In the past days many things already have been said and emotions have been running high about the result of the United Kingdom’s referendum where the population could express their willingness to stay within the European Union or opt to leave it. In this short analysis I will try to analyse how we got to the point that there was a necessity for a referendum and a quick inventory of what the possible consequences can be.
As a consequence of the Second World War large parts of Europe were in shambles and this war caused an extremely high number of casualties. Among them were millions of innocent civilians killed in bombardments of the European cities or in concentration camps. After the war there was a sentiment that a repetition of such events should be prevented at all cost. The most obvious way to prevent these events should be accomplished by an intensive collaboration between the countries of Europe, so the urge to go to war to settle conflicts would faint. This was actually easier said then done, because right after the war Europe became divided into two large spheres of influences: the capitalist Western-Europe with countries liberated by the Allied forces (mostly Americans, Canadians and English) and a communist Eastern-Europe with countries liberated by the Soviet-Union (nowadays Russia). In this image you can see which countries belonged to which side. Germany and its capital Berlin were split in two: one side controlled by the Allied forces and one side by the Soviet-Union.
This divide meant that in the West and East separate initiatives were taken to come to a more intensive collaboration. In the 1950s Western-Europe made progress with collaboration on economical matters like abolishing import duties between its member states. The group of collaborating countries was gradually expanded and among those new countries was the United Kingdom joining in 1973. The collaboration between the United Kingdom and the other members would however always remain stressful, mainly because the United Kingdom objected the height of their contribution to the collaborative efforts.
In the 1990s important events happened for the collaborative efforts of the European countries. One was among the collaborating countries from Western-Europe itself. Besides the economic aspect there was an urge to pursue a tighter social and political integration between the countries. The collaborative effort would now take place within the European Union (EU), the official name since 1992. Border controls would be largely removed (the Schengen treaty) and political institutions like the parliament that already had been established since the 1970s would become more influential. The European Union would design its own laws on a number of subjects and these laws would prevail over national laws of the individual member countries. Brussels would become the center were the main political institutions of the European Union were established. This centralization of power led to a sharp increase of people who would be working for the European Union. For many politicians from the individual member states a career in Brussels would become the highest fulfilment of their political ambitions and lucrative from a financial perspective (high salary and many other benefits).
Another important development in Europe was the implosion of the Soviet-Union. This implosion would lead to the disappearance of the Eastern sphere of influence. The reunification of Germany and independence for a big number of countries that previously had been occupied by the Soviet-Union came out as a result of these developments. Many of these countries would eventually join the European Union. By 2016 the European Union already consisted of 28 countries as can be seen in this image.
Without any doubt one of the biggest achievement of the European collaboration was the introduction of the Euro in 2002. This would mean that participating countries would give up their national currencies (for example Germany its Mark, Netherlands its gulden, Frankrijk its franc, Italy its lire). You could now use the same Euro currency in large parts of Europe. The United Kingdom did not join the Euro project and kept its own currency, the pound sterling.
Despite these great advancements and achievements over time it became obvious that the European Union also had its darker side. The expansion with so many new countries led to an imbalance within the European Union. In the Northern part there were countries like Germany and Netherlands with an abundant economical growth that paid ever increasing contributions to the Union and in the Southern and Eastern part of the EU there were countries that would become heavily relying on the contribution of their wealthy neighbors but did not achieve the same kind of economic growth and prospect.
The most striking example of the financial trouble developed in Greece. The Greeks joined the EU and the Euro on base of manipulated figures considering their economic position and prospects. A big disadvantage of one currency for members with economies of different strengths now became apparent. In the past a nation could devaluate their currency to give its local economy a push, but now there was no other way than the rich countries handing over large amounts of money to support a weaker member nation. This would ultimately lead to disproportional financial support from the Northern countries, almost bringing the Euro currency to its knees. It would lead to a very negative impact on the public opinion within the northern EU countries (‘Why do we pay so much and will we ever benefit from these payments?’ many citizens started to ask). In this image you see how the money flows within the European Union and which countries are net contributors or net receivers.
The situation in Greece spiralled almost out of control and the term Grexit was circulating: the Greeks could be forced to leave the European Union and be expelled from the Euro currency. This Grexit however until today never became a reality. The Greek government complied to a package of severe economic measures from the European Union (and other sponsors like the IMF).
Another development for the European Union was that the public opinion became very negative because of many reports in the press about the undemocratic, uncontrollable and incompetent way that many of the institutions worked. Where should the EU project stop? Would ultimately the individuality of nations disappear and would a United States of Europe (like the USA) become the result of the collaborative efforts?
Stories in the media started to appear about ongoing financial fraud and money waisting. A famous example of money waisting is a deal between Germany and France implicating that the parliament is some days in the month residing in Strasbourg and on other days in Brussels. This means that an enormous transport of people, documents and belongings is taking place a few times per month.
If these developments were not bad enough already in the 2010s it became clear that the European Union was confronted with a new and immense problem to which it never could develop a clear and united answer. A wave of mass immigration started, first people travelling from Africa to Italy and Spain by boat, but in 2015 a new route started to cause even bigger challenges to the EU member states. Through Turkey immigrants from Syria, Afghanistan, Iraq, Iran and as far as Pakistan and Eritrea travelled from Turkey to Greece (only a small boat trip) and from there travelled further, mainly to the richer countries in the European Union. These events led to big irritation and quarrelling between the EU members on how to cope with handling these migrants and refugees.
In the United Kingdom it was president David Cameron who promised its citizens that they could express their opinion through a referendum if the United Kingdom should remain a member of the European Union or it should opt for an independent course and leave the EU. We all know since June 23th that the people from the United Kingdom have opted to leave the European Union. As soon as the result of the referendum became clear the impact was widely felt. A period of uncertainties is now starting: how will the leave of the United Kingdom take place? What are the economic implications? Will this mean the European Union might collapse because other member states also want to leave?
These uncertainties are already reflected in the economical developments: the stock markets worldwide collapsed after the result of the referendum and there is doubt if the United Kingdom can be the same strong economy outside of the EU as within the EU. London is one of the most important financial markets and there is a fear that many institutions might relocate to cities like Frankfurt and Amsterdam. There is some awareness arising within the European Union that its institutions should be reformed in order to give a solid impression to the populations of the member states or there could be a real risk other countries leave the EU.
And if big other net contributors like France or the Netherlands would leave the whole system could collapse, just like the Soviet Union did in the late 1980s. Because the European Union is such a bureaucratic and inert system it remains to be seen that it can adequately and timely react to the events that are taking place now. Looking at the inability to respond to the immigrant crisis the chances for swift and affirmative action to keep the current EU stay afloat do not stem too hopeful.
What will happen to the United Kingdom and London needs to be seen. There are countries in Europe that never joined the EU, like Switzerland and still have a strong economy and its citizens living prosperous lives. So in the long run the United Kingdom and London could be fine and find a new and reinvented place within Europe and the world. The real issue for the EU becomes to reform and show that it has serious and beneficial future perspective for all its members. If not then other countries might follow the example of the United Kingdom.
-Den Haag, June 25th 2016-