Global Stakes For The Brexit Vote
On February 20th, UK Prime Minister David Cameron announced that the 'in/out EU referendum' he had promised in the campaign for the last parliamentary vote would finally take place on June 23rd. The outcome of the long-promised vote could have a tremendous impact not merely on the future of Mr. Cameron and his coalition but on the economic future of Great Britain and much of the world, including the European Union (EU) and the United States. It's arguable that the referendum will be the most significant vote the world will see between now and the U.S. presidential ballots in November.
Of course, Mr. Cameron is desperately trying to convince Britons to cast their votes in favor of the UK remaining 'in' the European Union. In order to pacify the deeply held mistrust of the European Union that is harbored by many in Great Britain, Cameron recently returned from negotiations in Brussels with a list of "concessions" from the EU which he claimed would secure a special status for the UK within the EU. Ominously for Cameron, French President Francois Hollande expressed doubt that the concessions would even be included in any binding treaty. Already the fault lines have sharpened and the political maneuvering has begun. But as with the current climate in the U.S., sentiment does not boil down to a simple left/right spectrum.
A true understanding of the EU demands recognition of the basic rationale for its formation. In the late 1940s, European leaders, including Konrad Adenauer of West Germany and Jean Monnet of France, dreamed of a European superstate powerful enough to negotiate on equal terms with the U.S. and the Soviet Union. The resulting surrender of sovereignty by the once-proud European empire ruling nations was not to be achieved easily. Allegedly, Jean Monnet wrote to a friend in April 1952, "Europe's nations should be guided towards the superstate without their people understanding what is happening. This can be accomplished by successive steps, each disguised as having an economic purpose, but which will eventually and irreversibly lead to federation." (The End of the Nation States of Europe, Philip Jones 9/12/09, rense.com)
Regardless of whether Monnet actually penned those words, the move towards 'ever closer political union' has been pursued rigidly, relentlessly and ruthlessly by the Euro elite exactly as those words suggested. The path was lubricated by huge amounts of targeted funding and activism by the European Central Bank, which showered monetary largesse on those member nations facing financial strain. Although these wealth redistribution policies had become increasingly unpopular among the creditor nations of Europe's northern tier, they were not enough to derail the drive for further unionization. It was not until the recent wave of mass immigration from Muslim countries that the average European citizen began to realize just how much sovereignty their political leaders had yielded to the EU. Just this week, Angela Merkel's Christian Democrat party, which has long championed greater EU integration, took a major drubbing in local German elections as a result of her fanatical support of open borders for Middle Eastern refugees. The big winners were far right parties that oppose open borders and are pushing for the return of greater national sovereignty.
However, these rumblings have yet to make a significant impact on policy.With the unique exception of Greenland, a Danish territory, the EU has allowed no national exits or even material retreats from its relentless drive towards ever closer political union. With this in mind, and in light of President Hollande's comments, many Britons have come to doubt that Cameron's promised "special status" will be all that special.
According to yesterday's Financial Times poll tracker, 45 percent of British voters favored staying 'in' the EU, with 40 percent against and 15 percent uncertain. The result is far from certain, leaving it open to political persuasion, including massive advertising.
Perhaps the biggest political development of recent weeks has been the defection of Boris Johnson, the charismatic and popular conservative mayor of London to the "out" camp. By breaking with the leader of his own party, Johnson has threatened to fragment the Conservatives (much as Donald Trump is doing with the Republican Party). But, as with Trump, there may be more than purely ideological motivations behind Johnson's gambit.
Even if victorious, Cameron could be seen by almost half the British people, and in particular among conservative elements, as having sold short his country's interests. Sensing this, he may have to resign soon after the June 23rd vote and try to hand the Premiership to his old friend, and Chancellor of the Exchequer, George Osborne. The succession plan may have been the push that Johnson needed to finally join the 'out' campaign. His outstanding oratorical skills, combined with those of UK Independence Party's Nigel Farage, could prove to be a major factor in convincing a major portion of the undecided vote.
The "out" crowd will likely need all the help it can get. The pro-EU forces are expected to deploy massive advertising expenditures to allege that British trade and economic vitality will plummet with an exit from the Eurozone. Even President Obama, who remains a popular political figure in Britain, intends a trip to the UK in April for the expressed purpose of galvanizing support for an "in" vote, according to a report yesterday in The Independent on Sunday. In response to that, Boris Johnson has excoriated Obama for meddling in internal British affairs and for supporting a surrender of sovereignty that would be wholly unpalatable to Americans.
Great Britain, a late entrant, has long been the 'odd-man-out' among EU member-nations. Its language, culture, its common law legal system and its financial capital markets are aligned closely to those of the United States.
Even as a cultural 'misfit', the UK's membership is of great economic and political importance to the EU. According to 2014 figures from the IMF, Britain has the second largest European economy. Paying the second largest net contribution to the running costs (2013 figures from Highcharts.com), the UK is a key element in the EU's continued viability. Those who have been attempting to spread economic fear through dire warnings on lost trade have failed to mention that the EU has enjoyed a trade surplus with Britain, which rose to over $6 billion per month in 2014 (Office for National Statistics).
Politically, Great Britain has an independent nuclear deterrent and a permanent seat on the UN's Security Council. In both of these critical areas, the UK has operated for over seven decades in uniquely close collaboration with the United States. Envious and covetous of this quiet but most powerful 'special relationship', the EU may want it severed.
The implications of a revolutionary 'out' vote by British voters should not be underestimated. It may influence even the U.S. election. Clearly, a BREXIT would represent a precedent for other nations, such as Greece, Portugal and even Italy, which already may wish covertly to leave the Germanic strictures of the Eurozone.
Any major threat to the euro, the world's second fiat currency, could impact an international monetary order built on an unprecedented mountain of credit-based debt. The uncertainty of the political future of the EU combined with the costly effects of deeply negative rates in European banks could increase interest in alternative stores of value.
June 23rd may prove to be a day of destiny for the United Kingdom, if not the world at large.
John Browne is a Senior Economic Consultant to Euro Pacific Capital. Opinions expressed are those of the writer, and may or may not reflect those held by Euro Pacific Capital, or its CEO, Peter Schiff.
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