We live in dangerous times. At odds with almost all conventional economic thinking the British have voted to leave the EU. This decision has huge ramifications for the future of the UK, the future of the EU and the future of the world. It is undoubtedly a manifestation of the widespread feeling in Europe, the US and elsewhere that ordinary people are being ignored politically and left behind economically. But whether this outcome improves anything for them is highly questionable and will depend on how the rest of the EU responds. It makes other elections such as the US presidential one later this year harder to predict – we are living in interesting times, as the Chinese proverb says, but also in dangerous ones.
In the short term there is massive uncertainty. For the banks and for London as an international financial centre this outcome is definitely a negative and the failure to retain passporting rights across the single European market would be very damaging. On the other hand, London has thrived in the past by being outside of the restrictive regimes of others and it was restrictive US tax laws that created the Eurobond market in the 1960s. Right now it looks bleak but there could be some gains going forward as well as losses.
The worst thing now both for the EU and the UK would be for European leaders in Brussels to start taking a hard and threatening line towards the UK. They will not deter other Eurosceptic parties across the region by such a stance only encourage them. The EU should respond constructively for its own survival.
The best approach of the EU hierarchy would be to put their hands up and say “sorry we got this whole thing wrong” on migration, the euro and democracy. It would be best for Brussels to do now what it should have done before the UK referendum and talk seriously about a new formula for Europe instead of repeating the meaningless mantra that the core principles of the EU are fixed and cannot be changed.
There have been signs in recent weeks from the more conciliatory statements of the European Commission’s president, Jean Claude Juncker, as well as European Council president Donald Tusk that the message was starting to get through. But their apparent 11th hour conversion to reform was too little too late for the British electorate.
Of course not everything that is wrong in the UK is the fault of the EU. Globalisation and the advancement of technology have meant large swathes of the population getting left behind, particularly those who are older, less well educated and less skilled. They are liable to blame government for their plight and a remote bureaucratic organisation such as the EU is ripe for their anger.
The EU could and should have responded much better to the situation but the danger is that the same anger in other countries leads to both poor economic and political outcomes elsewhere.
Brian Caplen is the editor of The Banker.
