Making lemonade out of Brexit lemons
Doom and gloom! Voters in the United Kingdom have decided to leave the European Union. Markets are tumbling, Prime Minister David Cameron has announced his resignation and politicians around the globe have expressed deep worry.
Leaders of the various EU countries, as well as those in Brussels, have voiced their regret and warned of Brexit’s dangers. Some have also pointed to damaging consequences for the UK, sounding very much as if they are making threats.
Prime Minister Cameron has been criticized for initiating the referendum. However, the vote was necessary to clarify the UK’s position in the bloc. Holding it took courage on his part.
The next move for the UK is to formally notify Brussels of its intention to leave the EU; the exit would become effective after a statutory period of two years. For the time being, the UK is still a member of the bloc. Notification does not have to be issued immediately.
The UK is an important trading partner for the rest of the EU. It is therefore in the interest of both sides to reach free trade and other agreements over the next two years. This should be feasible, assuming both sides go about the negotiations pragmatically.
Risks and opportunities
The largest danger is overreaction by the EU and the remaining members. This includes any attempt to make an example out of the UK with some sort of retaliatory “punishment.” Motivation for such a move comes from hypocritical self-righteousness, opposition to reform and centralizers’ fear that other members might follow the UK’s lead.
But the vote offers the opportunity to make reforms, such as increasing subsidiarity (where the EU performs only those tasks that cannot be performed at a more local level) and encouraging competition between members to improve efficiency. This would mean going back to a simple system that grants the four basic EU freedoms (the free movement of goods, services, people and capital).
The most important reform the EU should make is discontinuing the transfer union
The most important reform the EU should make is to discontinue the transfer union – by which financial transfers are made from richer to poorer regions. Short-term transfer payments can make sense to develop certain regions, but a permanent transfer system is self-destructive. GIS warned of this more than a year ago, when observing that Europe was accepting Brexit in order to avoid Grexit.
But it is not Brexit that endangers EU cohesion. Instead, it is the transfer union and an exaggeration of so-called “solidarity.” Any over-generous solidarity will be misused.
Looking at the gloomy post-Brexit news is depressing, full of predictions of disaster. But this overshadows a lot of good news. Colombia has finally achieved what appears to be a robust peace agreement in a bloody terrorism-infused civil war that lasted decades. The Panama Canal expansion has been completed, which should give an enormous boost to global trade.
So Europe should not paralyze itself in a hysteria of whining, but grasp the opportunities. The referendum and its long-term outcome, despite the immediate result, could yet prove to be a net positive.