BREXIT AND A NEW ERA OF DEGLOBALISATION?
The uncertain and diverse of post-Brexit scenarios
Even though “Brexit means Brexit” as clearly stated by Theresa May, it is possible, as reported by VoxEU, The Guardian, Daily Mail, the FT, BBC, that Britain could decide to remain in the EU or to opt for something close, an associate membership, as there are many different kinds of new relationship with the EU on offer. David Vines (VoxEU) describes a four-part action plan for those who prefer a close relationship: (i) a new deal for domestic macroeconomic policymaking, with an end to austerity, (ii) working around the principle of free movement of labor, (iii) understanding the needs of the EU and how Britain can contribute (eg, on issues such as the Single Market), and (iv) carefully planning the negotiation for the most satisfactory outcome. For Brendan Brown (Mises Institute), the outcome of EU exit negotiations will most likely involve some combination of restrictions on EU immigration and a paring back of UK financial institutions’ access to the Single Market. However, as reported by EuroIntelligence, the debate has shifted between those who favour bilateral free-trade agreements, and those who favour a hard Brexit (read Wolfgang Munchau in the FT—with limitations on immigration remaining the key sticking point.
The Brexit strategy seems guided by a two-step approach (to be conducted by new Secretary of State for Leaving the European Union, David Davis), as reported by Eurointelligence : (i) flesh out the details of the negotiating strategy and trigger Article 50 no later than Christmas only after consulting with Scotland (Bloomberg) and (ii) immediately start negotiations on bilateral trade agreements with third countries such as the United States, China, Japan, India and South Korea (see Chad P. Bown/ PIIE).
Short-term costs and longer-term threats to investment, competition and productivity could result from this uncertainty, according to Chris Giles (FT). Especially as May’s policy list (improve productivity, develop R&D, infrastructure, regional/energy policy and corporate governance) is unrelated to Britain leaving the EU.
What Future for the European Integration?
Brexit, adding to the debt and refugee crises adds to the uncertainty about the European integration process, as noted by He Yafei in Huffington Post—especially as it highlights the refusal to participate into any kind of political union (Brendan Simms in New Statesman, or Nigel Farage’s speech). For Eurointelligence, Brexit is the result of a progressive alienation.
The European economic outlook is mainly affected by the uncertainty resulting from the UK’s vote to leave the EU—according to the just released European Commission’s first assessment of the economic impact of Brexit. The ‘leave’ vote brought financial market volatility, abrupt exchange rate changes, and a substantial increase in uncertainty—as reflected in the recent plummeting of German confidence (ZEW Survey), and could have a longer lasting impact on the medium to long-term economic outlook.
Can Brexit be an opportunity for the European project? With no more veto over deeper political, economic, and defense integration, some analysts believe it will (e.g., Thomas Lahey in Huffington Post). This will require forcefully pushing ahead with a common European policy on refugee placement, on external border security, on fiscal and monetary matters and on taxation and tax avoidance. Federica Mogherini (Project Syndicate) calls for a shared vision and a common action plan to be implemented (see also A Stronger Europe). As a Union of more than a half-billion citizens, Europe’s potential is unparalleled, with a broad and deep diplomatic network, and deep trade and financial integration (Global Strategy for European Foreign and Security Policy).
How far or how far back can it go? Analysts are also looking at minimum requirements for the survival of the EMU, with some far reaching proposals. Guy Verhofstadt defends a fiscal union or a common treasury to support the single currency (Project Syndicate). For Brendan Simms, continental Europe has much further to fall before it can rise again and he dismisses the hopes that Brexit will give it impetus. Brendan Brown warns against a new set of European crises to come, from Italian banks (see our last blogspot), to the burst of a bond bubble, or further rise in anti-euro/anti-immigration movements.
Is Globalisation a Good Solution?
Has globalization been at fault? It improved life conditions in poor countries, very substantially (Manikandan Raman in the 7 silver linings of globalization) but, in sharp contrast, income inequality has grown and the world is in its worst period of economic stagnation since the Great Depression (Bloomberg). For Wolfgang Keller (VoxEU), this reflects its role in the polarization and inequality in high-income countries. The distribution of benefits amongst rich and poor countries is uneven, as found by Schott et al. (PIIE). Nouriel Roubini sees a key role of redistributive policies (e.g., direct compensation or greater provision of free or semi-free public goods) (Project Syndicate).
