The other EU countries don’t have a say in whether a country decides to leave, but they do have a say in the terms of them leaving (something established by the Treaty of Lisbon). The referendum isn’t binding in the sense that the ‘official’ process for leaving the EU isn’t triggered until the UK government invokes Article 50 of the Treaties. The Treaty creates a 2 year (extendable by the unanimous European Council agreement) time limit for negotiations during which time the UK is still a EU member state (so the referendum didn’t immediately DO anything legally), and, even after Article 50 is invoked, there doesn’t seem to be any reason they couldn’t reverse their decision up until the the “withdrawal agreement enters into force.” The UK government describes the withdrawal process as they understand it here.
So here is a small round up of the ways Brexit might not actually happen:
- Some MPs are arguing for Parliament to reverse or nullify the decision;
- There’s some basis to claim that Northern Ireland or Scotland can nullify the decision (see here at p. 19);
- Apparently over a million people have signed a petition to have a second referendum (http://www.bbc.com/news/uk-politics-eu-referendum-36629324);
- Others are calling for a Parliamentary election where a Labour-led opposition coalition explicitly runs on the Remain platform, providing them a mandate not to withdraw (see e.g. economist Simon Wren-Lewis: https://mainlymacro.blogspot.com/…/just-how-bad-will…);
- This well-thought-out commenter (pointed out on Twitter; comment on original article) basically argues that whoever becomes the next leader of the Conservative Party is going to either tell the voters that Brexit is impossible/unachievable or draw out the process for formally withdrawing until they find some other way to slink out of the referendum result. David Cameron absolved responsibility for doing this by resigning, even though he had previously said repeatedly that he would invoke Article 50 immediately after a Leave win.
Is this delusional or a needed check on the fear-mongers? Both? Still, I hope they take Option #4.
Feel free to correct me if I’m getting anything obviously wrong here, but I’ve been annoyed with vapid, garbage economic analysis of Brexit. I would’ve voted Remain and I hope at some point in the near future a resurgent Left can re-take power in the UK (and across Europe), but I’ve been bothered by conventional wisdom/analysis about the effects of Leave. (Alan Greenspan just said that Brexit means we have to cut entitlements…)
I read through the OECD Brexit economic analysis, and came away profoundly unimpressed. The analysis runs from 2016 to 2030 and estimates that UK GDP will be 5.1% lower because of Brexit. That’s not good, but in 2016 UK GDP is ~16.8% lower than what the IMF expected back in 2007. The Great Recession and the tepid policy response since have been catastrophic economically. Brexit is just kind of disappointing by comparison.
The analysis framework that informs the OECD’s negative results is called a “sudden stop.” The idea of a sudden stop comes from emerging economies: there are high capital inflows and trade deficits that abruptly reverse, causing a negative trade shock, currency devaluation, and sharp increases in interest rates/financing costs, so the central bank and government have limited capacity to use policy tools to help the economy. The idea is that this is similar to what happened to countries like Spain and Greece in the Great Recession.
The UK isn’t Spain or Greece though, so it’s hard to see how this logic makes any sense. Paul Krugman [Update: Krugman posted again, apparently copying me(?)] just posted about this: there’s no reason that the UK would face a balance-sheet crisis because they borrow in their own currency and sovereign bonds are still considered extremely safe assets (regardless of what Moody’s rates them). Instead, the main fear is that political uncertainty and economic pessimism will cause investment to fall with no other sector rising fast enough to offset the decline, triggering a recession. There is no reason that this has to cause a recession. British borrowing costs are falling, so the UK could just increase government borrowing, filling the output gap using expansionary fiscal policy.
Larry Summers has another of his series of think-pieces in the Washington Post. It’s certainly thought-inducing.
His core argument is for the Fed:
The Fed should be clear now that its priority is not preventing a small step up in inflation, which in fact should be welcomed, or returning interest rates to what would have been normal to a world gone by.
Instead the Fed should focus on assuring adequate growth in both real and nominal incomes going forward.
He points out that markets are expecting interest rates (the Fed’s policy rate in particular) will be much lower than the actual members at the Fed say it will be.
Further, he points out that the members of the FOMC have consistently missed expectations for their own future decisions.
This is an awesome summary of the economic history of the United States economic union by Jeffry Frieden published by Bruegel.
Frieden argues that the U.S. economic union (including monetary, fiscal, and banking union) was not truly created until the 1930s. The early history of the union was marked by tensions between established financial centers and stable economic regions (which preferred tighter credit and fiscal conservatism) and frontier/developing regions (which preferred loose credit and significant spending on infrastructure and development). These conflicts boiled down to a somewhat universal tension between creditors and debtors.
There are some great historical insights:
Apparently today in New Mexico, former President Clinton got in a 30-minute-long argument with a 24-year old New School graduate, per Buzzfeed News.
While hilarious and awesome that he spent so much time talking to this guy, I wanted to shed light on the one factual claim on which Clinton and Josh Brody sharply disagreed.
He told Clinton that his administration had drawn down investments in “basically every agency, naming the Department of Education in particular.
“I doubled education,” Clinton said.
“If you go from the beginning to the end of your team, each of these departments have shrunk,” Brody said.
“That’s just wrong. I doubled education,” Clinton said. (Reached by email later on Wednesday, a spokesman said Clinton had been referring to federal spending and dollars allocated to college aid.)
“You have cherry-picked facts, which contradict the truth.”
I went to the Department of Education Budget History Tables to see who was right (I’m not sure why Buzzfeed News didn’t do this). GRAPHS BELOW!!
In reading a bit more about Karl Polanyi, Prof. Iber pointed out the influence of living in ‘Red Vienna’ on Polanyi. I didn’t know much about this part of the interwar period, but apparently from 1919-1934 the city council of Vienna was dominated by Democratic Socialists. They implemented a quasi-socialist program, but were hindered and eventually defeated violently by the Christian Social Party-led national government, which was a conservative-cum-fascist party.
Reading about Red Vienna, I was struck by the largest plank of their platform: a massive housing project in a city with a massive shortage of housing and construction. Sounds like a certain city where I currently live.
Anyway I found this a fascinating historical moment and wanted to share a bit. Here is an excerpt from Jill Lewis in the European Studies Review (1983): Continue reading
I loved this piece by Patrick Iber and Mike Konczal at Dissent Mag.
Karl Polanyi is one of my favorite political economist/philosophers.