Closing Doors

July 1, 2016

It was quite a week for doors closing. Great Britain voted to leave the European Union (EU), and conservative icon George Will left the Republican Party. One suspects the former has greater consequence than the latter.

Let’s start with the EU.

The European Union is 28 mostly European countries that have come together to create a single economic and political entity. It has its own elected government, enacts rules member nations must obey, levies taxes, regulates trade and has its own judiciary.

The goal of the EU’s formation was the free flow of goods, services and people throughout EU member nations, and a resulting economic boost. As a single economy, the theory went, the whole would be greater than the sum of its parts. To some degree, it has been. The EU is now the second biggest economy behind the United States.

So, what does Great Britain’s EU departure have to do with us? Our stock market tumble notwithstanding, not a lot.

The big institutional traders and their fancy algorithms reacted to uncertainty, or even uncertainty about uncertainty, with panic and a wave of selling. They predicted an EU exit by Great Britain would hurt the market, then fulfilled their own prophecy by making sure it did.

Our markets will bounce back because there is no good reason for them not to. We aren't going to stop trading with Great Britain or with the EU, whether separately or together. There are no big contracts about to be canceled or trade agreements about to be obviated. No treaties will be rendered null and void.

At worst, if the British pound doesn’t recover, and the dollar continues to strengthen in world currency markets, our exports will be more expensive. But imports will be cheaper. Wages might stagnate but so will inflation. Most economists seem to agree this shouldn't be more than an annoyance to our economy.

It is to our advantage that the EU stays together because it gives us access to the entire 28 (or 27) country bloc. But a single secession isn't likely to severely weaken the rest.

Things are a little sketchier for our old British friends.

For starters, the vote was advisory only; it changed no laws and mandated nothing. Whether or not Great Britain leaves will be up to Parliament, and it could, legally, decide to ignore the vote. The political risk would be extreme but it is within Parliment's rights.

The reasoning of the nearly 52 percent of voters opting to leave was not at all clear. Some were angry about a diminution of sovereignty or the moribund British economy.

Some nativists seized the opportunity to regurgitate old and ugly stereotypes about immigrants and refugees; they wrongly told voters refugees and immigrants would be forced to leave the country if they got out of the EU. The “leave” side made flamboyant, vote-attracting but false promises. It was not unlike our presidential election.

Some even called it a peaceful revolution, a British Independence Day.

Let’s assume Parliament chooses to follow the majority of voters. Leaving could be unpleasant.

It could mean British citizens can no longer travel freely in other EU countries. Mutual defense agreements will need to be rewritten. Tariff-free trade between Great Britain and the EU also could be a thing of the past, a problem since the EU is Great Britain’s biggest trade partner. There’s no guarantee other EU countries will accept the British pound as negotiable trade currency. EU subsidies to economically distressed regions of Great Britain will likely end.

(One of the great ironies of the British election is the areas of the country receiving the most economic assistance from the EU were the areas that voted most overwhelmingly to leave.)

Internally, things could get even worse. Scotland, which voted to stay in the EU, is now talking about independence from Great Britain. Northern Ireland, which also voted to stay, is talking about unification with independent Ireland, already an EU member.

None of that sounds very appealing, which is why 3.5 million people have already signed petitions asking for another vote. Prime Minister David Cameron has tendered his resignation, but no elections are scheduled. There is genuine befuddlement as to the path forward. But Great Britain’s economic travails need not be ours.

Oh, yes, George Will. I almost forgot. He has bolted the Republican Party in protest over Donald Trump’s GOP presidential nomination. The impact will be very close to zero.

Will has been among Trump’s harshest critics from the beginning, having dashed off a cascade of blistering columns. He really, really, really doesn’t like Trump. But there is little evidence he has deterred a single Trump supporter or forced anyone off the fence in the direction he prefers. It does mean one less Trump vote, though.

Two doors closing, one more loudly than the other.