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The Odds Remain against a Brexit



The last-minute deal between Prime Minister David Cameron of Britain and the leaders of the European Union on February 19 was aimed at persuading Cameron, his government, and the Conservative Party leadership to support staying in the European Union in the referendum scheduled for June 23. Will it do the trick?

Almost certainly, yes. The burden on those favoring a British exit (Brexit) is to make the case that life on the outside will be better than staying in under this new deal—a difficult challenge. Most Scottish, Welsh, and perhaps even Northern Irish voters are likely to support EU membership, leaving it up to the numerically dominant English voters to drag the entire United Kingdom out of the European Union. Were that to happen, Scottish (and perhaps other) nationalists would seize the opportunity to demand a new referendum on whether to remain part of the United Kingdom or break free and seek membership in the European Union as a new independent country. Voting for UK secession could thus produce a series of votes to break up the United Kingdom itself, creating a Little England in its wake.

Essentially all major non-European economies—the United States and China in particular—have made their preferences for the United Kingdom to remain in the European Union very clear, and which natural economic and political partners the United Kingdom would have outside the European Union is hence unclear. Many emerging markets are now under severe economic stress and cannot easily be the platform upon which future UK international economic relations and prosperity are based.

The European Union is also not going to play nice with the United Kingdom if it leaves. Its handling of Greece and the euro set an example to other wobbling members of threatening terrible consequences for anyone leaving. Divorce will be anything but amicable or quick, jeopardizing broader economic relations and the City of London's ability to remain the undisputed financial center of Europe.

Adding to the pressure on the United Kingdom to stay is an explicit self-destruct mechanism in the deal reached with Cameron, declaring that "should the result of the referendum in the United Kingdom be for it to leave the European Union, the set of arrangements referred to in paragraph 2 above [e.g. the entire agreement] will cease to exist." This clause denies Cameron's opponents a potent, if dishonest, argument—the claim (a la Donald Trump) that they could get a better deal after a "no" vote, or that such a vote is risk-free. Ruling out a "Plan B" in the event of a Brexit means that if opinion polls are tight as the referendum approaches, financial markets will react negatively to the uncertainty. Few investors in the end will be long on Little England assets.

As was the case in the Scottish referendum in 2014, market volatility can be a powerful persuader for many late-deciders and risk-averse voters. The In campaign may well try to run a positive campaign for staying in the European Union, but financial markets will likely make the fear argument for them. After all, the United Kingdom must finance the second largest current account deficit among advanced economies at 4.3 percent of GDP in 2016. That will be more difficult once the United Kingdom is outside the European Union. Foreign investment flowing into the United Kingdom to service the entire European market would surely drop dramatically. Would the Bank of England intervene if markets plunge into turmoil? Or would it let market forces run free, accepting a little short-term loss of economic activity to drive home the point of the costs of Brexit? Would Mark Carney, the Bank of England governor, get a phone call from his employers at the Chancellor of the Exchequer's office to let the markets have their say and show voters the full effect of a Brexit?

The Conservative Party, as always, is split over Europe, but dissenters appear limited to 7 out of 28 cabinet members. Both Labour and the Liberal Democratic Party will campaign in favor of staying, and the United Kingdom Independence Party (UKIP), leader of the opposition to Europe, seems to have peaked in popularity. The Out campaign is thus a motley crew of far-right to far-left current and former politicians with essentially nothing in common except their hatred of Brussels. As Catalonia has recently shown in Spain, this type of nationalist coalition is not able to construct a viable alternative even in victory.

In a bizarre development that could galvanize the Brexit forces, however, the outgoing mayor of London, Boris Johnson, has joined the cause in spite of the fact that the City of London benefits greatly from EU membership. Seizing a nationalist rationale, Johnson claims Britain needs to regain its sovereignty from an increasingly undemocratic European Union.1 No doubt political ambition was a major factor in his decision. He does not, like other members of the Out campaign in Cameron's cabinet, have a long record of skepticism about Europe but has in fact often talked about the benefits EU membership. However, it is unlikely he could challenge Cameron's heir apparent, Chancellor George Osborne, for the party leadership (Cameron will not contest the next UK election in 2020) unless he successfully helps lead a rebellion against the entire Conservative establishment over Brexit. It is not clear though whether other prominent members of the Out campaign will simply let Johnson seize the mantle of Brexit for his own political purposes, so even his support for it is unlikely to quell the internal squabbling in the Out campaign.

With the campaign about to start, UK and multinational businesses located in London can no longer duck the issue. They will be forced to choose sides, even at the risk of alienating part of their customer base. The overwhelming majority is likely to choose to remain in the European Union, countering the inexplicably anti-European British press. All told, with the June 23 vote irreversible and critically importance for the United Kingdom, vague nationalist arguments about wanting "Britain to retake control" and restore national sovereignty are unlikely to carry the day against what will be a highly volatile pre-referendum economic environment. Nor will vague general anti-establishment anti-globalization sentiment likely be persuasive when markets tank ahead of the vote. A majority of risk-averse voters are likely to listen to their popular and recently reelected prime minister, David Cameron, and his pragmatically conservative case for a changed relationship with the European Union to maintain it largely the same.

In fact, with David Cameron recently reelected and the prospects of a simple "protest against the government vote" thus limited, probably only one strategy could lead the Out campaign to victory, namely if they succeed in changing voters' perceptions about what the vote is really about. It is always a risk in referenda on complex issues that people end up voting on something entirely different than what is on the ballot to voice their displeasure against some other abstract, unrelated issue. If in the coming months the Out campaign manages to turn June 23 into a de facto vote in the electorate's mind about immigration into the United Kingdom, they could win, as voters might accept economic hardship if they think it will save their country from being overrun by migrants. The claim that a no vote might enable Britain to "retake control" over its own borders could prove sufficiently alluring to voters, despite its patent falseness, in the midst of Europe's general immigration emergency in 2016.

To counter such a possibility, Cameron and the European Union should remind British voters that it is French authorities who guard their borders. The French government could warn that France is prepared to nullify its bilateral border agreement with Britain providing for control of migrants in various places, including the Calais camp, if Britain leaves the European Union. And if that doesn't work, Paris can send its gendarmerie in Calais home for a weekend ahead of the vote in late May, facilitating the exodus of camp inhabitants through the channel tunnel . The spectacle of thousands of migrants streaming into southern England might remind British voters about the benefits of maintaining the status quo on border control inside the European Union.


1. Equally amazing is the fact that the Conservative candidate to replace Boris Johnson, Zac Goldsmith, has also stated his intention to vote for Brexit. It is unsurprising that he is currently behind in the opinion polls for the May 5 election.

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