June 30th, 2016

Brexit reveals grim outlook for EU

by Stefan Hedlund The United Kingdom’s vote to leave the European […]

Team AEC

The United Kingdom’s vote to leave the European Union has been described as a “seismic event,” partly because so few seemed to believe it was a possibility. Markets were taken aback. The Brussels establishment was shell-shocked, and even leaders of the “Leave” campaign appeared shaken. So, how bad is it?

To begin with, one should be wary of succumbing todoom and gloom about the British economy. The initial turbulence will subside as it becomes obvious that World War III is not about to break out, that economic free fall has not started, that the National Health Service (NHS) will not cease to function and that many of the “Remain” side’s other warnings (dubbed “Project Fear” by detractors) were grossly overblown.

The divorce proceedings will be messy and drawn out, but there are strong commercial incentives for both sides to rein in vindictive instincts. There are also opportunities both for British exporters, with a weaker pound, and for increased trade with partners within theCommonwealth.

Beginning of the end?

Those who gleefully predict a UK recession should remember that there are several EU countries that will suffer more from the breakup than Britain itself. The Irish economy will take a heavy hit from reduced trade, while countries in the south will see borrowing costs rise steeply, threatening their already weak financial systems.

This makes a second Scottish referendum for independence less likely. As the crisis within the EU deepens, Scots may feel that they are better off remaining in the UK. Moreover, it is far from certain that reentry will be possible. Spain, for example, fears that such a course of events could increase calls for Catalan independence. Scottish First Minister Nicola Sturgeon should think hard before she takes her country down this path. A second failed independence referendum would benefit no one.

None of this is to say that the British have not brought severe economic pain upon themselves, or that the Leave side’s fearmongering was any less egregious than the Remain side’s. However, leaders in Brussels and the remaining 27 EU member states have far greater reason for concern than their colleagues in Whitehall. As British historian and author Timothy Garton Ash wrote in The Guardian, “If we don’t learn the lessons of this rebuff, 23 June 2016 could be the beginning of the end of the European Union.”

Restoring balance

The bitter truth, which is now becoming all too obvious, is that the EU project had so many structural flaws in its design that crisis – and perhaps collapse – was all but inevitable. Despite numerous warnings over the years, Brussels has remained in denial. Now the chickens are coming home to roost.

When a group of European leaders met in the Dutch city of Maastricht in December 1991, their ambition was boundless. A European Union would be formed. Endowed with its own flag, constitution, parliament and even a common currency, it would stand up to and overtake the United States. At the core of this vision was the idea that a supranational government would promote common European values, put an end to nationalism and harness the powers of all European nations for a common purpose.

The dream was beautiful but unrealistic. It was concocted in haste, marked by horse trading over German unification and by naive visions of how Russia and other former Soviet republics would become well-behaved European nations. Bringing the Germans and the French together in a peaceful embrace for the first time since the Carolingian Empire was certainly laudable. But European nations are not robots, programmable by Brussels technocrats. They have their own historical and cultural legacies that over the centuries have led to myriad devastating conflicts.

All of this has been long known, but ignored, in the interests of furthering that initial vision. Europe’s leaders are now discovering what the ancient Greeks knew well: where there is hubris, there is Nemesis – the goddess of divine vengeance and retribution – who intervenes to cut man down to size and restore equilibrium. If the meeting at Maastricht was hubris, then the British referendum was Nemesis restoring balance.

Migrants and populists

Much has been said about the immediate challenges facing the EU, not least of which is the migrant crisis. While concern over refugees did play a role in the British referendum, the issue itself is a symptom of a deeper malaise for which a cure seems far off. A large and growing share of Europeans see Brussels as part of the problem rather than the solution. Leaders of populist movements are happily surfing on a wave of discontent that allows them to make the EU a scapegoat and advocate leaving the bloc.

Some might argue that the British have been on their way out of the EU ever since they joined, and if Brexit can be contained, it might not be too damaging. After all, the UK is not a member of the eurozone or the Schengen area. But the real danger lies in the risk that Brexit will energize similar movements in core member states. Leaders such as Marine Le Pen of the National Front in France, Matteo Salvini of the Lega Nord in Italy and Geert Wilders of the Party for Freedom in the Netherlands have all responded to the British referendum by demanding similar votes in their countries. Can one imagine an EU without France, Italy and the Netherlands?

Populist parties from the left and right are on the rise across the continent. They have parliamentary representation in 25 member states and are a part of eight governments. Even a stable democracy like Sweden has become gridlocked by the rise of the Sweden Democrats, whose leader, Jimmie Akesson, has celebrated Brexit as a victory for democracy.

Problem child

Why do so many Europeans see the EU as the problem? One obvious reason is its uninspiring track record. The ambition of a common foreign and security policy foundered with the Balkan wars in the early 1990s. Brussels’ poor handling of the Eastern Partnership helped lead to war in Ukraine and a dramatic confrontation with Russia. The vision of the EU as a “peace project” has suffered accordingly.

The common currency has encountered similar trouble. The challenge was not only the inconsistency in pursuing a common monetary policy without a common fiscal policy. Far worse was the yawning institutional gulf between north and south. The greater flexibility and efficiency of the north created an illusion that keeping the south from devaluing could be a winning strategy. The resulting policy of cheap money and high debt has hamstrung the euro. A stubborn defense of the single currency is being conducted at the cost of austerity in the south that has increased youth unemployment and aggravated national antipathies.

If the EU is to survive, concerns about Brussels’ legitimacy must be resolved. Common values must overcome nationalist sentiment. The most powerful slogan in favor of Brexit was “Take back control.” Its success reflects a view of Brussels as a usurper of national decision-making. Nothing could be more devastating, and the outlook is again marred by a legacy of arrogant denial.

As Europeans have complained about a deficit of democracy in the EU, Brussels has simply pushed forward. When nations voted against ratifying the Lisbon Treaty, they were called upon to vote again, until Brussels got its way. Challenges from governments in member states that have been critical of the EU, from Jorg Haider in Austria, to Viktor Orban in Hungary, to the current government in Poland, have been met by finger-wagging and attempted isolation.

Shaming is a tempting political tool. It brings feelings of moral superiority and the opportunity for grandstanding. But there is now ample evidence that shaming tends to increase, rather than curb, populist parties’ support. Their followers feel insulted and old animosities are reactivated, causing nations to drift further apart. This legacy reduces the prospect of Brussels rebuilding its legitimacy.

Bumpy road ahead

Whether the union will survive hinges on the next round of elections to the European Parliament, due in spring 2019. Will Brussels come up with a solution to the challenges it faces, or will the vote usher in populist parties bent on dismantling the EU?

The road to those elections will be strewn with obstacles that will drain whatever political capital remains in Brussels. These include protracted Brexit negotiations with the UK and contentious national elections in some of the EU’s largest and most important members.

In March next year, the Netherlands will elect a new parliament. According to recent polls, Mr. Wilders’ party is in the lead, while 54 percent of Dutch voters say they would vote to leave the EU if given the chance. About a month later, France will hold presidential elections. Marine Le Pen, who favors a so-called “Frexit,” is leading the polls there, with close to 30 percent.

Then, in the early fall of 2017, Germany will hold elections for the Bundestag. Chancellor Angela Merkel faces a strong challenge from the populist Alternative for Germany party. More worryingly, her relationship with Horst Seehofer, the leader of the Bavarian Christian Social Union (long a sister party to Merkel’s Christian Democratic Union), is probably already fractured beyond repair. The country’s Social Democrats have begun angling for the formation of a leftist government.

Will the EU really be able to cope with Brexit, the migration crisis, the euro crisis and nationalist resistance to its very existence, while also living up to promises of reform and better social policy? The answer depends on finding leadership that can ensure all member states pull in the same direction. What makes the outlook so grim is that in Europe, visionary political leadership is in very short supply.

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