In a little more than a month, Britons will decide whether to remain in or leave the European Union—a choice that could shift alliances, economies and trade agreements throughout the developed world.
Americans have a big stake in whether the referendum results in a Brexit, as President Obama made clear when he flew to London last month and weighed in heavily in favor of continued British membership in the union. The fallout from a Brexit would range from a hit in financial markets and chronic economic uncertainty to a further weakening of the already-wobbly trans-Atlantic alliance. Add to this the possibility of a global currency war ignited by competitive devaluations in Britain and the Eurozone.
To be clear, there are plenty of factors to justify Britons in the “Out” camp, just as there were for Greeks last year. Unelected technocrats in Brussels and Frankfurt have effectively usurped power in the EU, leaving its democratic ideals more or less in ruins.
It’s a pitiful commentary; but imagine the EU’s governance framework in an American context and the protests its autocratic powers would incite. Nevertheless, a Brexit would instantly ripple across the Atlantic and hit American shores hard.
From the first, polls have predicted a close vote on referendum day, June 23, and this remains the case. The Financial Times’ “poll of polls” published a week ago gives 46 percent to the ‘In’ camp and 43 percent to the ‘Outs’.
A survey conducted for the Daily Mirror and The Independent and released Saturday showed 33 percent of decided voters favor the ‘In’ camp and 29 percent prefer the ‘Out’ alternative.
But the Mirror/Independent poll also indicated that Prime Minister Cameron, Britain’s pre-eminent In, has the confidence of a mere 21 percent of Britons as he argues the In case, while the nation’s most influential “Outer,” the charismatic Boris Johnson, enjoys the confidence of nearly half the electorate.
After the International Monetary Fund finished a two-week review of the British economy last week, Managing Director Christine Lagarde described the consequences of a Brexit as lying somewhere between “pretty bad and very, very bad.” Lagarde warned of prolonged economic uncertainty, volatile financial markets, and a possible recession in Britain.
The British economy, let’s not forget, still struggles under the austerity policies Chancellor George Osborne insists on sticking with against all evidence. Last week the government reported that industrial production dropped for the second consecutive quarter, meaning manufacturers are technically in recession already.
Mark Carney the (Canadian) governor of the Bank of England, warned last week that Brexit would raise unemployment and prices, depress the pound, and “could possibly include a technical recession.” (In fairness, the BoE’s latest reports don’t forecast much differently even if Britain stays in the EU)
The principal worries among senior government and BoE officials are these:
• The pound breaks below its 40-year low of 1.35 to the dollar. As almost half of Britain’s exports go to the Eurozone, a currency war ensues—a second front, given that Japan may well spark one in the western Pacific when, as widely expected, it devalues.
• Inflation ticks up sharply.
• Inflationary pressure forces the BoE to raise interest rates. There goes what there is of Britain’s “recovery,” and the highly leveraged real estate market implodes.
• “Cameron will last about 15 minutes at 10 Downing Street after a vote to leave,” as one source wrote over the weekend, and political turmoil will ensue. The Conservatives will then face a split not unlike that now afflicting the Republican Party.
There’s nothing in this for Americans to like.
Obama’s concerns were more strategic when he spoke at Cameron’s side in London last month. The EU is key to Washington’s global security design, and Britain is its closest ally in it. A Brexit would mean the U.S. loses its strongest advocate within a united Europe, and a serious unraveling could ensue.
This could be a blow to Obama’s efforts to push through his Trans-Atlantic Trade and Investment Partnership, the European version of the TTP, the ambitious pact pending with Pacific nations. As Japan is key to the Trans-pacific Partnership, so is Britain to the TTIP.
More broadly, many members of the union—France and Italy high among them—are already weary of the West’s long-running standoff with Russia. In this same connection, they are also leery of NATO’s new buildup on the EU’s eastern flank including the deployment of new missile defenses in Romania.
Russia, predictably, asserts that the deployment made it and Europe less secure, not more, and it would be foolish to miss the extent to which many in Continental Europe are sympathetic to this view.
Britain’s is the strongest voice in Europe against the threat of a drift or rift in the Atlantic alliance along these lines. Washington can ill afford to let it go silent given the strains already evident within it.