Decisive Brexit Referendum: What Happens Next? Part 4: The EU Enters Its Endgame

[See Part 1 here, Part 2 here, and Part 3 here.]

The Brexit vote was never just about whether the Brits would reject rule from Brussels. The real issues were much broader and felt across the whole EU—an arrogant and undemocratic elite, its disastrous economic policies and an increasing gap between haves and have-nots, the first being the cause of the second and the second the cause of the third. To paraphrase what one disillusioned British voter told The Guardian: if you’ve got money, you vote in; if you ain’t got no money, you vote out.

In this context, I would like to quote two poignant open letters from European friends that were sent out just before the UK referendum.

The first is from a group of prominent Greek opinion leaders. Their letter started with the

basic idea, as it was explained to the people in Europe, [which] was [that the EU] was a community of European nations in friendship, solidarity, mutual benefit and democracy: Basic European Values.

It continued:

Unfortunately, these inviting promises proved to be false or failed. There is nothing about freedom, solidarity or friendship in the European Union. The European Union has proven to act on behalf of the interest of banks, multi-national enterprises and groups in the shadow, as advised by professional think-tanks and lobbyists, not in favor of its people. . . . The European Union is designed as a cartel and typically, there is a lack of democratic structures and processes: democracy becomes a disturbing factor.

Democracy, and especially direct democracy, is against any fiber of this European Union

The peoples’ vote got lost in the bureaucracy of the European Union. The European Union is driven by technocrats and an agenda which will lead to the United States of Europe shortly, the loss of the national sovereignty and identity of the European countries. The national parliaments have already delegated to a large extent their responsibilities and sovereignty to the European Institutions and consequently the national voting becomes more and more irrelevant.

The European Parliament, the only institution in the European Union the people voted for, has a more or less decorative function, it cannot legislate as we know it from national parliaments. The European Commission, which is in fact the European government, is not elected. It consists of delegates from the national governments. As Horst Seehofer—Prime Minister of Bavaria—put it: Those who are elected do not decide and those who decide are not elected.

European Union has a track history of ignoring the vote of the people. Referenda are only welcome if they approve the official policy of the European Union. If the people didn’t vote as requested, the governments used to arrange an information campaign and repeat the referendum until the outcome is convenient or the referendum result is ignored or twisted.

The letter then goes through the various EU referenda and how the exercises were repeated until the electorates gave the acceptable responses, but let’s take all that as read. To continue:

EU officials mentioned in several interviews, that obviously referenda are dangerous and a threat against the European Union. Truly, referenda are dangerous to today’s E.U., but not dangerous to the people of Europe. In the meantime, there are serious discussions to prohibit referenda within the European Union in general in order to avoid further conflicts.

Even in Switzerland, the country with the most enhanced practice of referenda, the politicians fear more than anything else the vote of the people, as it may destroy their plans in case the people do not vote as they recommend them.

Dear friends of democracy in the UK . . .

You have now the historical chance to mark your national independence day and stop the further transformation of Europe into a European dictatorship.

Democracy is the key to freedom, peace and prosperity; it protects human rights and ensures respect and tolerance.

The second open letter is “Please leave—a letter to the UK from the scorched lands” by Professor Antonio-Carlos Perreira-Menaut from the University of Santiago de Compostela in Galicia:

Like most Spaniards I am, and indeed always have been, a europhile, as well as a federalist, since federalism protects small polities. I used to see the EU as broadly a force for good. . . .

That said, after anti-crisis remedies administered by the EU and Troika in recent years, Spain is becoming (if you will permit a mild exaggeration) something of a scorched land—albeit to a far lesser degree than Greece and Portugal. Young doctors, architects and engineers have left Spain by their hundreds of thousands (many of them now in London, as I saw on a recent visit), simply because ruthless austerity measures have wiped out all but a very few jobs. Not even the most optimistic expect unemployment to fall below 15 per cent in the foreseeable future. . . . Possibly for the first time in recent history, euroscepticism is now growing in Spain.

. . . EU genetics makes difficult any serious change of direction. Today’s EU cannot stop itself being interfering, hyper-regulatory, and centralising. When the USA came into being it accorded a handful of strong, typically political powers to Washington (foreign policy, war and peace, currency, commerce, etc.), leaving the rest to the discretion of member states, with scarce a word about them in the Constitution. Conversely, the EU was born humbly, all but unnoticed by the people, with a very few, conferred powers over technical and economic matters. The new political machine advanced in an incremental, piecemeal way, driven by technocrats who were invisible and unaccountable to the public. With such precedents, an ever-increasing centralisation and the regulation of endless minutiae were but a matter of time (although for decades many of us failed to see it clearly). The EU is incapable of doing things other than by the functionalist method. This worked so well during the first decades of integration that when later faced with very serious problems (e.g., the recent financial crisis) all that the EU rulers can think of is a further turn of the centralising, regulating screw, thereby curtailing liberties and, especially recently, developing a new, autocratic dimension. This also explains why Brussels is comfortable with routine and technical administration things, but develops paralysis when grand and political problems are at stake. . . . Brussels is able to homogenise beer mugs [and bananas too, provided they are straight enough: KD] if it so chooses but is unable to solve major problems.

The Brexit vote gave a huge boost to Euroskeptics across the EU and was soon followed by calls for similar votes in a string of countries across the EU. As Satyajit Das put it:

Brexit could be followed by Grexit, Departugal, Italeave, Czechout, Oustria, Finish, Slovakout, Latervia and Bygium. Looks like only Remainia will stay.

The list of countries with strong sentiment for their own Exit votes is a long one: according to a recent opinion poll, over half of the French and Italian electorates want their own exit referenda, and around 40% of the Swedish, Belgian, German, Hungarian, Polish and Spanish electorates want them. There is also strong support in Austria, Denmark, Finland, the Netherlands, Portugal, Slovakia and Sweden. Other opinion polls suggest even stronger support, but by my count, there is strong support for exit referenda in at least 16 of the 28 member countries of the EU—and then there is Greece, which has its own bone or two to pick with the EU. Further afield, there were calls for secessionist votes in the United States and the Canadian Prime Minister was soon fending off calls for a Quexit vote.[1] The cat is well and truly out of Pandora’s bag.

The issues now are not whether there will be a similar referendum in another country but rather which country will be next and then how many will follow after that. Brexit was merely the first domino. The EU will not survive the process—and by that I do not mean that it will not survive in its current form, which is obvious—I mean that it will not survive at all. The EU “project”—the attempt to establish a federalist European superstate against the wishes of many of its subjects—has failed and the EU itself is unraveling. The only question now is how unpleasant the endgame will be.

Let’s consider some of these countries in more detail.

France has a bigger proportion of Euroskeptics than the UK and French disillusion with the establishment runs deep. To quote a recent (7 June 2016) article by Ambrose Evans-Pritchard in the Daily Telegraph:

France has turned even more viscerally eurosceptic than Britain over recent months, profoundly altering the political geography of Europe and making it impossible to judge how Paris might respond to Brexit.

An intractable economic crisis has been eating away at the legitimacy of the French governing elites for much of this decade. This has now combined with a collapse in the credibility of the government, and mounting anger over immigration.

Apan-European survey by the Pew Research Center released today found that 61pc of French voters have an “unfavourable” view, compared to 48pc in the UK.

A clear majority is opposed to “ever closer union” and wants powers returned to the French parliament, a finding that sits badly with the insistence by President Francois Hollande that “more Europe” is the answer to the EU’s woes. . . .

The death of the Monnet dream in the EU’s anchor state poses an existential threat to the European project and is running in parallel to what is happening in Britain.

He goes on to quote Giles Merritt, head of the Friends of Europe think tank in Brussels:

The EU policy elites are in panic. If the British vote to leave the shock will be so ghastly that they will finally wake up and realize that they can no longer ignore demands for democratic reform.

They may have to dissolve the EU as it is and try to reinvent it, both in order to bring the Brits back and because they fear that the whole political order will be swept away unless they do.

Remember too that this was before the Brexit vote. Evans-Pritchard concludes:

Time is running out for the defenders of the French status quo. It is hard to see how the existing order could survive the double-punch of a Brexit vote and a fresh global downturn in quick succession.

The French president Francois Hollande has an unprecedented approval rating of about 11%. The front-runner for the 2017 presidential vote is National Front leader Marine Le Pen, aka Madame Frexit, who is demanding an exit referendum. It is clear that Frexit will now be the central issue in the presidential vote. She made a powerful argument for the end of the EU in an eloquent recent New York Times article:

The European Union has become a prison of peoples. Each of the 28 countries that constitute it has slowly lost its democratic prerogatives to commissions and councils with no popular mandate. Every nation in the union has had to apply laws it did not want for itself. Member nations no longer determine their own budgets. They are called upon to open their borders against their will.

Countries in the eurozone face an even less enviable situation. In the name of ideology, different economies are forced to adopt the same currency, even if doing so bleeds them dry. It’s a modern version of the Procrustean bed, and the people no longer have a say.

And what about the European Parliament? It’s democratic in appearance only, because it’s based on a lie: the pretense that there is a homogeneous European people . . . . We have tried to deny the existence of sovereign nations. It’s only natural that they would not allow being denied.

Brexit wasn’t the European people’s first cry of revolt. In 2005, France and the Netherlands held referendums about the proposed European Union constitution. In both countries, opposition was massive, and other governments decided on the spot to halt the experiment for fear the contagion might spread. A few years later, the European Union constitution was forced on the people of Europe anyway, under the guise of the Lisbon Treaty. In 2008, Ireland, also by way of referendum, refused to apply that treaty. And once again, a popular decision was brushed aside.

When in 2015 Greece decided by referendum to reject Brussels’ austerity plans, the European Union’s antidemocratic response took no one by surprise: To deny the people’s will had become a habit. In a flash of honesty, the president of the European Commission, Jean-Claude Juncker, unabashedly declared, “There can be no democratic choice against the European treaties.”

Brexit may not have been the first cry of hope, but it may be the people’s first real victory. . . more and more, the destiny of the European Union resembles the destiny of the Soviet Union, which died from its own contradictions. . . .

One thing is certain: Britain’s departure from the European Union will not make the union more democratic. The hierarchical structure of its supranational institutions will want to reinforce itself: Like all dying ideologies, the union knows only how to forge blindly ahead. The roles are already cast—Germany will lead the way, and France will obligingly tag along. . . .

So the people of Europe have but one alternative left: to remain bound hand-and-foot to a union that betrays national interests and popular sovereignty and that throws our countries wide open to massive immigration and arrogant finance, or to reclaim their freedom by voting.

In Italy, a beleaguered government’s efforts to resolve a white-hot banking crisis are being undermined by EU and German leaders. At the same time, the country is in a dire fiscal state and there is an upcoming constitutional referendum (expected October 30, the next day would have been better) called by PM Renzi, the ostensible purpose of which is to make the country more governable or, more to the point, reformable. “The referendum is not crucial for the destiny of an individual, but for the future credibility of the Italian political class,” he said. So with all the anti-establishment fervor sweeping the continent, the Italian PM expects long oppressed Italian voters to rally round the political class just as the opportunity finally comes to topple them off their perch. The ludicrousness of this situation reminds me of a cartoon in the British satirical magazine Punch in the mid-1970s. The then-Rhodesian PM Ian Smith—a sour-faced racist with no sense of humor, I always disliked him—was standing in front of a restive crowd of native warriors brandishing their spears. “There will be no majority rule in my lifetime,” he insisted. In fact, the upcoming Italian referendum is turning into a vote of no confidence in Renzi himself and his pro-EU policies, and the odds are he will lose. Should he do so, the Euroskeptic Five Star Movement would get into power and a formal Italeave referendum would soon follow, which would then lead to Italy exiting the EU too.

In Austria, the recent May 2016 presidential election saw the Euroskeptic Freedom Party candidate Norbert Hofer come very close to winning—a result that came as a major shock to the EU establishment and hinted strongly at the Brexit vote that came soon after. Moreover, Austria’s constitutional court has now ruled the election invalid because of irregularities in the postal vote and ordered a fresh poll that will take place on October 2. It turned out that Mr. Hofer was ahead before the postal votes were counted and therefore, arguably, should have won. I am betting that that poll will now turn into a surrogate Auxit vote and that Hofer will win.

In Hungary, Prime Minister Viktor Orban has called a referendum—also scheduled for October 2—on whether the EU should have the right to resettle non-Hungarian citizens in Hungary without the consent of the Hungarian Parliament. If he gets the result he wants and why shouldn’t he?—he will then be able to claim that he has a democratic mandate to oppose EU migration policy.

We can say with confidence that October is not going to be a good month for the EU—and if those votes go the way I anticipate, the whole rotten edifice could have collapsed by Christmas.

This said, I could be dead wrong: the banking crisis might die down, somehow; the banks might spring into life and the European economy might boom; the anti-establishmentarianism and Euroskepticism sweeping the continent might go away; all those referenda might go the EU’s way; the bubbles might go on forever; the migrant crisis might solve itself; the Mideast might settle down in love and harmony and England might win the next soccer World Cup. I worry however that it might not all work out this way.

The (at least partial) repatriation of immigration policy was a key UK concern that was flatly rejected by the EU powers that be. There is a good argument that Brexit would never have happened had the EU establishment shown even a little flexibility on this issue. But all this is ancient history and things are now moving rapidly: what might have stayed the peasants’ revolt a month ago will no longer suffice.

A week or so ago, I saw the German Chancellor on the news again repeat her mantra that the UK will only have access to the Single Market if it complies with her demand that it maintain free movement of peoples across what is still now the EU. I found myself scratching my head. Memo to Planet Merkel: does she not see that free movement no longer exists? Schengen has largely broken down: border controls within the EU are already a reality and the Nordics are preparing or already have plans to impose further controls to prevent their welfare states being overwhelmed by migrants. So would someone please explain to me: what is the point of her insisting that the UK maintain completely open borders with the EU when nearly a dozen continental EU members no longer do so?

It will be interesting to see how she responds when Mr. Orban gets his referendum mandate on October 2nd.

In Sweden, Euroskeptic MEP Peter Lundgren said that Denmark and Sweden were on the verge of quitting the EU and was suggesting the possibility of a “Nordic trading block” led by the UK. The Dutch MEP Morten Messerschmidt then suggested that the Netherlands and Switzerland might wish to join such a trading block too.

In Eastern Europe, a number of prominent political leaders expressed dismay at the Brexit vote—they had a lost a natural ally in the UK—and were saying that the EU needs a new Treaty that respects the rights of member nations. They also blamed EU Commission President Juncker for provoking the Brexit vote by his arrogant refusal to compromise and warned that further attempts by European leaders to threaten the British were also likely to be counterproductive.

In Turkey, “Crusader Union falls apart,” gloated the Islamist daily newspaper Akit immediately after the Brexit vote. Be that as it may, the Turkish Islamist President Recep Erdoğan still wants to join the Crusader Club. At some point, however, he will realize that Turkey will never be admitted: rightly or wrongly, most European electorates will not accept unconstrained immigration from Turkey and EU finances are too bust to give Turkey the enormous subsidies that Turkish membership would entail, or at least without major reforms that the EU could never bring itself to make. When the penny drops, Erdoğan will then turn ugly: he will do his best to unleash the millions of Syrian and other refugees currently held within Turkish borders. Indeed, his policy toward the EU is essentially blackmail if doesn’t get the subsidies he is demanding: “We can open to doors to Greece and Bulgaria at any time. We can put them on busses,” he threatened EU leaders last year. The migrant crisis would escalate but my guess is that the shutters would soon come down all across Europe and the Turkish ploy would backfire: the EU would impose much tighter border controls and other sanctions on Turkey, and Turkey’s own existential political crisis would intensify. To quote the UK Foreign Secretary’s winning entry in the Spectator’s President Erdogan Offensive Poetry competition:

There was a young fellow from Ankara
Who was a terrific wankerer . . .

I can’t bring myself to repeat the rest of his merry ditty, but it is very funny. Let me instead paraphrase one of his predecessors, Sir Edward Grey, who was not so given to foul-mouthed verse: my worry is that the lamps will go out all over Europe and beyond, and we may not see them lit again in our lifetime.

The Brexit vote prompted some interesting responses in the United States Ron Paul asked if Americans could also exit a few things:

Last week’s UK vote to leave the EU may have come as a shock to many, but the sentiment that led British voters to reject rule from Brussels is nothing unique. In fact it is growing sentiment worldwide. Frustration with politics as usual, with political parties that really do not differ in philosophy, with an economy that serves the one percent at the expense of the rest of society is a growing phenomenon throughout Europe and in the United States as well.

What is happening in the UK, in Europe, and in the US, is nothing less than a breakdown of the entire system. The EU was meant to be a customs union where post-World War II Western Europe could rebuild itself through free trade and a reduction in bureaucracy. Through corruption and political ambition it became an unelected bully government in Brussels, where the well connected were well compensated and insulated from the votes of mere citizens.

Is Brexit the first victory in a larger freedom movement?

Dr. Paul then outlined a long list of things he would like to see Americans exit: a central bank that finances wars, Executive Orders, the Patriot Act, NDAA and indefinite detention, NATO and phony ‘free trade’ agreements. He concluded:

The act of exit is liberating. We should make a longer list of those things we would like to get out of. I am only getting started.

As Independent Institute Research Fellow Randall Holcombe observed in “Brexit, Sexit, Texit”:

. . . if the threat of leaving the union is a good check on the power of the central government, we in the United States would be better off if states had that option. If the federal government were looking at the threat of Texas leaving the union—Texit—for example, they would be more cautious in their continual quest for power. . . . the possibility of states exiting the union would be a powerful check on the federal government.

If the possibility were there for states to leave the US as they can in the EU, it is easy to envision Texans agitating for Texit. And the possibility of Texit would go at least some distance toward taming the federal Leviathan.

Indeed: they are already are (see here, here and here) and there are Californians advocating Calexit aka Caleavefornia too.

At its heart, the raison d’être of the EU project was to establish a European superstate, a United States of Europe, to be foisted upon the peoples of Europe regardless of whether they wanted it or not. Yet its promoters sought to establish this European United States without the preconditions that existed in the real United States that made that project such an outstanding success over such a long period of time—a (fairly) common culture, language and legal system, a broad degree of consent from the people and (at least until recently) respect for the rule of law, a robust constitution and limited government. The ultimately fatal weakness of the European project was that the EU was largely unaccountable and profoundly antidemocratic. As Jean-Claude Juncker said ahead of the French referendum on the European Constitution in 2005, “If it’s a Yes, we will say ‘on we go’, and if it’s a No we will say, ‘we continue.”

Even after the Brexit vote, some major EU leaders were still in a state of denial. They still believed they were born to rule and that democracy needed to be restricted so that important decisions are left to the self-certified experts like themselves who always know best. To quote Martin Schultz, the President of the EU Parliament: “It is not the EU philosophy that the crowd can decide its fate.” Quite. The German Foreign Minister Frank-Walter Steinmeier was no better: “we won’t let anyone take Europe from us”. He failed to mention how he proposed to do that, but the main point is that they still don’t get it: the reaction to Brexit is the reason Brexit happened.

There was also no shortage of international leaders who were willing to threaten the UK electorate—some threats being less thinly veiled than others—if they had the temerity not to do as they were told. The threats ranged from the ridiculous (that Brexit could lead to the end of Game of Thrones, fingers crossed) through plain nasty (Jean-Claude Juncker, needless to say: if they voted Leave, British “deserters” would face “consequences” and would not be welcomed back with open arms) to plain stupid (EU Council President Donald Tusk: “As a historian I fear Brexit could be the beginning of the destruction of not only the EU but also Western political civilisation in its entirety”). Principal among the stick wavers was Barack Obama, who warned that a Brexited UK would go straight to the back of the trade deal queue, or should I say, line. What none of these world leaders seemed to appreciate was that many UK citizens are fed up of being lectured to like children. While no one in this country pays much attention to what the Canadian Prime Minister says on EU issues, President Obama’s intervention went down badly with the Brexiteers, not because he had meddled in the domestic affairs of a close ally, but because the opinion he offered was one that he would not recommend to his own people: do as I say, but not as I do. His comments caused considerable offense for this reason, all the more so because he repeated them post the referendum when the result was in and there was nothing left to play for. That was just plain dumb, but then again, the President is in good company.[2]

These interventions were seriously counterproductive, but few major political leaders understand this elementary reality. In the US, only ones who do are Ron Paul and Donald Trump.

But what matters at this point is that many other European citizens feel much the same as the Brits: they are fed up with this nonsense and they want to be free to make their own futures without interference from foreign institutions and political leaders with their own agendas. It is no wonder that trust in the political establishment is at a post-WWII low and falling.

Perhaps the most reprehensible of the scare tactics widely used to frighten the votes into Remain was the claim that “small” countries like the UK would have great difficulty getting by in a cold hostile world outside the EU. Well, let’s have a reality check here. First, the UK is not a small economy. It is the fifth biggest economy in the world and it has some bargaining power. Other countries want access to UK markets and have powerful lobbies prepared to bargain for trade deals. To illustrate, immediately after the Brexit vote, the German automobile industry was lobbying Berlin for a magnanimous trade deal with the UK: 20% of German cars are sold in the UK. Second, if the EU is such a good idea, why doesn’t the rest of the world rush to join it? And the third and for present purposes, the most important consideration is that ‘small’ countries can and often do perform well: being small is no barrier to prosperity provided the entity concerned adopts sensible policies. There are many historical examples: the Medici in Florence, Venice in its (long) heyday, the Hanseatic League, the 17th century Dutch Republic, all economic superpowers of their day and all small. They competed against much bigger lumbering great powers that were no match for them. In the contemporary world, well-known examples are Hong Kong, Singapore and South Korea, but there are many others that have also done well outside the EU, including Switzerland, Georgia, and Liechtenstein.

Nor are we just talking about member states breaking away from the EU: we are also talking about member states themselves breaking up. There are separatist groups all across Europe. In Spain, there are separatist movements in Aragon, the Basque region, Catalonia and Galicia. In France, there are separatist movements in Alsace, Brittany, Corsica, Nice, Normandy, Occitania, Provence and Savoy. In Italy, there are the Northern League and separatist groups in Sardinia, Sicily, South Tyrol and Venice. In the UK, there are Cornwall, Scotland and Wales. Then are Aaland (Finland), Bavaria, East Frisia, Franconia, Lusatia and Schleswig-Holstein (Germany), Flanders (Belgium), the Bornholm and Faroe Islands (Denmark), Frisia (the Netherlands), Moravia and Czech Silesia (the Czech Republic), Kashubia and Upper Silesia (Poland)—and I haven’t even begun to list the many separatist groups in the Balkans or further East. When all the dust has settled, the entire EU and all is member states might have disintegrated into hundreds of mostly small loosely associated political entities and the biggest state left in Europe could be Switzerland.

That might be no bad thing. Europeans who dislike one state could then literally vote with their feet and move to another. States with good political and business models would attract people and thrive, and those with bad models would not. Competition, cooperation and copying would then raise everyone’s game.

The pressing problem is how to get from here to there without the economy collapsing or the dissolution of the EU triggering a new round of European wars. The ultimate irony is that the European federalist project—whose primary objective was to establish peace in Europe may end up, as some of us have long feared, inadvertently creating the very horrors that it sought so earnestly to avoid. Jean Monnet and his deluded anti-democratic Bonapartist acolytes have a lot to answer for.

[1] The British and Canadian political situations were quite different, he said none too convincingly. This is the same Justin Trudeau who helpfully stuck his oar in the water in the British debate, openly advocating Remain and warning that an independent UK would not get a better trade deal with Canada. If Trudeau wishes to disadvantage Canadian exporters to the UK, then that is up to him, but come the next Quexit referendum—last result 50.56% in favor of Remain in 1995—he presumably won’t mind if some of us from the old country offer the Quebecois advice on the benefits of a Québec libre.

[2] The threats continue too. A number of European leaders have more or less openly hinted that they wish to punish the UK in order to discourage others from leaving. Let them go ahead: the UK has more clout than Greece. As Gerald P. O’Driscoll recently observed, “It is a curious position to take by those claiming [that] the EU is a good deal for its members.”

Kevin Dowd is a Research Fellow at the Independent Institute, Professor of Finance and Economics at Durham University, Partner with Cobden Partners in London, and Professor Emeritus of Financial Risk Management at the University of Nottingham in England. He is editor of the Independent Institute book, Money and the Nation State: The Financial Revolution, Government and the World Monetary System (with Richard Timberlake, Jr.).
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