The Brexit Flying Circus

Chap.1 – The E.U. or “what have the romans ever done for us”

In the first place, let us explain (or try to) what is the European Union. It started as a post-WWII dream to avoid the events that lead to the previous wars, create a strong, and unite community, by sharing common laws, regulations, free market, and open borders. It started as supranational agreement signed in 1951 by Belgium, France, Italy, Luxembourg, the Netherlands and West Germany, known as the European Coal and Steel Community.

The ECSC joined the European Economic Community and European Atomic Energy Community in 1957, and in 1967, all institutions merged only as the European Economic Community (EEC), with the establishment of several trade tariffs and common price levels for agricultural products. The EEC was the first embryo of what was to become the European Union (E.U.), but yet regulations, laws, free trade agreements and immigration laws were about to be formed, with a parliamentary assembly and several common courts. However, the United Kingdom was still out.

In 1961, the U.K., Denmark, Ireland, and Norway applied to join the forming communities, but French President De Gaulle couldn’t stand the British presence, first as a balancing force against France, but also as an American influence in European soil, so France vetoed the membership, suspending the applications of the four countries. The process conclusion took more than 10 years, resuming the reapplication in 1967 after the new French President Georges Pompidou lifted the ban. 

After several trade agreements (mostly agricultural ones), the U.K., Denmark and Ireland joined the EC effectively in January 1973. Several countries joined the EC and the firstly known as the Treaty on European Union (TEU) and then Maastricht Treaty has been created, as the first real attempt to create a fully operational common market, with open borders and clear trade regulations for the members.

It started in November 1993, when it was also defined the single European currency, the EURO. The European Union, as we know today had its final amendments and conclusions very recently, in 2007 at the Treaty of Lisbon (AKA the Reform Treaty), with the following members: Germany, France, United Kingdom, Italy, Spain, Poland, Romania, Netherlands, Greece, Portugal, Belgium, Czech Republic, Hungary, Sweden, Austria, Bulgaria, Denmark, Slovakia, Finland, Ireland, Lithuania, Latvia, Estonia, Cyprus, Slovenia, Luxembourg, and Malta, by order of voting seats in the European Parliament.

Nevertheless, it was not all calm as a millpond. The U.K. and Poland pressured to add a protocol to the Charter of Fundamental Rights of the European Union, to clarify that it did not extend the rights of the courts to overturn domestic law in Britain or Poland.  During the Maastricht Treaty, the U.K. also secured an opt-out from adopting the euro. Even later, several proposals took place to assure the entrance of the U.K. in the Euro, but as in the five economic tests ⁽¹⁾ in 1997, the U.K. treasury decided that there was neither sufficient convergence with that of the rest of the E.U., nor sufficient flexible to justify an entrance in the common currency.

Despite of this, the U.K., along with Germany and France, enjoyed long periods of economic prosperity in the E.U., as well as the longest period of peace in the region. However, as a union, sharing prosperity comes in the same proportion as sharing difficulties. That’s exactly what happened during the subprime crises.

The adoption of the Euro proposal by the U.K. was entirely dismissed after the 2008 financial crisis, when the European Central Bank failed to act effectively and deepened its effects, with longer recession and increasing unemployment, economic events not so severe in the U.K. as in the rest of the E.U.. Therefore, it lead us to the next topic.

Chap. 2 – Origins of the BREXIT or “Nobody expects the Spanish Inquisition!”

The 2008 financial crises brought up the harshness of a “group” problem. Wealthy nations, or with better fiscal adjustments and reduced government primary budget deficits (i.e. U.K., Germany, the Netherlands and some Nordic countries) did not suffer the same impact as less fiscal strict (or responsible) countries such as Greece, Spain, and Portugal.

This so-called fiscal irresponsibility was not well looked upon members of the Euro Zone and the E.U. and the fact that they might have to help bail out less wealthy countries down the line rose seconds thoughts in the U.K. about the advantages of being in a “Union”. As unemployment soared and the new European Union made it easy the immigration among its members, many Brits did not appreciate the new “invasion wave” of European workers to the U.K., as it happened in the mid-2000s, when former communist and poorer countries joined the E.U..

The U.K. is also an easier target for workers than Germany, France or northern countries, since Europeans easily speak English as a second language. It rose significantly the tension over immigration in recent years and due to the economic recovery “in progress” since 2008 and the latest polls show 45 percent of Brits identifying immigration/race problem as a concern, as well as 77 percent believing that immigration levels into the U.K. should be reduced.

However, the issue itself started mostly based on economics. Prime Minister David Cameron promised to analyze the terms of the whole agreement with the E.U. due to strong internal demands of the Brits and immigration was among these terms.

We will show on a separated topic that, despite of the economics claims, the Brexit campaign was sturdily based on migration / populism criteria.

The demands for better agreements grew stronger after the subprime crises, also during the NATO summer summit in 2012, when Prime Minister David Cameron pursued to increase his influence inside the Conservative Party, by openly discussing the idea of a European Union referendum, notwithstanding his position against the U.K. leave.

In 2013, however, Cameron promised if the Conservative Party won the majority seats at the 2015 election, the government would negotiate more favorable legal, trade, and migration arrangements for the U.K. to remain as a member of the E.U., before holding the referendum, which was followed by a first draft.

The political dispute kept the referendum on the spotlight between 2013-15 and after winning the majority seats in the Parliament in 2015, Cameron promised to hold it, but only after “negotiating a new settlement for Britain in the E.U.”, according to the Conservative Party Manifesto. The demands were:

1. New free trade agreements and a less bureaucracy for businesses;
2. More power for member states individually and less for Brussels;
3. Eradicate the notion of “ever closer union”;
4. Reinforced immigration controls, especially for the new E.U. members, as well as tougher immigration rules for current E.U. citizens;
5. New powers for local parliaments to collectively veto new laws proposed by the EU;
6. Less influence of the European Court of Human Rights on the U.K. police and courts.

As a result, in November 2014, the demands were update to:

1. Official recognizement that Eurozone laws would not necessarily apply to non-Eurozone E.U. members and the latter would not have to bail out troubled Eurozone economies;
2. Expansion of the single market and to set a target for the reduction of bureaucracy for businesses;
3. U.K. should be legally exempted from the notion of “ever closer union”;
4. Local parliaments should be able to collectively veto proposed E.U. laws;
5. E.U. citizens going to the U.K. for work should not be able to claim social housing or in-work benefits until they had worked there for total four years and for them to be unable to send child benefit payments overseas.

The result and timing of the negotiation was not appealing to the British and the political process for the referendum went on, confirmed by both European Union Referendum Acts 2015 / 2016, approved in the Parliament, when Cameron was planning to hold the referendum in October this year.

However, in February 2016, Cameron declared that the Government would recommend that the U.K. should stay in the E.U. and that the referendum would take place on 23 June, marking the official launch of the campaign.

The first criticism on the referendum, aside the set of demands, was the date. Many critics believed that the timing, close to an election and in a very short term would not give enough time for voters to fully understand the consequences of the Brexit and that the first proposal, to vote around 2017 would be better for these considerations.

On the short period of the campaign, both sides showed critical and important reasons for the Leave and for the Remain, as well as a very populist, low-level crusade for the Brexit. Let us show first the rational side of the dispute. In the end, it was primarily a David Cameron idea.

Chap. 3 – Two sides of a pound or “The argument clinic”

Coherent proposals and criticism came from both sides. For those advising to leave, the European Union is jam-packed and contaminated with excessive and even “silly regulations”. Many of these are overbearingly decided in the European Parliament to be strictly followed by its members, which was seen by many Brits as unaccountable and undemocratic.

The U.K., despite the well-developed welfare state, became a highly liberal economy during the Thatcher years, which made London the financial capital of the World for a period, surpassing NYC.

In a sense, the contrast between the U.K. and E.U., which came from a mostly French background, resulted on burdensome economic regulations and very lose migration controls. Bureaucracy was also largely criticized, as the business regulations in the U.K. are closer to those observed in the USA, but the country should attend, most of the time, to regulations determined by the unelected E.U. authority.

The costs to operate into the E.U. also became object of criticism, but it goes against the notion that by leaving the block, trade taxes would start to be applied, making commerce more onerous for both sides.

Analyzing the points of view above and many others, it’s obvious that were good reasons for the British dissatisfaction and the lack of success to complete the terms of the negotiations with the E.U. impassionate what should always remain as a technical debate.

On the other hand, reasons to Remain were many.

Despite several of the issues previously mentioned, partially negotiable with the E.U., Brits enjoyed long periods of economic prosperity inside the block, freely accessing important markets. The U.K. and Germany grew a long-term commercial and industrial relationship, where Brits would purchase high-end intermediate and capital goods for companies such as Rolls-Royce, also technology for railroads, just to mention a few examples.

It extends to other countries, considering that the E.U. responds to 48 percent of total British exports and 47 percent of imports, according to the latest data from HM Revenues and Customs (UK Trade Info). ⁽²⁾

In the event of the Brexit, all trade agreements fall down to earth. U.K. must resume individual treaties with every single E.U. member, some of them, like France, not willing to endorse anything that could stimulate other countries to follow the British steps.

During the golden years of the E.U., many companies and banks changed their headquarters to London, considering the better regulation, costs, language and the agreements. London stock exchange may also suffer, as many European companies are listed for the same reason.

• 3-1 – The “foreign visa” matters or “You shall not pass”

Immigration, a problem constantly debated during the campaign will also distress Brit expats. They are currently around 1.2 million all over the E.U., working and living without much disturbance, as well as 3 million non-British E.U. nationals living in the U.K.. That will change when the Brexit takes place. According to British law, a visa may be requested after five consecutive years legally working or living in the U.K., what is not the case for most workers, who might be simply deported.

Not only the country may lose an important labor force in many sectors, but British people would also have to be concerned about visas and residency rules. Partially due to the recent crises, zero interest rates, and free fall prices, Brits became the single most active buyers of real estate in the south of Spain, parts of Italy and Greece.

These would be reasons enough to consider the exit an error, at least without greater efforts to review the terms of the E.U. pact between both entities. We know the European Union is object of criticism and the Euro itself is far from perfect, especially on how the ECB (European Central Bank), but simply “leave” is not the better solution.

Chap. 4 – Populism or “Ministry of Silly Walks”  

Boris Johnson and Donald Trump. They look alike, they think alike. The campaign for such an important theme for a country and even for a continent was not at all based on the rational premises presented on the previous topic.

If so, Brexit would probably not happen at all and U.K. would insist to remold its presence in the E.U.. Part of the leave campaign has been infiltrated by several Right wing extremists with racist views, putting immigration as the most important – for some the only – reason for the Brexit.

Newscaster Faisal Islam was called “ignorant anti-Brexit Muslim” during a TV debate. Andrew Edge, an English Defense League organizer who was jailed for a violent demonstration in Birmingham made an open “We want our country back” campaign, directly supporting UKIP leader, Nigel Farage.

The campaign took such a racist tone at a moment, with angry protests, pamphlet distribution, and TV ads showing hospitals full of people, with a “pure brit” trying to get some medical assistance, while Asians, non-whites and beaten-up people wait on the line that even some political backers of the Leave started to avoid “being around or close” some of the supporters.

One of the ads, put in buses and billboards stated “We send £ 350 million a week to the E.U.. Let’s fund our NHS (National Health System) instead – Vote Leave”, but after the victory, Nigel Farage told reporters “We can’t guarantee that this money will really go to the NHS, claiming that was one of the mistakes the campaign made”.

Even “independence” was used as motto for the Brexit, the same independence many countries got from U.K. after centuries of colonization.

Some critics of the racism involved even reminded that many ISIS fighter, like Jihad John are actually British born citizens, not even immigrants or, like in the France attack, nationals from other states.

However, the worst part of it was the murder of Jo Cox, a British Labour Party politician, defender of the Remain campaign, and Member of Parliament, who was fatally shot and stabbed in West Yorkshire by 52-year-old Thomas Mair, who shouted “Britain first” as he carried out a targeted attack.

It changed the poll in favor of the Remain campaign, even before the voting day, but not enough for the victory. 

Boris Johnson has strongly supported the Brexit, but remained in a position of support to the “Remain” in case it happened, due to his own political agenda to be the next prime Minister.

Chap. 5 – Profile of the voters or “The Funniest Joke in the World”

The profile of the voters tell a much better story on why the Brexit has happened. ⁽³⁾

For a starter, youngsters, the ones that will hugely suffer the effects of an eventual Leave voted massively against the Brexit, on a proportion of 75 percent from the ages of 18 to 24, 56 percent from the ages of 25 to 49. The massive support for the Brexit started only above 50-year-old voters, and above 65-year-old voters it was 61 percent.

The level of education tells a similar story, the “Remain” had the support of 71 percent of people who holds a degree, decaying to 34 percent among with high-school education, the only share of the population that fully supported the “Leave”.

The cherry on top is the parties division. While Liberal Democrats supported the remain in 73 percent and Labour 69 percent, David Cameron Conservative party supporters gave 57 percent of their votes for “Leave”, even though the prime minister himself advocated otherwise.

UKIP unsurprisingly voted 93 percent for the “Leave”.

Chap. 6 – The future or “always look on the bright side of life”

David Cameron, one the reason it occurred, will step out as the Prime Minister, as he cannot “conduct a ship to a direction he does not believe” and said that a new referendum should occur just after his resign in October. In the short term, the future is not exactly bright for the U.K..

According to the Article 50 of the Treaty on European Union, if a member state wishes to withdraw from the EU, it must notify the E.U. and obliges the E.U. to try to negotiate a withdrawal agreement with that state. It may take a two-year window to happen and as we mentioned previously, to negotiate new treaties, probably individually between the U.K. and states members.

Issues like trade migration, visas, tariffs, and trade regulation of everything must be discussed all over again. The first effect already happened, as the U.K. is downgraded by two of the three big risk agencies (Fitch and Moody’s) through the uncertainty of the process and the economic future of the queen’s homeland.

British pound fell over 9 percent since the voting and many British workers overseas get their payments in Euros, but with reference in sterling pounds, getting so an automatic cut.

The future is far from simple as Scotland and Northern Ireland may decide to leave the U.K., adopt the Euro and remain in the E.U. threatening the unicity of the sovereign state. Northern Ireland is even proposing to rejoin Ireland, which is not part of the United Kingdom.

• 6.1 – The U.K. under pressure of the E.U. or “I fart in your general generation! Your mother was a hamster and your father smelt of elderberries!”

Another problem is the E.U. itself. France in special is not at all pleased with the Brexit, as Europe is in a present state of fragility and the event could encourage other states to do the same. In order to avoid this, France and the E.U. will much probably harden the relations and impose severe penalties during to process, making an example of Britain.

So bilateral agreements may become much harder to obtain. In a sense, Brexit is as bad for the U.K. as it is for the E.U.. So, after the final poll results, the level of the conversations increased significantly in the Parliament, rising up proposals both to ignore the voting (the most extreme), due to its too strict margin or event to call another Referendum, in order to better explain the real and severe consequences of the Brexit.

Chap. 7 – Brazil

What happens to Brazil in such problematic imbroglio? Well, considering that in the last 13 years Brazil behaved as a diplomatic dwarf and set commercial agreements mostly based on an ideological agenda, instead of an economic one, so the consequences are quite limited.

By not being a member of any relevant economic block, Brazil may deal directly with the U.K. and the E.U. either joined or separated. In a alleged government change, the country has a unique opportunity to create profitable and more concise trade agreements and the Brexit will become part of this change, happening or not.

·         http://news.bbc.co.uk/2/hi/uk_news/politics/2423783.stm

·         https://www.uktradeinfo.com/Statistics/OverseasTradeStatistics/Pages/EU_and_Non-EU_Data.aspx

·         http://www.politico.eu/article/graphics-how-the-uk-voted-eu-referendum-brexit-demographics-age-education-party-london-final-results/

Sources: BBC, Legislation.gov.uk, Guardian, NY Times, UKTradeInfo, Vox, Conservative Party, BBC, The Daily Telegraph, CNBC, Bloomberg, UK Treasury, Politico.EU, Independent.