Brexit: mass suicide

Has Cameron taken into account the mood swings of his electorate once the Three Lions are out of the next European Cup? 

On 23 June, the British electorate will vote on a referendum to determine if the United Kingdom will continue to be a member of the European Union. The announcement was made by Prime Minister David Cameron last February after negotiations with the other EU member states regarding the new status of the relationship between London and Brussels. The agreement that was reached, which in the mind of the prime minister should enable the United Kingdom to remain a part of the European Union, will only come into force if the outcome of the referendum is the British people saying yes to Europe. In that case, the ratified text of the agreement outlines compromises that have been reached on four issues.

a) on sovereignty, an issue very dear to Eurosceptics: the agreement envisages that when the EU treaties are next reviewed, it shall be specified that the principle of an “ever closer union”, on which the construction of the European Union is based, shall not apply to Great Britain

b) on immigration, the most sensitive point in the agreement: it has been decided that Great Britain may activate an ‘emergency brake’ over a period of seven years, which will gradually (and not immediately, as Cameron had hoped) limit the payment of social security benefits to EU workers for four years after they enter the country.

c) on economic governance: for the most part, the agreement meets the demands made by Cameron by establishing that decisions about the eurozone may not be discriminatory towards member states that have not joined the euro (the British banking system shall not be subject to ECB supervision, and London shall not be forced to take part in bail-outs of other European countries). This proviso is, however, offset by the fact that countries outside of the single currency will not be entitled to veto decisions concerning the euro area, nor will they be in a position to stand in the way of economic and monetary Union objectives.

d) on competition, the enhancement of which was one point where the parties were able to reach full agreement: even as the provisions on this issue meet many of the Tory’s requests – and Cameron himself greeted its approval as a success for British politics – there was no lack of criticism from Eurosceptics. It will be up to the British prime minister, who promoted the referendum in the first place, to convince a British public that is very undecided on this issue.

Polls indicate that the gap between the in and out camps is slim, and thus the outcome is very much in doubt. And yet the issues at stake in the agreement have never really been that divisive for the British electorate. What Brits do care about is the degree of sovereignty that they are required to hand over to Brussels. Cameron nevertheless faces the risk of contingent factors that could have an impact on the referendum’s outcome, for example, an exacerbation of the refugee issue as the vote approaches. There is also what we could call the “Johnson effect”. The decision of London’s mayor and one of the UK’s most popular politicians, Boris Johnson, to side with the Vote Leave front has greatly increased concerns, particularly among investors, that the country might actually vote to leave the EU. Nevertheless, his decision is unlikely to tip the scales.

All of these factors combined could provide the leave front with a winning margin. But it is also true that there are many other factors that bolster the remain camp. One of the most important of these is that the British (as proven by Queen Elisabeth, the monarchy and cricket) have an innate preference for the status quo. Additionally, the business world, including the Confederation of British Industry, which represents 190,000 companies, is largely in favour of staying in the EU for fear of losing access to the single market. According to estimates from the insurance company Euler Hermes, in the event of a soft exit (with a free trade agreement still in place), chemical companies could suffer losses of around 3.2 billion euros, while mechanical and car manufacturers would experience a market contraction of €1.4bn each. But in a scenario of complete commercial isolation, meaning without a new free trade agreement, exports in these sectors could drop by between €4 and €9 billion euros, and British company turnover could contract by -1% a year (compared to a current growth trend of +4%). Moreover, the negative commercial balance, already at record levels, would climb from €45bn to as much as €233bn within 12 months of the UK formally exiting the EU. Then there are the financial markets: TheCityUK, an association representing the financial sector, has recently stated that an exit would “damage the City and foreign investments and lead to a long period of uncertainty”. No surprise then that the value of the British pound has dropped by 12% in less than a year, mainly due to Brexit fears. Even the FTSE 100 – the share price index of the top 100 companies listed on the London Stock Exchange – has suffered as a result of Brexit uncertainty, plunging over the past year from a value of 7,100 to as little as 5,500. To make matters worse, it is rumoured that last February, a few major American banks (including Goldman Sachs, J.P. Morgan and Bank of America) footed six-figure donations to the campaign against Brexit because it would force them to move their European headquarters elsewhere.

Finally, following a possible exit, the standard of living of British citizens would also suffer. The Bertelsmann Foundation has calculated that in the event of the country leaving the EU in 2018, per capita British incomes would drop by anywhere from 0.06% to 3% in 2030. For each individual British citizen, this would mean a drop in per capita income of at least €220 (in the event of a soft exit) and a maximum of €1,025 (in the event of commercial isolation). If along with the damage to trade, we also take into account productivity, the drop in per capita GDP by 2030 could end up being anywhere from €692 (soft exit) up to as much as €4,850 (isolation), a loss of €313bn for the entire economy. What’s more, the meagre savings that could be achieved through Brexit (cancellation of annual contributions to the EU budget, which currently stand at 0.5% of British GDP, or €8.6bn) would by no means cover the economic losses. It is, however, incredibly unlikely that voters will cast their ballots based on data and figures. And that is exactly why Cameron’s gamble is rash and irresponsible!

I continue to believe that in the end, the British will side with known quantities (however evil) rather than risk taking a leap into the unknown – as long as the Three Lions don’t meet an early demise in the European Cup in June, irritating the electorate to such an extent that it could have a bearing on the outcome.

@GiuScognamiglio