It happened. After over four decades, which have had plenty of rough moments and more than enough contentious feelings, the UK has voted to split from the European Union. Everyone is freaking out. Some people are crying real tears of sadness and others are rejoicing. Uncertainty is the net emotion. So after the shock, what's next. I've been trying to form a narrative in my mind. To do that, I have turned to my trusty typewriter. Writing brings clarity, creativity, and confidence. So here it goes.
There are many aspects to the shift that just began. Here is my list of observations and assumptions in no particular order. Hopefully by the end a theme emerges.
To begin with it must be said that nothing has changed, yet. The vote is an expression of the will of the people. BUT the actual process and terms of exiting the EU still need to be negotiated and will take years. Everyone needs to relax.
A major defining feature of the EU is the common currency of the Euro. However, the UK never gave up their currency - the pound. So they don't go back to the pound, since they never left it. What's more, they have a central bank with the independence to support their economy's need for liquidity and stimulus. An advantage several other UK countries wish they had. (Bet Germany is enjoying the competitive boost they just got from the decline in the Euro!)
The UK may have left the European Union, but they didn't leave Europe. A flight from London to Frankfurt is still approximately 1 hour and 25 minutes.
The UK declared independence not war. Just because the UK voted to withdraw from its treaty with 27 other European nations, doesnt mean the UK is not still an ally with every single one them. The USA was the first to stand up and reinforce that in or out, our relationship is solid.
The UK is still a member of the Permanent 5, G20, the G7, and NATO. So it still has a seat a some very important tables.
The people of the UK are still citizens of the same counties they were before the vote. Someone who was British, Irish, or Scottish, still is. Furthermore, the governments in the's countries which make up the UK still exist intact. The UK didn't vote to give up their national identity and sovereignty, they voted to increase it.
No business was dissolved or economic need eliminated. Life goes on with all the same essentials. Soldiers report to the same commanders at the same posts. People will get up and go to the same place of work, buy their eggs at the same market and their children will have the same school teachers, even though a new chapter will have to be added to the history books.
There are the same media, actors, tourist attractions, churches, and all the things which add color to life. More has stayed the same than has changed. That said, this was a referendum for change. So what about that?
Starting sometime in the next two years, and probably sooner than later, the UK will have to reach new agreements on trade. I wonder if the UK will just have to negotiate one agreement with the EU commission, or whether it is in a position to reach separate agreements with each of the European nations individually. I believe it is the former, but surely this will be a pain in the ass either way. Heaven knows this is a windfall for some of those in professions like law and accounting. But the question is not whether to trade! Surely, Germany still wants to sell Mercedes in England. The question is how freely the EU and the UK will trade. It is on this issue more than any other that uncertainty remains. One of the greatest privileges of being in the EU was the freedom to trade freely. Weakening the UK's economy in order to grow the EU economy ought to be viewed as a zero sum game. But politics and people have a way of complicating otherwise simpler decisions. Still, Ocams Razor suggests that the last thing any of the parties want is to spoil the party by bringing on a recession! So it is in the mutual interests of most everyone to move negotiations along and promote growth.
Going forward, a UK domicile won't count for an EU domicile. This has major ramifications for international organizations. But here is the thing. It doesn't mean those same firms do not want a presence in the UK. It does however mean that they may want to open another office in the UK. Some may move from the UK to the EU. By the same token, some UK organizations may see the need to establish a presence in the UK. The "Remain" camp created a lot of fear that the sky was falling. Now that sky has fallen the economists will push the numbers again and no doubt they will be different. Because now real business planning will require that the political agenda be put aside. It remains to be seen what the real net effect will be.
Borders don't change but crossing them will. If anyone thinks that an Italian won't be able travel to England or an Irishman to Paris, they are irrational. They may have to add a few minutes to clear customs. The ones who we will have a harder time for sure are the migrants and refugees. That's at the crux of one of the biggest changes.
In declaring a sovereignty they never lost, the UK took back from the EU the right to determine immigration policies. Now, instead of group of unelected EU beauocrats creating a quota for how many refugees the UK must accept and deciding who can live in England, the English people can control their population. Gone is the right for anyone in Europe to choose to live in London. Or anyone from Dublin to live in Brussels. Is that such bad thing? After all, isn't this the ultimate concept of national sovereignty? How would Americans like it if the EU mandated we take 500,000 refugees who have no means of support? The biggest threat to the EU is that a majority of people in France or Italy will get the same idea as the UK. Many already have!
By giving up EU membership they also will not be subject to all the other various rules and regulations handed down in Brussels. This is at the heart of the sentiment marketed simply by the Brexit supporters as "taking their country back."
Right now there is a lot of uncertainty, which is hardly ever good for business and markets. BUT there are some things that are highly logical. One of them is that a deep European recession would be bad for the status quo. Nobody wants that, least of all the EU beauocrats! If anything threatens to spoil their meal ticket it is a failing economy which would only elevate the burdens of the refugee crisis and fuel more the demand from citizens from other member nations for the same path the UK took. It is in the interests of the EU, the UK, and for that matter the USA, and all central banks, to come up with a strong positive growth policy response fast! And, to send comforting signals to business and markets about a smooth and workable transition for the UK out of the EU.
What's more, is the likelihood that the EU will be pressured to implement reforms to its policies which drove the UK out. The beauocrats can be absolutely counted on to act in the interest of their own self preservation. Now that they see that their EU jobs are in jeopardy watch how fast they are less generous with taxpayers money to support refugees! It's easy to be alturist with somebody else's money.
So as bad as the Brexit is, there may be some good that can come from it. It is interesting to test the counter factual. And possibly the world will find better solutions to the refugee crisis. For example, dealing with the causes. After all, what good comes to nations like Syria if all their peaceful citizens and the families and people who are the future of their society leave? How do they regrow a country which has lost its population and all that's left are jihadist and religious radicals? Has the question ever occurred to you whether Germany is really trying to do Syria a favor by taking those people, or are they motivated by the need for labor to deal with demographic problems in their own economy? Like the Broadway show "Wicked," the back story often reveals a different perspective.
Long live the Queen!
