Of all the problems currently simmering in Western Europe, few are more pressing and impactful than the chaos surrounding the British exit from the European Union system. Last month, Boris Johnson, who is known for his extremely passionate stance in favor of Brexit, became Prime Minister of Britain. In response to his rise and the increasing likelihood of a “no deal” exit, the value of the British currency (pound) fell dramatically. This is a political crisis that has been years in the making, but how important could this actually be for the global economy? And what does this mean for the average American who feels that European politics don’t matter? This week, we’ll examine the Brexit crisis and what it could mean for you.
First of all, what is the European Union anyway? The EU was established back in the late 1950s as the nations of Europe finally began to pull themselves out of the economic chaos of the Second World War. Since Europe is comprised of a large variety of different nations with vastly different economies, languages, and customs rules, the idea was the create a sort of “United States of Europe” to help establish a standardized set of economic practices. The idea was that this would allow goods and services to flow much more freely throughout the region. There are also echoes of the Economic Peace Theory in this agreement which states that nations which have strong economic ties are far less likely to go to war with one another. Most of the European nations eventually signed on to this deal, seeing the benefits that would come from being part of a larger economic program. But the United Kingdom has always kept itself at arms length from this idea. The British have long felt that they are distinct from Europe in both culture, shared history, and geography. This sentiment wasn’t helped by France’s continual veto of British membership until the early 1970s. Britain finally joined the EU in 1973, but did not choose to join the European Monetary System which eventually helped establish the shared Euro currency.
Given these differences, it starts to make sense why Britain would eventually vote to leave the European Union. In the early 1990s, the UK Independence Party (UKIP) started gaining seats in the British Parliament under their platform of strong opposition to the European Union. By 2015, support for changing Britain’s relationship with the EU had grown to such a point that the Prime Minister David Cameron had decided to attempt to renegotiate some aspects of Britain’s membership and even call for a public referendum to see if Britain should leave altogether. After winning an unexpected re-election in 2015, Cameron fulfilled his campaign promise by holding the referendum. Cameron had hoped to use the failed referendum to help renegotiate the EU-British relationship, but resigned immediately after the referendum succeeded.
Throughout the Brexit referendum campaign, most political and economic analysts predicted disaster for Britain if it were to leave the EU. So why would the majority of people in Britain vote this way? Well the answer has more to do with feelings towards immigration and sovereignty rather than purely economics. Part of the European Union’s reforms was the creation of an open borders policy known as the Schengen Area. The idea was to remove passport and border control barriers in order to prevent people and goods from being held up at several stops along their way throughout Europe. This became a problem with the massive migrations of refugees from Africa and the Middle East in recent years. As such, the Leave campaign focused heavily on immigration during the referendum campaign. In addition, the campaign was very effective at convincing older and more rural individuals that their economic fortunes would be better after Britain negotiates its own deals with other nations. The campaign often labeled economic critics as “elitist” by saying they were only looking out for their own personal economic fortunes.
So the UK under new Prime Minister Theresa May formed a deal with the EU in Brussels, but this was rejected by the British Parliament. Why, because leaving the EU means different things to different people. Like so many protest votes, people saw Brexit as a solution to whatever their personal problem happened to be. When it came time to define the solution, not all sides could agree on what that solution should look like. Some wanted to leave because of immigration, others wanted to leave because of economics, and still others just wanted to stick it to those they viewed as “elites.” Leave supporters wanted a way harder deal, remain supporters wanted a much more inclusive deal with EU, and the Scottish and Northern Irish didn’t want to leave at all! Scotland found itself in an especially frustrating scenario as it had only recently rejected an independence movement in part because of the desire to remain within the EU!
But perhaps the biggest problem in the Brexit negotiations is that of the “Irish backstop.” Ireland is a separate country from Northern Ireland (which is part of the United Kingdom and would be leaving the EU). The history between these two is long and tense, but part of the current peace rests upon a relatively soft border and a power sharing agreement known as the Good Friday Agreement. Now that Britain (and Northern Ireland) is set to leave the EU, this threatens to place a hard border between Ireland and Northern Ireland, which dramatically complicates daily life between the two political entities. The backstop would prevent this by still allowing for a softer border with few restrictions to allow enough time for a final settlement to be reached. But those in favor of a more extreme Brexit do not approve of this measure and view it as a way for Britain to remain tied to the EU indefinitely.
So after several rounds of votes and negotiations on the current deal, Prime Minister May resigned earlier this summer. Boris Johnson, whose current political career was essentially made by his outspoken support for Brexit, has said he will try to negotiate a new deal with the European Union. His stance is that Britain will either get a new deal, or simply leave without one. But the EU government in Brussels has already negotiated a deal that gave substantial concessions. To the EU government, re-negotiating a new deal would make them appear weak and could open them up to even more challenges to EU solidarity. In short, they have an incentive to make Brexit painful to serve as a warning to anyone else looking to leave. So now, the possibility of Britain completely “crashing out” of the EU without a plan is looking very likely.
Why does this matter? If Britain leaves without a deal, it will likely put Britain in a recession for several years. They’ll have to negotiate all of their own trade deals individually with other nations, rather than rely upon the shared trade benefits of the EU. But this scenario will also negatively impact the world economy, including that of the United States. The United Kingdom is only the 10th largest export economy in the world, so it’s impact may not be as large as that of China, Germany, or the United States. However, in a global economy that is increasingly showing signs of major recession, a big problem in Britain can easily damage trade around the world. And to make matters worse, the chaos of Brexit signals a weakening of strong alliances that generally support American interests. The EU and other similar institutions were designed to help promote joint European and American values of political and economic freedom. The more these institutions are strained and allies are divided, the more chances major authoritarian powers like Russia and China have to rise and spread their influence.