Brexit: Towards a new European Paradigm

For those of you who may be worrying about your next Erasmus exchange to London or about the English football team’s participation at the next European champions league, you may not have fully understood. In fact, no one fully understands, us included and one should beware of those who claim to be able to predict the future with too much assurance. Here at Koosmik, we have brainstormed an economic analysis which has proved rather successful internally, therefore we decided to share it. We are by no means looking to get involved or start up the debate again.

 

When passion prevails over reason

 

The impoverished debate

You should be concerned, when the main arguments and slogans are worthy of the worst Football stadiums in Europe! We do not mean the lovely stadiums populated by our Irish supporters… In summary, this is how we understood the campaign ‘England first vs ‘You’re a racist’ with no holds barred, including lies (well this happens frequently almost everywhere). Had there been a real debate with a little more economic focus and historic reminders, the result could have been different as well as the participation.

Youth and a future forsaken?

The limits of democracy are questionable, when the fate of a referendum lies in the hands of those who will experience very little of its consequences.

 

Age Group Median Age Remain Leave Life Expectancy Average number of years
they have to live with the decision
18-24 21 64% 24% 90 69
25-49 37 45% 39% 89 52
50-64 57 35% 49% 88 31
65+ 73 33% 58% 89 16
Polling Data = YouGov. 1652 people. 17-19th June 2016
Life Expectancy based on ONS pension planner life expectancy estimator.
Average 65+ year old was estimated to be 73 using ONS age distribution data.
Those who were undecided or wouldn’t say have been excluded
Those who must live with the result of the EU referendum the longest want to remain.

 

However, it could equally be argued that the older generations are those who have had the most “experience” of the European Union. These people are entitled to be disappointed and concerned; the initial European project they were sold has lost its glamour over time.

Between inconsistencies and misunderstandings

 

Thought to be impossible, Brexit is now part of a long list. The Lehman Brothers’ collapse, the subprime crisis, state bankruptcies, negative interest rates, and on a less serious note, Leicester’s Premier league victory J.

When all is said and done, Europe lost credibility and purpose in the eyes of an insular population and failing to question oneself, the impossible happened. The whole political and financial class are in unison singing the same tune “We were prepared for this, keep calm and carry on”. The extremes rejoice while the counsel of despair that predicted the millennium bug are already announcing a third world war. Here at Koosmik, we prefer to humbly say to ourselves that what is inconsistent will take time to be fully comprehended.

Incoherence, misunderstandings and a leap into the unknown lie ahead, as no country has ever officially left the European Union. Well not quite, Greenland had undergone a similar referendum in 1982. Greenland’s exit treaty took almost three years to take effect (February 1985). We daren’t imagine how long the UK’s could go on for, who lest not forget, had already attempted a referendum in 1975 (2 years after their entry, Result: Remain 67%).

Unpredictable and heavy turbulence all-round

 

Risk of implosion in the United Kingdom

Xavier Bettel, Luxembourgish prime minister coined the term “divided” Kingdom. He is not wrong given that only England and Wales carried a majority vote for Brexit, and all of Scotland’s constituencies voted in favour to remain. In fact, Scotland has hastily requested a second independence referendum and immediate discussions to remain in the EU.

 

Europe under pressure (Austria, Czech Republic, The Netherlands)

The opportunist countries or those desperate to attract capitals and growth will be disgruntled by Britain’s risk of dislocation, because what will happen in the UK will no doubt happen in Europe not long after.

Pandora’s box is now open. If the UK, 17% of the EU’s GDP can leave so easily, why shouldn’t other members attempt the same. At the very least, each country could leverage the threat of a referendum as a power play to negotiate with the EU. The tricky economic situation, the rise of the extremes and the countless elections to come inhibit a serene prediction of what is to come. Austria, Sweden, Denmark, France, Poland, Czech Republic, Spain, Italy … Who will be the next out of the door? All bets are off!

 

A painful adjustment for the United Kingdom?

Britain has put itself in an arduous position short term, furthermore the parliamentary whispers had foretold this long ago “they will end up leaving one day”. So why the assumption that the Great British Isles will not prosper has it always has done. Certainly we see no modern Churchill or Thatcher in our midst, but supposing that Europe’s inconsistencies and difficulties got the better of it, surely leaving first would give them a head start. Why couldn’t London and the UK become rivals for the Swiss, an offshore base with less constraining rules, less regulation and more importantly lower taxes? Britain’s got talent, let’s not underestimate their ability to bounce back from this.

 

What happens now?

 

The enforcement of Article 50 of the Lisbon treaty or a magic trick?

David Cameron wasted no time and bravely resigned… but this won’t take effect until October. Discussions have already begun between the other 27 states, meanwhile in the UK, they seem to be stalling for time. This EU exit is daunting, according to Article 50 of the Lisbon treaty, the process could take up to two years.

Furthermore, lest not forget the Brexit referendum is merely a consultative measure and we are still awaiting the United Kingdom’s official request to apply for this infamous Article. Unless, Cameron pulls off an anti-democratic magic trick like Greek PM, Tsipras... Either way, British MP’s will be forced to go against the will of more than 1M Brits.

A real head scratcher

Guess which country is due to preside over Europe next year? The United Kingdom, despite their departure, it is still likely that they will ensure this presidency.

 

Council presidencies up to 2020

  • Netherlands : January-June 2016
  • Slovakia : July-December 2016
  • Malta : January-June 2018
  • United Kingdom : July-December 2017
  • Estonia : January-June 2019
  • Bulgaria : July-December 2018
  • Austria : January-June 2019
  • Romania : July-December 2019
  • Finland : January-June 2020

 

Nonetheless, the referendum remains a consultative procedure and the UK doesn’t appear to be in a rush to act upon its result. Playing for time could allow them to avoid Brexit altogether:

  • By using the threat of Scotland’s independence as a primary argument
  • By stepping down and handing over to a new government to deal with Brexit, which would suggest a new referendum;

 

The winners and the losers

 

Our losers:

1) The pound sterling: It has slumped nearly 9% during the 5 days following the Referendum. This is worse than a devaluation driven by a central bank.

2) Alexis Tsipras: In our eyes, he will be the masked loser. The fact that David Cameron admitted defeat and accepted the democratic choice of the people will completely discredit him, if you recall his sly renegotiations with Europe (against the will of his own people).

3) Angela Merkel : Germany has lost  a signification ally of its economic and reformist vision for Europe. It will be quite a feat now to impose the necessary reforms in France and other southern European countries.

4) David Cameron: He played with fire and got scorned. Nevertheless, he is drawing the consequences and after all, did keep to the promises of his campaign bolstering the Conservatives’ defences against their rival parties.

Our winners:

1) China: For several years now, China has been assessing which would be the best spot for them to establish their Yuan offshore platform. There is now light on the horizon and London seems to be the obvious choice. A financial centre emancipated from EU financial regulations, yet still at the gates of Europe.

2) Central banks:  Central banks will need to concert with each other proactively to curb any possible financial crisis. Their actions will allow them to solidify their power and indirectly act politically.

3) Theresa May: She will no doubt become the next Prime Minister following Cameron’s departure, discounting Johnson has stepped down from the running or or Farage who is viewed to be too disruptive.

4) London City: London will always be a city apart, Brexit will render it more attractive from an economic and touristic standpoint. The housing market could equally correct itself.

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Matthieu Crance

Matthieu Crance

Matthieu has gained significant experience in start-up entrepreneurship, business & strategy innovation. At Koosmik, he is the overseer of operations and resident philosopher.

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