By Erol Riza
The UK has voted to leave the EU after 43 years of membership which from time to time has been a troubled relationship.
The UK government held a referendum, described as a giant democratic exercise, but it should never have happened as this problem has plagued the Tory party since the days of the late Margaret Thatcher. The country did not need it and the EU did not want the problem it has created.
But that is history and the question now is, what does Brexit mean for the EU? The sad thing is that the real issues of why the UK should have remained are far beyond immigration, the economy and the banks. In fact, the contribution a country like the UK makes to the world, and to the EU in particular, is far beyond the sale of services to the common market. The UK has a great tradition of democracy, rule of law, tolerance and good governance. It is a big loss for the EU that the UK will leave and the Germans were too late to ask for “Please do not GO” on the front page of Der Spiegel.
I write as one who has lived in London, witnessed the arguments on TV for and against Brexit over the last four months, and as one who campaigned for the UK to Remain and literally handed out leaflets in the street about the reasons why Remain was good for the UK. I write as one who talked to people in the street who were confused and biased. Project fear on both sides of the argument were misguided and the untruths were presented as reasons to leave. The one of Turkey joining the EU was the greatest. The mistake, with the benefit of hindsight, was that the UK government failed to understand that the people of England and Wales did not trust discredited bankers, former politicians, the IMF, the Bank of England and especially Brussels officials like Mr Juncker.
The government failed to understand that fear of economic collapse alone would not scare the people of England to vote Remain. The problems of immigration in the UK were never really understood in the EU, in Brussels especially, and not helped by last year’s developments after the German Chancellor’s mistaken, but well meaning, invitation to refugees from Syria. Only by living in the UK is it possible to gauge how important immigration has been in the debate and how far control of movement of EU nationals was central to the Brexit voters who in the main were older people.
The key comment I would make is that the EU has never been loved in the UK, and it is a failure of successive British governments and also of the EU for not reaching out to the man in the street. This phenomenon is not just in the UK as the south of Europe is mired in high unemployment and weak growth. Every EU citizen, and the British, would be justified in questioning what the EU has done for job creation and a future for the young in the EU.
The British economy has performed very well outside the euro and the British have throughout history been a free trading nation and will, after the adjustment they will make, be able to offer their services (80 per cent of exports) to the world, including China and India where more economic growth is expected. How the EU performs depends on breaking the austerity straightjacket and reducing regulation, giving back to the economies of EU countries more freedom and flexibility. The EU is probably dead as a political union as a result of Brexit and the sooner this is understood the better.
The austerity imposed on the EU citizens by governments which have been forced to subscribe to the German doctrine of less government expenditure has failed to produce the promised employment and growth. In fact, the focus on bailing out the banks by the governments and the European Central Bank (ECB) has made the EU more unequal. The major beneficiaries of the quantitative easing of the ECB have been bond holders who are either banks, pension funds or high net worth individuals. So long as the EU only produces ideas on paper and actions that do not boost aggregate demand, the problems of the EU will be evident and possibly get worse after Brexit.
The wakeup call must ensure the EU leaders provide leadership and decide that the governments should borrow and spend on infrastructure and not expect the private sector to invest in such projects. Public investment, at interest cost next to zero, is what is desperately needed, not promises of risk capital from the private sector.
Unless the EU leaders reassess their hitherto policy on government spending, and put austerity in the freezer, immigration problems and unemployment will only lead to more gains by the populist right wing xenophobic parties we are seeing in Hungary, Poland, Austria and the Netherlands. Mrs Le Pen, the leader of the French right wing anti EU party, declared Friday as a day of joy and was probably opening the champagne bottles and drinking to the health of Mr Farage. This may be the beginning of the end of the EU unless it changes course and really cares about the man in the street.
There is no better evidence of the disconnect between voters and political leaders than that of the Labour party supporters in the UK defying the pleas of former prime ministers, chancellors and their present leader. The British voted based on their determination to stop immigration, but a lot of them, who I met, spoke of the unelected Brussels elite on fat salaries and cut off from the real world; the disconnect between the EU and the people.
The EU officials come with an arrogance that the man in the street cannot tolerate and this must be a lesson for them to work for the benefit of those who pay their salaries and conduct themselves with humility and accountability.
EU citizens will expect nothing less, and if the wakeup call is not heeded the EU will probably face very challenging times ahead with the risk of other countries wanting referenda on their membership of the EU.
Erol Riza is founder and managing director of SME Markets Limited, London