John Mauldin: Brexit Would Trigger Devolution of Europe
UK citizens will vote on June 23 whether to leave the European Union. The latest polls suggest that the vote is very close and the “Leave” side has a slight edge.
The poll I saw recently, however, showed “Leave” ahead by a full 10 points—55 to 45. More importantly, the trend over the past few weeks has seen the spread in favor of “Leave” widen.
If you are in the “Remain” camp, you have to be worried.
It is hard to overstate the impact Brexit will have, should it pass. And the impact will spread far beyond Britain’s borders.
The UK is the EU’s second largest economy after Germany and one of its largest exporters. Numerous laws and international agreements may need to be rebuilt.
Even with years of planning, Brexit could make the Y2K bug look puny.
Brexit would have a domino effect on the largest members
A major concern is that a winning Brexit vote might inspire other nations to do the same. French voters dislike the EU even more than UK voters do, according to a recent Pew survey reported by Ambrose Evans-Pritchard.
The EU racked up a 61% unfavorable rating in France versus 48% in the UK. Opinions in Spain and Germany are worse. The EU doesn’t look like an “ever-closer union” to the citizens of its largest members.
I recently got the following note from Brent Donnelly (trader par excellence at Citi FX, whose morning note is a must-read). He is quoting the London Daily Express:
EU FALLING APART: Now HOLLAND wants its own referendum to follow historic Brexit vote.
NINE out of ten Dutch people hope the Netherlands will hold its own EU referendum amid mass discontent at Brussels bureaucrats. A whopping 88 percent of people polled by a top Dutch newspaper said they would be in favor of an in/out vote along British lines. They have been inspired by the possibility of Britain quitting the bloc on June 23—and hope ‘Nexit’ will follow Brexit.
Harry van Bommel, MP for Holland’s Socialist Party, told Express.co.uk: “If Britain leaves, that will give other countries courage.
“So now debate is beginning in the Netherlands about having a referendum on EU membership.
“We cannot go on the way we are—financing Greece, trying to keep countries in the eurozone. The eurozone will break up eventually.”
He added: “Because we’re in the euro, Dutch people see budget cuts, unemployment going up, and they relay that to the EU. These facts make the EU very unpopular. People distrust Europe and some people even hate Europe—it’s in an existential crisis.”
The graph below shows the general negative trends in opinions on the EU in other European countries.
Despite this trend, Politico reported that French leaders intend to push for severe consequences against the UK if Brexit passes.
Paris thinks it must send a strong warning to other would-be deserters that leaving the EU would be very painful. Maybe they also want to send that warning to their own citizens.
Stuck in two minds
The EU is a distinct entity from the Eurozone currency area, which has its own problems. I think the EU can probably survive a Brexit, but it won’t survive a Frexit, Germexit, or Spexit.
And that would leave Europe back where it was before World War II: a fragmented continent in which disagreements get very ugly and occasionally turn violent.
No one wants that outcome, but very few Europeans outside EU headquarters in Brussels seem happy with the status quo, either. This summer could see the beginnings of devolution. It’s up to UK voters now.
Just as the rest of the world cannot understand what America was thinking when we nominated Donald Trump for president, most of us who think we understand the consequences of Brexit are wondering what the British are thinking. Can they be serious?
I had this discussion with Jim Bianco yesterday. He pointed out that it is almost impossible to turn the TV on in England without seeing Labor Party leaders, Tory Party leaders, economists, and everybody else except Boris Johnson telling people why Brexit is a bad idea.
The mood in Europe is part of the same phenomenon with Trump and Sanders in the United States. There is growing discontent with the establishment, no matter which party people are aligned with.
The pollsters are going crazy trying to figure out how to handicap this referendum vote in England. The numbers are not breaking down along the normal left/right lines that they have in their political models.
By the way, if England does decide to leave the EU, expect a quick call for a referendum on Scotland’s leaving the United Kingdom and joining the EU on its own.
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