Brexit – what does it really mean?

brexit-beckons-as-97-of-britons-think-david-cameron-cant-get-a-better-eu-deal1Opinion polls in the UK underestimated support for “Brexit” – Britain’s exit from the European Union. Blue collar workers in particular ignored pleadings of the Labour Party, which was almost united in arguing that Britain should remain in the EU, and either voted to leave or stayed at home. This may have implications for polling support for Donald Trump, but that is for another column. What happens now?

There will be calls for referenda in other countries. There is majority support for such votes in both Italy and France, two large founder members of what was then called the European Economic Community. It is less clear that, given a vote, people would choose to leave. The Netherlands, a small founder member, has become increasingly Euroskeptic. The Scandinavians (Denmark, Sweden and Finland) have seen Britain as an ally in supporting global trade, and may now reconsider their membership. Spain and Greece have struggled adapting to the Euro (which Britain didn’t join) and exit movements could gain ground there. Newer member states in the ex-communist East saw Britain as a close friend. Immense gratitude to Winston Churchill and Margaret Thatcher for their roles in World War II and the Cold War is very real. Momentum for new leave campaigns could easily build.

What would that mean? The best outcome would be winding up the current centralizing behemoth and agreeing a new, lighter-touch, arrangement. The European Union is not like NAFTA. It can, within defined limits, make laws which are binding on member states. In that sense it is more like the US federal government. It is easy to get people to sit down to discuss slimming the EU down and only keeping the good bits. But finding a consensus as to which are the good bits is much, much, harder. 

The nightmare scenario is a new Great Depression. If Donald Trump (or, conceivably, Bernie Sanders) becomes president next year then America will have a protectionist president for the first time since the 1930s. The president can only introduce temporary tariffs without congressional support. But if the EU responded with tit-for-tat retaliation then that could give the president the congressional backing he needs. It could also influence the way China, Japan and India would react. Such a tit-for-tat response by the EU would be strongly opposed by Britain, which would influence governments in the reform economies in Central and Eastern Europe. Such a reaction is therefore much more likely than it seemed before the British vote.

A global trade war, such as the one which followed the Smoot-Hawley Act in the 30s would be disastrous. The Smoot-Hawley Depression led to a contraction in the world economy of around 25% and a contraction of trade of more than 50%. America has had recessions then – with one or two percent contractions – but the global economy has not shrunk in eight decades.

Large scale protectionism would be devastating for employment right across the world and would lead to massive falls in standards of living. Even those who kept their jobs would be paying much higher prices for everything they bought. In the developing world, many would undoubtedly starve. 

World War Three is not coming, but there could be very dark times just over the horizon.

Quentin Langley lives in New York and London and teaches at the University of Bedfordshire Business School.

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Quentin Langley is a Senior Lecturer in Marketing at the University of Bedfordshire Business School as well as a freelance columnist published in the UK and all parts of the US. He blogs on social media and crisis communications at brandjacknews.com

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