badmouth Europe. As a result, fewer and fewer Britons are applying for jobs with European institutions. Only 1.6 percent of applicants for administrative jobs in Brussels as British, even though Britain makes up 12.6 percent of the E.U. population.

In the coming years, the future of the union hangs on two important policy areas: the issue of refugees and the euro zone. What these two trouble spots have in common is that the British want nothing to do with them. That is bad enough, but even worse is the fact that they have secured the right to have a say over them in Brussels where they have not been part of the decision-making process.

In the future, all members of the euro zone will be able to make decisions about the structure of the monetary union. Yet London could also torpedo these agreements, for example, by blocking an E.U. summit. A British power of veto would be manageable if the only disagreement were over the pace of European integration. But in most cases, the British object to the fundamental direction, according to a German government representative. The British have so much self-confidence, he said, that it would never occur to them to relinquish sovereignty for a stronger united Europe.

BELGIUM-BRUSSELS-EU-JUNKER-COMMISSIONERS-RELEASE
European Commission President Jean-Claude Junker rules out a rapid consolidation of the economic and monetary union: Source: European Commission

 

The British also overestimate their status as an economic role model. London is a cool, hip, multicultural European metropolis, a center for globalization. But it has its dark sides. Russian, Chinese and American billionaires have bought up entire neighborhoods and even driven investment bankers out of the city.

Rents are legendary, and there is growing social inequality – one reason for the hostile attitude many Britons have recently shown toward migrants. British economic performance has doubled in the last three decades, but so has the number of households unable to heat their homes in winter.

Capitalism in the United Kingdom took much longer to recover from the financial crisis than Germany’s social market economy. The latest boom has not been driven by innovation and productivity, but by higher asset prices and an increase in consumption. Many households remain heavily in debt. If interest rates rise after a Brexit, as expected, many borrowers will find themselves in a bind.

Experts at the British finance ministry have constructed a “shock scenario,” under which the country’s gross domestic product would decline by 3.6 percent in the event of a Brexit, while the pound would lose 12 percent of its value. Another scenario even predicts a 6-percent GDP drop and the potential loss of 800,000 jobs. British infrastructure is already crumbling. One German business executive living in London likened the country to an “East Germany where they speak English.”

Europe must find a vocal response to a British No vote, something like “then just leave – Bon voyage.” A British solo journey into the unknown would certainly serve as a wakeup call for the rest of the community. But what path should Europe take?

Some in Berlin, Paris and Brussels want to expedite the political integration of the European Union, through greater coordination of monetary policy, for example. They argue that 98 percent of public expenditures in the European Union are initiated by the individual countries – spending that rarely coincides with what would benefit the euro zone as whole.

A European Union finance minister with the power to monitor national budgets could rectify the problem. But who wants that? Mr. Schäuble seems to see support for deeper integration, but some of his European colleagues don’t and warn that proposing it after a Brexit would make little sense.

WirtschaftsWoche has learned that European Commission President Jean-Claude Juncker is also ruling out a rapid consolidation of the economic and monetary union. “There is a risk that non-euro countries will feel alienated and align themselves with the British example,” a E.U. diplomat said, requesting to remain anonymous. The commission is supposed to submit a report on consolidation by 2017, “but we known that several member states are opposed, and a Brexit won’t change that,” a senior European official said.

Others hope that the E.U. will at least find new enthusiasm for foreign policy or fighting terror. Mr. Juncker is already reviving the old idea of a European army. But the proud French, with their nuclear weapons, would feel uneasy about such close coordination. “And Berlin will continue to hide when it comes to foreign policy,” said Jan Techau of Carnegie Europe, a Brussels think tank. A European army is no longer even mentioned in the current white paper of the German defense ministry.

So are these high-flying plans doomed to failure? If the British vote to leave, the European Union will initially have its hands full with procedural matters – for at least two years. The negotiations over the future relationship with Britain will likely take much longer, and will ultimately require the approval of all 27 member states. “The process could take 10 years,” said an E.U. diplomat.

One matter would be wrapped up fairly quickly: the dismissal of British employees working at European institutions, of which there are 1,164 in the European Commission alone. Mr. Juncker has said he still intends to employ British staffers, but many officials don’t quite trust his announcement. In recent days, the Irish Embassy in Brussels has received more applications than usual for Irish citizenship. Anyone who can prove that he or she has grandparents from Ireland can secure an Irish passport – and his or her Brussels career.

Nevertheless, as strange as it sounds, Britain’s self-imposed isolation, together with an economic crash, could defy all prophecies of doom and signify an economic stimulus program of sorts for the rest of Europe.

If Britain decides to leave, the European Union will  lose not only a “partner” that wanted neither the Schengen agreement nor the euro and constantly demanded special treatment, but also one that was adept at hiding its lack of ambition behind its recalcitrance.

Mr. Schäuble recently warned against more Europe, but he also pointed out that challenges like the Greece and refugee crisis, and now the Brexit debate, have shown him that national governments have their limits. “In the medium term,” Mr. Schäuble said, “we need a closer union.”

On the road to that closer union, a general overhaul of sorts would be the smartest approach – a Europe of differing speeds, as has already taken shape in the areas of the euro, the judiciary, foreign and security policy. The European single market needs to be expanded. Particularly in the service sector, which accounts for about 70 percent of European GDP, cross-border exchange is still rare.

However, the European Union must address its omnipresent lack of legitimization. The Germans have long sensed that the monetary union could cost them dearly. Europe’s crisis-ridden countries, however, associate the loss of sovereignty and austerity requirements with the euro crisis. To soften the fronts, neither a European super-state nor a transfer union is needed, according to Henrik Enderlein,  a political scientist at the Hertie School of Governance in Berlin. “What we need is a healthier mix of shared sovereignty and shared risk,” he said.

Europe also needs a sharper sense of transparency and democracy.  “A legal-bureaucratic complex consisting of the Commission, the European Parliament and the European Court of Justice has developed over time and maintains an irreversible machinery,” former French Foreign Minister Hubert Védrine recently wrote in a contribution to the newspaper Frankfurter Allgemeine Zeitung. “This machinery must finally be brought to a standstill, for two full years. This time would be needed to take stock.”

So, a little standstill, a reprieve to come up for air and contemplate new tasks? If that were the consequence of a Brexit, the remaining E.U. countries would owe the British a debt of gratitude.

This article originally appeared in WirtschaftsWoche. Gregor Peter Schmitz is an editor with WirtschaftsWoche. Simon Book, Marc Etzold and Florian Willershausen contributed to the story. To contact the author: gregorpeter.schmitz@wiwo.de

We hope you enjoyed this article

Make sure to sign up for our free newsletters too!