Why EU will unravel after Brexit

The European Union’s economic and single currency project was pre-programmed to fail. The union’s initial objective in 1958, following the Treaty of Rome, was to give France, humiliated in World War II, a forum to regain lost global influence and prestige. Germany, battered and disgraced by the war, was a willing partner.

The bloc was at first a trading community as its initial name suggested: European Economic Community (EEC). By binding the initial six members (France, Germany, Italy, Belgium, the Netherlands and Luxembourg) to trade, Europe sought to banish war that had blighted the continent for centuries.

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Britain, sniffily, stayed away. It had won WW II and did not need a European forum to wield global power. 

French president Charles de Gaulle didn’t want Britain to join the EEC either. That would have diluted the French object of restoring national pride though the official explanation was Britain could be an American Trojan Horse.

As the British economy withered in the early-1970s, however, it joined the queue. France, now richer and less insecure, dropped its objections. Britain became a member in 1973.

But as France continued to use the EEC as a global platform to project French influence, the trading bloc morphed into the European Union (EU) in 1993 following the Maastricht Treaty.

The Brussels bureaucracy now took over. Just as the United Nations has become a bloated organisation with unaccountable, overpaid international civil servants, the EU, headquartered in Brussels, is a bureaucratic monolith.

The EU lost its way even further by expanding membership to 28 countries. What began as a Franco-German device to regain lost salience after World War II had grown into an unwieldy agglomeration of over two dozen sovereign nations. Most were bound by a single currency, the euro. Britain wisely stayed out of the euro which dispatched the Deutsche mark, the French franc and the Italian lira into oblivion.

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When countries have different fiscal policies and face different economic challenges, tying them up into a single currency with key decisions made by the European Central Bank (ECB) is a particularly bad idea.

Greece was the first red flag that underscored how flawed a single currency was for dozens of countries with different economic and fiscal trajectories.

The Eurozone crisis is not over. Greece and other economically vulnerable (and fiscally indisciplined) countries like Portugal, Italy and Spain remain a festering sore at the heart of the EU.

The crisis has been buried beneath a mountain of euros printed by the ECB’s governor Mario Draghi to stabilise (temporarily) these faltering economies.

The EEC’s original trading mission has long been jettisoned. Open, porous borders in the EU have allowed unrestricted migrant flows. The Middle East crisis has deepened the problem.

ASEAN is an example of a trading bloc that works. It has sensibly confined itself to trade. Imagine a single currency tying up sovereign nations like Malaysia, Thailand, Laos, Cambodia, Indonesia, Myanmar, the Philippines, Vietnam and Singapore. Economic disaster would have come calling very quickly.

What next for the EU and for Britain?

Despite anti-Brexit moves, the EU will gradually unravel. Stronger EU economies like the Netherlands and Denmark could leave first. Weaker nations in Eastern Europe like Romania and Hungary which joined the EU in the last decade will stay on longer in the hope of benefiting from the EU’s generous budget contributions from richer nations like Germany and France which are shared by other members.

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The EU will ultimately have to go back to being what it was always meant to be – a trading bloc and not an economic and currency union.

What about Britain?

There will be short term pain. Scotland will demand a second referendum and likely secede from the United Kingdom. Britain’s population and economy will shrink by roughly 10 per cent.

But the benefits of Brexit will eventually kick in: new Free Trade Agreements (FTAs) with Canada, India, China and others will be signed. A leaner British economy will emerge.

England and Scotland were separate sovereign nations till 1707 when the Act of Union created "Great Britain". The English-Scottish project did well for 250 years: colonisation, the Atlantic slave trade, invasive settlements in Australia and South Africa, the industrial revolution and booming maritime trade.

In the 1850s Britain was the world’s largest economy. London became the world’s financial and banking centre, relying on its global footprint to set the rules. It is no surprise that London polled the highest anti-Brexit vote percentage on June 23.

But all is not lost for Britain or London. A weaker pound will bring in more tourists and students and make British exports more competitive.

Oligarchs from Russia, China and India will invest in real estate in and around London at benign prices. The pound will slowly recover.

A leaner England and Wales will rewind to their pre-1707 roots.

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England is a Germanic nation. Its people are of Angle, Saxon and Jute stock (all German tribes that invaded post-Roman England in the sixth century).  

England’s monarchy is German as well. Till a hundred years ago, English kings spoke better German than English.

The British royal family’s real name is Saxe-Coburg-Gotha, not Windsor. The name was changed quietly in 1917, at the height of World War I when anger against Germany ran high, with an inconspicuous notice in The Times, London.

Hitler attacked the Soviet Union rather than Britain (whose people he regarded as kin) in 1941 when Britain was down and out post-Dunkirk.

The Brexit bottomline?

The EU will gently unwind. Britain and London will do just fine. Scotland will go its own way – the union with England is well past its sell-by date.

Will referendums rear their heads outside Europe?

Not necessarily. The EU as an economic and currency union was a bad idea and bad ideas eventually die or morph. They don’t necessarily travel to more "diverse" nations (code for India) as some warn darkly. 

Will England become less multicultural, vibrant and diverse?

Unlikely. London is already 40 per cent non-white and irreversibly cosmopolitan. Fewer Hungarians and Slovaks may find jobs in London after Brexit but more Indians, West Indians and Africans will.

Besides, Britain will maintain trade links with continental Europe, so the downside of Brexit is limited even for London’s crucial banking and financial sector. Britain as a whole is 87 per cent white (the United States in comparision is 75 per cent white) so Brexit could actually make England more racially diverse.

The Brexit vote is a vote against entitlement and elitism. Leaders who don’t pay close attention to that message should prepare themselves for more surprises.