After Brexit, Will the Sun Rise Again?

The British Euro-referendum appears to be a brilliant example of the working of the Dunning-Kruger effect. According to the latter, less informed people are suffering from the illusion of competence since they lack the ability to judge the limits of their knowledge. At the same time, better or well informed people cannot understand how simple things they grasp can be beyond comprehension for others. Also, the well informed often miss the opportunity to work hard to overcome the misunderstandings because they either misjudge the extent of the misunderstandings or hope that problems will simply pass.

Thus, while the camp of the Remainders kept polishing their well-informed and -substantiated arguments, the less informed had acquired their own spokesmen who, in the framework set by their peculiar narrative, performed convincingly for their own groups (indeed, often misjudging the extent and costs of the Exit). It is no wonder that the more arrogant and patronizing the Remainders were towards the arguments of the other side, the more convincing must have sounded the claims of the Leavers about the EU bereaving Britons of their democratic voice and imposing on them policies that they have not approved (which, by the way, happens regularly to all member states).

The second big weakness of the Remainders campaign was the relatively meager future perspective proffered, especially when compared with the stress they laid on the common history and values. True, European history is shared and the UK membership of the EU stretches to almost half a century, even if half of the period has witnessed the talk of the country leaving the Union. Yet, what is certain, the British people cannot be accused of Europeanisation, suffice it to take a look at the usual suspects – their electric plugs and sockets, water sinks or car building. Likewise, the common Euro-currency or the Schengen Area, clearly symbols of success for the others, have become for Britons rather the symbols of 'common trouble'. If common history and values were thus dominating the argument, less attention was given to the promising future perspective. It mostly bordered with the idea that 'the Remain vote would leave things as they are, while the Leave vote would make the situation worse'. There would not be a need to vote unless the situation was already bleak. There were also added some hot numbers about the size and importance of EU subsidies.

One more serious argument of the Leavers that proved difficult to deal with for the Remainders pointed out the fact that within the EU the UK would necessarily stay dependent and constrained by the product and service standards originating from the German-French axis. This would necessarily keep the British economy behind the duo. Doing things in their own way would enable Britons to rebuild their pride (or indeed, to fail). What the Remainders also did not quite come to terms with was the Leavers' unsatisfaction with the ever-growing proportion of EU subsidies in their economy while what has also been growing is its lagging behind the U.S. and China in innovation.

Therefore, the two glittering monologues from the two sides did not compose a dialogue, and this proved more useful for the Leavers.

Well, as to the sun, it was nevertheless rising and the banks were opened in London as well as in Brussels. This will prove to be so in the following days and even on the first day after UK's real exit from the Union. The element of surprise is more dominant on the continent, Britons themselves have obviously been more aware of the fragile balance between the camps. Indeed, the question had kept its acuteness since at least the ratification of the Lisbon Treaty. Had there been held a referendum back then, one would guess the chances to have reached today's referendum could have been smaller. What complicates the Exit is the fact that the Scottish, Londoners, and the people of Northern Ireland preferred to remain in the Union. The need to swallow this democratic lesson might not pass fully harmless with respect to the domestic political stability.

Despite the first shocks, global markets have reacted less turbulently than predicted. Here one can suspect the presence of crisis plans knit together by the central banks. Which is also a sign of the financial experts taking the possibility of Exit more seriously than the politicians. Nonetheless, next to those losing millions in global markets has also seen others earning millions or look forward to do so in the future.

Curiously, as the global leaders, so have the Baltic politicians taken the news as if some prominent person has passed away: utmost sadness and regret is expressed, followed by acceptance of the fact, and entertaining some warm stories of the glorious past together.

What next?

What seems highly probable though is that the Brexit serves as a kick-off to a wider Eurosceptic movement across the continent. European elites can stay true to their delusion of having managed well in the situation and leaving all the blame for the foolish Englanders to assume, especially for the suffering of the Scots and the Northern Irish. However, from another angle, these are Britons and not the EU at large who have set on the road of change and reforms. For despite many obvious weaknesses of the Leavers arguments, one cannot easily dismiss the fact that European political elites have stayed nearly petrified when facing the financial and economic crisis. The inaction – and what is more – the clear inability to grasp the gravity of, let alone to handle, the situation, has already produced some bitter fruits in the rise of hardline radicals. The rhetoric of cooperation cannot hide the gloomy reality that has hit the ideals of prosperity and equality. Put simply, only a few nations and social groups are doing fine while large sections – be it the periphery or the less well-off – are suffering. What makes the crisis even harsher is its global dimension. But this does not lessen the moral burden on the shoulders of European elites. Instead, it builds it up ever more gravely. For example, one cannot ignore the presence of the Greek argument in the Brexit debate. As remote as the fate of the Greeks is from the British reality (the debts as well as the euro), it is all the more significant that it has been brought up in the debates as a sign that there is something terribly wrong with the EU if instead of helping a country out it brings it only more suffering.

Now, as to the British revolution, it needs new leaders. David Cameron has already announced about his step-down. But it is also the 'demolishers' and anti-EU leaders whose work is done and who could not probably be the new leaders. One should look for a new generation of leaders, most probably for free traders but certainly experts on democracy. It will depend on the new leaders if London would become the financial center of the new era and the showcase of democracy or rather a capital of periphery lagging further behind.

Next to British political leaders also many a prominent EU leader should admit their role in paving the way for Brexit through pronouncing threats and putting unnecessary pressure on Britons. The EU needs desperately new and open-minded politicians able to lead public opinion and indeed at least attempt seriously to bring the EU out of the (ever-)present crisis.

One presumes that the approaching NATO summit will have been significantly influenced, both in terms of its moods and agenda. One could only hope that this boosts morale as it is the Nato which has to positively link the UK to Europe and to promote the EU–USA partnership.

The economic steps ahead

As there exist several models of economic survival and global competition, one cannot underrate the possibility of the UK being successful outside the EU. Still, aside from Switzerland, close role models are lacking. The rest of the successful European mavericks prosper on oil revenues or being highly specialized, using their (usually small) size as an advantage. Hence, while in the short term the costs of Brexit must surpass the benefits, in the long term (10-20 years) the success will depend on the ability to harness the achieved freedoms and lessened bureaucracy to boost innovation and productivity. It will also need a good model for doing more business with e.g. China, India, Russia and Australia. Among the British people, next to those who will be losing as a consequence of the Brexit, there will also be those winning, even in the short term. It will also be clear soon which side of the argument had more substance to it: that which counted the billions the UK contributes annually to the EU budget, or that which stressed the indirect benefits arriving from the synergy and the trade mark.

As pointed out above, it is also the EU that desperately needs some change. This is something that has hitherto been ignored. It is the question of schools of thought and debate which will be the way ahead. Will the EU be found an over-bureaucratic, subsidy-dependent, over-centralized, undemocratic system that suffocates productivity? This line of argument won the day with Britons. In the end, they did not complain so much about the contributions of the UK as about the style of economic thinking and the ensuing lack of competitiveness. Economic growth takes place in China and India, not in Europe and on the strategic plane it may seem wiser to follow the latter. The rest of the world will probably not share the EU Social Charter or the rules of money laundry. Next to this line of argument, there exist others, and one may as well be asking if the EU is not actually suffering from too much of neo-liberalism, the ideology of the day, also promoted by the global competition. The logic of austerity prevalent as a cure to sovereign debt problem makes, when looked at from this perspective, things only worse. Greece is the ultimate example of it, but it also seems to be 'as successful' in the rest of the EU periphery. Indeed, the focus here is also set on the effect of the common currency that appears to impose a sort of gold-standard between the countries of the Euro-zone. It is seen to divide the countries between those whose productivity surpasses their wages and hence brings ever-larger surpluses, and those whose productivity remains below the wage-level and therefore results in ever-larger deficits. Closely related to this view of the matters is the understanding according to which the ECB cannot fight the deflationary situation by way of pumping money into the private sector. The sums will only pile up in the saving accounts, not affecting the demand. What Europe needs according to this viewpoint is a high enough deficit spending by the governments to get the economy going again.

Along the dominant lines of critique, represented also by Cameron's EU reform plans, the Union should be more competitive and less bureaucratic. Even if they were steps in the right direction, they came too late and achieved too little to save Cameron himself. In any case, if the continent refuses to undertake a debate and the inevitable road of change, there may be more candidates for exit, be them the Irish or the Danish people.

Friendly or not so friendly break-up?

If the first day mourning moods will be replaced by a family row will depend on the actions of the leaders, no doubt the reasons for ill-will and over-reaction are more than plenty, as there are those who would like to see it.

As a matter of fact, Britain and Britons will geographically stay where they are, take part in the Eurovision and the European Championships. And, in the long term there will not be a better way than cooperation with Britons. In the end, Europe will be stronger together.

The break-up teams have not been manned yet and the negotiations will have to wait, especially as Britons will be facing first the stabilization of the domestic political situation. Once the negotiations will begin, they may take any period from two to seven years. Until they are concluded, the relations must continue the old way. Naturally, Britons will be left with the choice of leaving the EU single-handedly and abruptly. The process will not be overly difficult though, especially when taking into account of the fact that the UK takes part in the European matters as little as the special deals have made it possible. At the same time, the EU has several candidates of membership on the waiting list. Thus the cabinets in Brussels and Strasbourg will not stay empty.

Lesson-drawing

First, the EU should try its best to channel what happened into a positive change, and not ignore it by way of deeming it a foolish mishap. The problem of a deficit of democracy, or even the problem of this kind of feeling, needs prompt action, otherwise there will be a queue of new referenda and exits awaiting. The five-step delegation of powers may be juridically formally fine, as may be the qualified majority voting in taking common decisions, it necessarily remains remote echo of what an average European citizen considers acceptable democratic procedure and participation. Thus, despite the outcome, the British referendum is a celebration of democracy and legitimacy.

Second, the EU should revise how integration actually takes place for different sections of society. The Danes and the Greeks – next potential nations to consider exit – should hold nothing against the original ideals of integration. What probably terrifies them is the bureaucratic monster that the Germans (and French) have managed to build from it.

Third, Europe needs to differentiate between constructive Eurosceptics and the hardline radicals opposing the integration as such. Constructive critique should always be welcome, it will serve to enhance integration and to avoid the shocks like the present one. A pragmatic no-nonsense debate about the future of the EU should be (re-)established. A presupposition of such a debate is an acceptance of the plurality of views and of competing models and frameworks. This could best ensure that the radicals will be left disarmed and the public space will be reconquered.

Fourth, the remaining member states will hugely benefit from the British 'experiment', as the move will provide some real knowledge of how an exit is conducted and what a life outside the Union brings in reality. The following referenda will thus be able to rely on a more substantial knowledge compared to the mere predictions Britons had to rely on.

Fifth, after having swallowed a mouthful of bitterness, the Estonian politicians should keep the close ties and cooperation with the UK, because in terms of security it is simply a must and in economic terms it could provide some inspiration and be practically useful.

Sixth, nationhood and sovereignty should be found anew and incorporated in a positive way into the European models of integration. Should it continue that European integration be defined against these two key notions, further referenda are bound to happen.

Published 28 June 2016

Author Viljar Veebel

Author Illimar Ploom