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Global Trends and Politics

Brexit referendum: the genie is out of the bottle

11.02.2016

British Prime Minister David Cameron's negotiations with the European Union are evidently heading towards an agreement. This would allow Cameron to campaign for remaining in the EU in the planned referendum. Nevertheless, his strategy is still risky: referendums are unpredictable, with results often being swayed just before the vote by issues and emotions that have nothing to do with the question on the ballot.

The EU is currently facing its greatest crisis ever

Take the economy, which is still booming in the UK. Experts are forecasting growth of slightly more than 2% in 2016. But what if the world economy were to be plunged into an actual crisis, which palpably affected the UK as well? How would UK citizens vote if they were faced with increasing unemployment and corporate bankruptcies? After all the constant complaining about Brussels, would voters really consider the EU to be a potential saviour rather than the cause of their problems? Or consider the refugee issue: the EU is currently facing its greatest crisis ever. If no solution to the refugee situation can be found by the summer, many people – including those in the UK – will lose even more faith in Europe. Given the EU's already deep existential problems, Brexit could potentially be the straw that breaks the camel's back. Economically, this scenario would be difficult to bear not only for the UK – more than half of whose exports go to EU countries – but for the EU itself, which could shed 16% of its economic output. At the same time, the EU would be greatly weakened politically. So the negotiators in Brussels have much to lose. This fact perhaps explains why President of the European Council Donald Tusk has already conceded so much to the UK so quickly. Yet a failure of negotiations would be a setback for David Cameron as well. Both sides will be able to live with the compromise.

Other countries will make new demands and threaten further referendums as well

After the agreement, Cameron will certainly expand his campaign to remain in an "improved EU". Most Conservative MPs and the Labour Party will support him. But will the people also be convinced by a deal that suddenly endorses the entire EU – the same EU that British politicians have been demonising for years? And even if the UK does vote to remain: the genie is already out of the bottle. Finland may soon vote on remaining in the currency union. And other countries will make new demands and threaten further referendums as well. It would be naive to think that the EU will emerge unscathed. Experience in many countries has shown how difficult it is to win votes by campaigning for Europe – and often enough how easy it is to do the opposite.

Many people feel as if they had less and less say on European issues

Nevertheless, the situation also presents an opportunity for the EU. Nothing less than the future of Europe is at stake in the current discussions. The crises of recent years have caused many people to feel as if they had less and less say on European issues. And this even though almost every national election has focussed on at least one European question. Unfortunately, this fact cannot change subjective perceptions – our politicians have to react accordingly. Elections to the European Parliament, where voter turnout mostly remains disappointingly low, are not enough to create stronger feelings of political empowerment. The EU must become more powerful and flexible in order to deal with political or economic crises. Future economic and fiscal integration issues, a common energy policy, the refugee crisis and foreign-policy challenges in the Middle East all demonstrate that the EU countries will – sooner or later – have to give up more national sovereignty. In many countries, this will be politically impracticable, or even impossible, without a referendum. Not every country – especially not the UK – will vote for more integration; Europe will certainly not advance as a united front.  But this need not be a problem, since a move forward by a few countries is better than a standstill. 

The EU must become more powerful and flexible in order to deal with crises

The political factions will in any case have to reveal their colours in the future. Many citizens' frustration with "the Eurocrats in Brussels" is also due to the EU often being made the scapegoat of national politics. One typical government tactic is to not implement decisions made jointly in Brussels, but yet to complain about the sluggish inefficiency of the EU. "Brussels bashing" is easy when there is nothing to lose, and especially if it improves prospects in upcoming elections. A government wishing to set the course for the future of its country in a referendum will carefully consider the messages it sends to the electorate. An image of David Cameron standing shoulder-to-shoulder with Jean-Claude Juncker and Donald Tusk after an EU agreement – praising the virtues of the EU and recommending UK citizens to vote to remain – could set an example. Let us hope that it happens.

Munich Re Experts
Michael Menhart
Chief Economist at Munich Re
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