More Notes on Brexit

The New York Times has dedicated eight pages to Brexit coverage. The story is of historical significance and deserves that much space. Credit to the New York Times.

For my part, I have collected some salient and incisive commentaries from various places. I present them as a service, the better to provide useful information.

We begin  with the question of who is responsible. Writing in Slate Reihan Salam names the primary culprit: Tony Blair. It tells us why Blair was so crestfallen at the results of the referendum.

The former Labor Party prime minister began the process by opening Britain to more immigration. He was a great purveyor of a cosmopolitan worldview that has now been repudiated… often by Labour voters.

Salam wrote:

One gets the sense Blair understands, on a gut level, that Britain’s rejection of the EU is a rejection of his worldview….

As prime minister during the 1990s, he often made the case for deeper European integration. More broadly, Blair proved himself to be among the most emphatically cosmopolitan world leaders in recent history.

For the past twenty years Britain has been living under the Blair government’s policy:

Since 1997, when the Labour Party, under his leadership, swept into office in a landslide, British society has been transformed by a wave of immigration unprecedented in its history. Over the following years, roughly twice as many immigrants arrived in the United Kingdom as had arrived in the previous half-century. Many who arrived during that earlier era hailed from the Caribbean and South Asia, and by the early 1990s, 7 percent of England and Wales’ population belonged to ethnic minorities. By now, that share has grown to over 14 percent.

The EU compounded the problem by opening its doors to relatively impoverished Eastern and central European states.

Salam explains:

When a number of countries in Eastern and central Europe joined the EU, most existing member states put temporary limits in place on the freedom of movement to ensure they wouldn’t experience a large and potentially disruptive influx of new arrivals. Blair’s government decided not to do so on the assumption that immigration from the new member states would be relatively modest. In fact, immigration from the new member states far surpassed the government’s projections.

It was not just the immigrants. To be more welcoming  the Blair government’s decision offered many of the benefits of citizenship, especially welfare payments, to people who had just arrived:

Under Tony Blair, Britain greatly expanded the use of refundable tax credits as a tool for poverty reduction, and this strategy has been wildly successful. But under EU rules, Hungarian newcomers are just as entitled to these benefits as, say, a poor Welshman. Regardless of whether this is a good idea, it is easy to see why some Britons find it frustrating. The only way Britain can make itself less attractive to less-skilled European immigrants is by imposing labor market regulations and welfare reforms that would apply to everyone, including less-skilled British workers. If we’re going to curb welfare spending, some British voters are asking, why not start with European immigrants who’ve just showed up on our doorstep? If the European Union requires Britons and other EU citizens be treated the same, why not leave the EU and be done with it?

In The Atlantic David Frum offers more details about the immigration problem, with a special nod to Angela Merkel:

The force that turned Britain away from the European Union was the greatest mass migration since perhaps the Anglo-Saxon invasion. 630,000 foreign nationals settled in Britain in the single year 2015. Britain’s population has grown from 57 million in 1990 to 65 million in 2015, despite a native birth rate that’s now below replacement. On Britain’s present course, the population would top 70 million within another decade, half of that growth immigration-driven….

If any one person drove the United Kingdom out of the European Union, it was Angela Merkel, and her impulsive solo decision in the summer of 2015 to throw open Germany—and then all Europe—to 1.1 million Middle Eastern and North African migrants, with uncountable millions more to come. Merkel’s catastrophically negative example is one that perhaps should be avoided by U.S. politicians who seek to avert Trump-style populism in the United States. Instead, the politician who most directly opposes Donald Trump—presumptive Democratic nominee Hillary Clinton—is doubling down on Merkelism.

A nice phrase that: Hillary Clinton is “doubling down on Merkelism.”

For the economics of Brexit we turn to George Friedman—no relation to Thomas. Formerly of Stratfor, George Friedman is one Friedman who is well worth reading.

Even though all of the world’s great economists and bankers backed Remain, Friedman points out that, for Great Britain, the EU was a mixed economic blessing:

Supporters of remaining in the EU made the case that there would be substantial economic costs. Opponents of the EU noted the obvious, which is that the EU is a dysfunctional economic entity that has been unable to address the economic problems that have developed since 2008. It has not addressed the condition of southern Europe, where unemployment has remained at more than 20 percent for years, nor the high unemployment in France. The profound difference between the lives of southern Europeans, including the middle class, and Germans, who enjoy 4.2 percent unemployment, is profound. Europe as a whole has stagnated economically.

Those who supported Remain—the Remainders—threated the public with the dire consequences, beginning with the end of London’s central role in the world banking system.

Friedman debunks the notion:

In the end, the Europeans need the financial services London provides. They will not lock it out. The European Union did not create the financial relationships that exist. Britain’s financial role goes back almost two centuries. The EU is a system that aligns with financial reality. It does not create it. The threat of consequences was not persuasive.

And of course, there was a class angle. Everyone knows that voters were repudiating the governing elites, the guardian class that had been ruling Europe by bureaucratic diktat. The British people were voting these unelected bureaucrats out of office:

The degree to which this was a vote that was directed against the British elite is vital to understand. Politicians, business leaders and intellectuals were all seen as having lost their right to control the system. The elites had contempt for their values – for their nationalism and their interests. This is not a new phenomenon in Europe, but it is one that the EU had thought it had banished.

Writing in the Wall Street Journal Fraser Nelson explains the influence of the bureaucrats:

The Brexit campaign started as a cry for liberty, perhaps articulated most clearly by Michael Gove, the British justice secretary (and, on this issue, the most prominent dissenter in Mr. Cameron’s cabinet). Mr. Gove offered practical examples of the problems of EU membership. As a minister, he said, he deals constantly with edicts and regulations framed at the European level—rules that he doesn’t want and can’t change. These were rules that no one in Britain asked for, rules promulgated by officials whose names Brits don’t know, people whom they never elected and cannot remove from office. Yet they become the law of the land. Much of what we think of as British democracy, Mr. Gove argued, is now no such thing.

Others are bemoaning the vote because they say that it has set off a grand financial crisis. David Goldman does the math and explains that, even if Britain suffers, Italy is a far greater danger to the global economy than a Great Britain that functioning outside of the EU.

Goldman writes:

This is NOT a global financial crisis. The hissing sound you hear is the air leaving various financial bubbles, but this is not 2008 all over again.

The British corporate sector has a strong balance sheet. Among the companies in the FTSE 100 equity index, net debt is only twice earnings before interest and taxes, slightly more than the S&P 500. Italian companies by contrast have net debt at nearly 8 times earnings before interest and taxes. The record fall in the pound sterling brings its exchange rate against the Euro to precisely where it was in 2014, before the pound rose against the European unit along with the US dollar. It’s a long-need correction that will benefit the British economy, which has suffered from an overvalued currency.

Financial authorities around the world warned of dire consequences were Britain to leave the Euro, but it’s hard to see what these might be. Britain’s auto industry is mostly owned by German companies, who will not stop producing or buying cars made in their British plants. The 2008 collapse had already cleaned most of the fluff out of the City of London, which shed more than 130,000 jobs in the years after the crisis. The global ambitions of European banks are long since gone and it is unlikely that a great deal of financial business will leave the already-shrunken City.

Britain contributes half a percent of its GDP to the rest of Europe each year, mostly to Eastern Europe; this drain on the British taxpayer will end. Most important, the ambitions of the European Commission to install a supranational government dictating fiscal and regulatory policy to its members have collapsed. Europe’s ambitions to field a common foreign policy also are in ruins after today’s vote.