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  • Klaus Ilmonen

Quo Vadis - The EU Beyond Brexit

Brexit - So What?


The outcome of the Brexit vote was clearly a surprise for Britons and foreigners alike. Since the referendum there seems to have been more focus on coming to terms with Brexit than on understanding what happened. Indeed, the UK government has valiantly tried to build a positive narrative on Brexit. It was to be a “success” and a base for a “brighter future”. Initially, of course, the NHS was also going to get £350 million per week in additional funding. The efforts to present the outcome of the referendum in a positive light may be as reliable as the expectation on the extra funding.


Commentators have tried to find some logic and reason behind the UK position on the EU. Maybe this was a reflection of the traditional reluctance towards European integration in the UK, and maybe indeed the UK with its long history of international relations would be able to establish a successful independent platform. But no such logic holds. There is no real positive narrative. Whatever will come out of the Brexit negotiations is likely to set back economic growth in both the UK and the EU. It will also certainly diminish the ability of the UK to influence world affairs (see FT article of former UK intelligence chief). For the EU, there is a considerable risk for further corrosion of the union given the current political trends in many parts of Europe with rising nationalism and protectionism. The split will inevitably affect trade and the ability to reflect common interests on the world stage. The outcome is indeed a disaster, smaller or larger, for both the UK (see FT view) and the EU.


The outcome of the referendum is largely based on the populist trends that have emerged over the past decade. It is a symptom of the growing differences in income distribution, the decline in the opportunities for the young and the middle classes, as well as the rapid technological and industrial changes in society and their effects on employment. It is also a symptom of the instability of the current political systems of the West – where the established parties and incumbent governments are less and less in touch with the electorate and have not addressed their grievances and concerns. These trends pose a significant risk for our continent.


What now?


Brexit should be a wake-up call and could be an opportunity for renewal and revitalization of the EU (for the UK, it seems a bit late). The EU has the potential to provide solutions in the complex world we live in – provided its institutional set up and quality are reassessed. We should take steps to strengthen our institutions; to make sure they serve the electorate in the times we live in. This includes markets, political systems and government agencies alike. However, these institutions do not seem to reflect the sense of urgency that should be apparent in light of the on-gong populist trends. This can have dire consequences if the electorate loses its faith in the institutions that are supposed to serve them (and, in truth, many of them do not deserve that faith today, see Paul Krugman in the NYT on this).


In dealing with national and EU level agencies after the Brexit referendum, one is somewhat surprised at the business-as-usual –mentality. There is too little self-reflection on the deficiencies of EU policy and regulation, for example. For someone working with financial markets regulation, the EU MAR process, and the prolonged SHRD II process are only trifling examples of work that could have been better done but which EU institutions seem complacent about. Initiatives have been made on political alternatives to reform the EU, but more focus is needed on the quality of the institutional set up and the political and legislative processes at the EU level (no more bent-banana directives, see the FT “EU Institutions must share some of the blame for Brexit”). It should be absolutely clear for the EU Commission and national principals that institutional review is necessary and that the EU institutions and processes need to be better geared (a little humility would help, too) to face the challenges of supranational political, economic and legal integration.


On the political side it seems the dynamic among political constituencies is changing, and the establishment is losing touch with the electorate. The emergence of Emmanuel Macron and his en Marche –movement are an example of the possibilities for new political entrepreneurs (but so are the nationalist populist movements). So far, many traditional political movements are mainly focused on protecting entrenched interests and increasingly out-of-touch with the electorate, leading to increasing political volatility. It would be important to identify positive new dynamics to pursue responsible politics with the support of newly defined constituencies and challenge the populist agendas. In this respect, political agendas should listen to electorate and clearly address current concerns, including a more inclusive economy, new opportunities for the young, solutions to uncontrolled migration and sustainable environmental policies. The electorate recognizes that politicians cannot solve all their problems, but they do expect that politicians listen to them and openly discuss their concerns (See Simon Kuper in the FT on how to take on the populists).


How?



Whether the EU will step up to these challenges is a different matter. Will instability and turmoil continue in Europe until new industrial, political and geopolitical structures emerge? Someone may question whether the EU can be a part of the solution, or whether it is basically flawed, and should turn over its powers back to the nation states. Yet global developments seem to conclusively support the relevance of larger regional powers, such as the EU, whilst the reach of smaller national actors is in decline. The institutional set up of the EU will need to be looked at, as well as the mission it is to have in the short to medium term. But it is certainly in the common interest of Europeans to have real representation in global economic and political affairs. So we need to look at how decision makers can be incentivized to take action to revitalize Europe rather than to cater to entrenched lobbies and declining constituencies. A clear message needs to be put to politicians to address the immediate grievances that corrode a European agenda and to work towards a more competitive and vitalized EU. Political change can occur rapidly and politicians would be advised to consider where their next votes will come from and whether they are looking to be part of the solution or part of the problem.

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