Many must feel like they have woken up to a nightmare, but this nightmare is for real – the British have decided to leave the European Union. Yet Brexit might be the best thing to have happened to the EU in recent years. Brexit could provide the impetus for a better, more modern Europe.
With 52 percent voting to leave the EU, the result was very narrow – a decision that no one had seriously expected in the run up to the referendum. This was also reflected on financial markets which were caught completely off guard. In the short term, calm will return to stock markets, but further political and economic developments will prove crucial in determining the long-term direction of financial markets.
Now it is up to politics and the economy to restore stability, a mammoth task for those responsible. The referendum has left Great Britain a divided country. While Scotland and Northern Ireland clearly rejected Brexit, Wales and England voted in favour. Even more striking is the fact that, in the younger sections of the population, a clear majority voted to remain in the EU while older members of the public voted to leave. The young must now submit to the dictates of the older generation. Despite the result, those supporting the EU are not prepared to accept the result lying down. A petition is already calling for a new referendum on Brexit and has been signed by more than 1.5 million Britons.
The need to achieve quick political consent will be crucial for the further development of the British economy. Backbreaking discussions over the future path for Great Britain would prove damaging to investor and consumer confidence. Prime Minister Cameron’s announcement that he will only be stepping down in three months is clearly not helpful in this context, as it will probably only create political deadlock in the months ahead. Even without further domestic hindrances, the British economy can still be expected to slide into a slight recession in the second half of the year. This might well be overcome through the course of 2017, but the UK’s growth potential in general should weaken, with the medium-term growth rate hovering at around 1 percent. An unfavourable development of this kind could probably only be halted with generous bilateral agreements with the EU. Yet the incentive for the EU to do this is likely to be very slight.
Things are looking somewhat brighter for the rest of the EU (i.e. without the UK), and the economic development in the Eurozone and in particular in Germany should only experience a brief dent. In my view, negative growth rates are not to be expected. By as early as the middle of next year, economic momentum should have returned to normal, and by no later than 2018 the growth dip should be overcome.
A key requirement for all of this is that leading politicians, both national and European, restore confidence in the European idea that has been dealt such a blow. A clear vision of what Europe, the EU and the Euro area should and could be in terms of future prespectives now needs to be formulated. There can be no doubt that the concept of a European Union is a successful idea. In past years, however, people have been increasingly left out of developments and the ideas and visions have not been explained to them. This now needs to be put right. In this context, a clear negotiation strategy – one that also bears the hallmark of the European idea – needs to be pursued in the forthcoming negotiations with the UK. Great Britain needs the agreements with the EU more urgently than the EU, a point that should not be forgotten in the course of this.
If leading European politicians appropriately and credibly defend the idea of Europe again, confidence in Europe should also be quickly strengthened. This is crucial for investment in economic infrastructure as well as for capital investors. After all, Europe was and still is an attractive place for investment. This precious capital should not be squandered.
If this political development comes about – and there is much to suggest that this will be the case – the referendum in Great Britain and the British public would have brought the EU a decisive step forward. Brexit would be the best thing to have happened to the EU in recent years. The British public could then also ask themselves once again whether they really do still stand by their current decision.
If, however, European politics fails to shift direction and continues to pursue its, in some cases, self-absorbed course with little interest for the people, the fragmentation process could well persist and might even result in the collapse of the EU. The political, economic and social consequences would then be very negative, but with greatly differing manifestations in the EU member states.
Some countries could use the current situation in the Euro area – on the pretext of creating greater integration in Europe – to step up their repeated demands for a socialisation of risks. However, this would also create considerable dangers for the Euro area since the people in the countries having to take on the risk of the other countries are hardly likely to accept this course. The hour for the populists and manipulators would then have come. The vote for Brexit has shown how increasing disillusionment with politics can make it very easy for demagogues to sell their ideas.