The largest blow the British population has delivered to its establishment in modern history – was it strategic or just plain stupid? Well, that depends.
This last week’s furor over Brexit has filled the news channels. In a pretty close race – 52 % Leave; 48 % Remain, with 70% voting — the British Isles voted to step out of the European Union. The referendum vote has polarized the country and triggered Prime Minster David Cameron’s resignation after the British public rejected his entreaties to remain.
Prime Minister David Cameron had argued that Brexit would be an act of “economic self-harm.”
“I was absolutely clear about my belief that Britain is stronger, safer, and better off inside the E.U.” “I made clear that the referendum was about this, and this alone, not the future of a single politician, including myself. But the British people made a decision to take a different path. As such, I think the country requires a fresh leadership to take it in this direction.”
Numerous heads of government including President Obama, Chancellor Angela Merkel of Germany and President Xi Jinpang of China, Britain’s’ own conservative government Labor party, the Liberal Democrats and the Scottish National Party chimed in against Brexit, to no avail. In fact, even some of our own Wall Street TBTF banks, J.P. Morgan Chase and Goldman Sachs, who each have a real vested interest in Britain as one in six of their employees are based there and who contributed to the REMAIN campaign, encouraged REMAIN and staying with the E.U., to no avail.
Ironically, quite a few Brits agree that Brexit was ill thought and are calling for a new vote. However, taking back the consequences of a uniformed electorate voting on emotion may be too late.
According to the Guardian, “If you’ve got money, you vote in; if you haven’t, you vote out.” Several issues contributed to the LEAVE vote: class inequality, voters feeling excluded from political say and the issues toward immigration and perceived loss of jobs. As jobs were taken by immigrants who are willing to work all hours and for much less pay, resentment grew and fueled LEAVE. Yet, this was democracy in action.
According to Matt Taibbi, of Rolling Stone magazine in “The Reaction to Brexit Is the Reason Brexit Happened.”
“If you believe there’s such a thing as “too much democracy,” you probably don’t believe in democracy at all. As a rule, people resent being saved from themselves. And if you think depriving people of their right to make mistakes makes sense, you probably never had respect for their right to make decisions at all.
This is all relevant in the wake of the Brexit referendum, in which British citizens narrowly voted to exit the European Union.
Because the vote was viewed as having been driven by the same racist passions that are fueling the campaign of Donald Trump, a wide swath of commentators suggested that democracy erred, and the vote should perhaps be canceled, for the Britons’ own good.”
Brexit, a combination of the words Britain and exit, has caused profound shock to many for several reasons. Britain who joined the E.U. in 1973 is the only major country to date to leave the E.U. They may not be the last. Yet, ironically the LEAVE referendum vote is not so much about the inefficiencies of the E.U. but perhaps more about Britain’s internal problems, class warfare and sovereignty.
While the Bank of England says, “We are well prepared for this,” a recession seems likely.
Corporate investments will certainly feel the fallout, with businesses deferring whatever spending they can. The average consumer will probably not curb spending short term, however the collapsing pound may well drive inflation and put a real crimp on salaries. Jobs will be lost and the number of hours worked and wage growth will likely fall. Ironic as the very opposite of what the disenfranchised wanted is resulting. The LEAVE vote has caused huge economic disequilibrium with the pound plummeting and real concerns about Britain trying to survive outside of the E.U.
Overall, the prevailing uncertainty is causing a chilling effect on investment. It’s pretty certain Britain will lose trade and investment. The loss of migrant workers could lead to lower productivity and actually decrease job opportunities according to a study by Britain’s National Institute of Economic and Social Research.
An E.U. without Britain’s deregulating influence is troubling other countries whose voters could be influenced by Britain pulling out of the E.U. and elect to follow suit. Europe is also Britain’s most important export market and its greatest source of foreign direct investment. E.U. membership has been crucial to establishing London as a global financial market. Brexit may well weaken this position.
Britain makes up about a sixth of the European Union’s economy. A Brexit is akin to California and Florida being lopped off the U.S. economy. That destabilization could affect the United States’ economy. Last week, the Federal Reserve in Washington cited the possibility of a Brexit as a reason to not raise interest rates.
It is imperative Britain negotiate and quickly to get the most favorable trade deal they can. The economic effect of an exit would depend on what settlement was negotiated, especially on whether Britain would retain access to the single market for duty-free trade and financial services. But that would probably require accepting freedom of movement and labor for European Union citizens, which is one of the main complaints the “Leave” camp has about bloc membership.
So the second shot heard around the world may well have resulted in a major world player shooting itself in the foot. Or it may be democracy in action. What’s your take?
Richard Bowen is widely known as the Citigroup whistleblower. As Business Chief Underwriter for Citigroup during the housing bubble financial crisis meltdown, he repeatedly warned Citi executive management and the board about fraudulent behavior within the organization. The company certified poor mortgages as quality mortgages and sold them to Fannie Mae, Freddie Mac and other investors.
