27 June 2016

They dismissed it as Project Fear: now welcome to the bitter reality of a bungled Brexit vote


A country that thrives on its political and legal stability is descending into chaos. Honourably, but with his legacy as prime minister in tatters, David Cameron has resigned; the gambler finally lost, big time. His slayer and would-be successor, Boris Johnson, seems taken aback by what his cynically dishonest and dangerously populist campaign has wrought. Neither the government nor anyone in the Leave campaign seems to have a plan for how to proceed. Out in the political wilderness, the Labour Party is imploding too, as much of the shadow cabinet mount a belated coup against the hapless Jeremy Corbyn.

Scotland’s First Minister, Nicola Sturgeon, is taking matters into her own hands. A second referendum on Scottish independence is in the offing; many moderate Tory and Labour voters seem minded to vote Yes this time. In Northern Ireland, Sinn Fein has demanded a referendum on Irish unification. Ian Paisley Jr – the son of the late reverend and a leading member of the pro-Brexit, adamantly anti-Irish unification Democratic Unionist Party – is advising his followers to obtain Irish passports. Spain is seeking joint-sovereignty over Gibraltar, where 96% of voters backed Remain. How long before there is a campaign for London – where three in five voted to Remain – to seek independence as an internationally open city state?

Markets have drawn their own conclusions. The pound has plunged. Its near-9% fall against the US dollar on Friday was its biggest one-day decline since Harold Wilson’s devaluation in 1967. As a result, we are all poorer: every UK asset is worth less and import prices will surely rise. Share prices have taken a hit. Property prices seem set to fall too.

This is hardly Black/White Wednesday in 1992, when the pound’s ejection from the Exchange Rate Mechanism (ERM) ushered in big interest-rate cuts and a sustained recovery. Britain already has near-zero interest rates – and negative ones are proving counterproductive in the eurozone. And in a global economy where demand is depressed, a weaker pound is unlikely to boost exports much; the big depreciation in 2008 didn’t.

Unlike in 1992 when the economy was emerging from recession, it is now on the brink of it. Even UKIP’s Nigel Farage now admits so; don’t worry, he thinks it will only be “mild”. Financial firms are preparing to shift jobs to the EU. Amid all this uncertainty, businesses are putting investments on hold – or cancelling them. Consumers may soon take fright and pull back too. A Brexit bust will open up an even bigger hole in public finances, necessitating growth-sapping tax rises and public-spending cuts at some point.

The political climate is poisonous. The divide between young, university-educated and urban voters who mostly backed Remain and old, less-educated and suburban and rural English voters who plumped for Leave is deep and wide. Xenophobia and racism have been unleashed. Nigel Farage claimed to have taken his country back “without a bullet being fired” – except those of Thomas Mair (aka “Death to traitors, freedom for Britain”) that killed Jo Cox MP, of course. For the first time, a Polish community centre in west London has been vandalised by racists. “Go home,” racists suddenly feel entitled to shout to non-white Britons in the streets.

The victorious Leave campaign is collapsing under the weight of its internal contradictions. The ballots had barely been counted when Boris Johnson, Michael Gove and fellow Leavers began to backtrack on their brazen campaign lies. “Let’s give our NHS the £350 million the EU takes every week,” was the backdrop to their speeches during their campaign. Not so, they now say. “Our promises were a series of possibilities,” Iain Duncan Smith had the front to claim.

Daniel Hannan even asserted on BBC Newsnight that while EU migration would now be controlled, it might not be any lower than before. Britain would seek a relationship with the EU that ensures continued membership of the single market, along the lines that Norway enjoys, he continued. But as he knows, that would entail following EU rules that Britain would have no say in setting, paying into an EU budget and receiving nothing in return, and accepting freedom of movement. Vote Leave, Lose Control.

Judging from the pinched tone, grim faces and awkward demeanour of Johnson and Gove at their victory speeches on Friday morning, they didn’t expect to win and are now confounded by the enormity of what they have whipped up. Not just the economic destruction that Brexit will wreak, but the populist political forces that they have unleashed. These ostensibly liberal, pro-market, pro-globalisation, pro-deregulation Conservative politicians have won a popular mandate for Brexit on a false prospectus of Farageiste xenophobia, post-truth populism, protectionism and state intervention. The Brexiteer establishment now seems set to betray already angry, anti-establishment Leave voters. There is no surer way of creating a British Donald Trump.

Cameron has left to his successor the decision to trigger the formal Article 50 procedure to leave the EU. But some EU countries, notably France, want to precipitate matters. Fortunately, German Chancellor Angela Merkel has called for calm, but even she doesn’t want an indefinite delay.

The bigger picture scarcely features in the British debate, but it ought to. The Brexit vote threatens the further unravelling of an EU already laid low by crises. A flight to financial safety could rekindle the unresolved crisis in the eurozone, causing Britain further economic pain. With its weak banks, huge debts and populist politics, the situation is Italy is particularly precarious.

Brexiteers may cheer the fact that Marine Le Pen of the far-right National Front has called for a referendum on Frexit, but do they really want her to be president of France? In any case, without Britain, what remains of the EU will be more corporatist and protectionist – and more dominated by Germany. That is hardly a happy prospect for a Britain bereft of a seat at the table.

Worse, the Brexit vote opens up a huge crack in the liberal international order painstakingly built by American, British and other European statesmen since the Second World War. The Kremlin is delighted; our allies in Washington and around the world are aghast. David Cameron was right: Islamic State probably is celebrating. The Brexit vote could presage a broader backlash against globalisation by nationalist, anti-establishment, anti-immigration forces.

Arriving in Britain on Friday, Donald Trump, the presumptive Republican candidate for US president, exulted that Britons “took their country back”. In fact, they seem to have lost it. The break-up of Britain beckons; and the rump Little England looks set to be poorer, poisonously divided and pulled apart by populism. What a monumental act of self-harm!

Philippe Legrain, who was economic adviser to the President of the European Commission from 2011 to 2014, is a visiting senior fellow at the London School of Economics’ European Institute and the author of European Spring: Why Our Economies and Politics Are in a Mess — and How to Put Them Right.