The death of Labour MP, Jo Cox, brutally killed in her neighborhood by a British citizen, turns the dramatic Brexit referendum campaign into a tragedy. Her murder has halted the electoral propaganda, which has been marked by verbal violence and excessive manipulation of information meant to drive voters to the polls.
But while the blood of a parliamentarian committed against Brexit stopped the mayhem, the market fibrillation, however, has not subsided.
This is not the first time Britain has called a referendum on relations between the U.K. and Europe. It happened on June 5, 1975, when — with turnout typical of another time, 64.2 percent of eligible voters — Brits voted to stay in the European Community with a very clear majority of 67.2 percent.
At that time, they counted on an alliance between the majority portion of the Labour Party of Harold Wilson (while the leftist Labour sector was against) and the conservatives of Margaret Thatcher. This time, both the political framework as well as the economic environment are completely different and far more dramatic. Whatever the outcome of the consultation Thursday — the forecasts now indicate a slight majority for Brexit — “the damage has already been done,” as stated, among others, Joseph Stiglitz on the shores of Lake Iseo for the traditional economics institute founded by Franco Modigliani.
His Nobel Prize was for economics. We certainly cannot blame him for being wrong. The financial markets have suffered significantly these last days. The European stock exchanges, such as Paris and Milan, are at a loss. The London Stock Exchange saw £100 billion evaporate in the last five days. But also the Asian and American markets are suffering. The pound went down, hitting the lowest level in two years, but that did not encourage the development of British exports, contrary to what a too-crude cliché would say. Spreads increased and even the German 10-year bonds wound up below zero. This means that for the first time in history, it pays to lend money to the German state on a 10-year term.
In truth, the latter element is not only due to the danger of Brexit — but Brexit made it worse. In fact, 75 percent of German bonds with maturities ranging from two to 30 years were already at a negative rate. It is a side effect of the increased rage of quantitative easing recently decided by Mario Draghi. At the same time, one of the consequences of that stagnation that some economists, like Summers and Krugman himself, have defined “secular.”
At worst there is no end, and thus, the victory of Brexit could aggravate the dismal economic picture of Europe. It is relatively important that the trend of the pound would become more uncertain. It risks not only devaluation, but probably also losing the status or reference as a reserve currency, which it now shares with the euro, dollar and yen, and that the Chinese currency would eagerly conquer. What really matters is that Brexit would, in all likelihood, cause the E.U. to give new indulgences to the U.K., to prevent that leakage from becoming a break on all fronts. Stiglitz, who presents an original line of thought, foresees the abandonment of the “spirit of revenge” by the E.U. against England, which frankly I find hard to see.
Actually, in an effort to avoid a Leave win in the forthcoming referendum, Prime Minister Cameron in previous weeks had already obtained abundant concessions, which are being confirmed in this hour by the Court of Luxembourg. The latter, in fact, fully concurred with the British government that does not want to recognize the social benefits to unemployed citizens of the E.U. residing in the U.K. for less than five years. In other words, immigrants on British soil should first demonstrate that they have contributed to the wealth of that country. If this decision leads analysts and bookmakers to drastically decrease the chances of Brexit victory, forecasting an almost balanced result, it is clear that the political damages are far worse than the economic ones.
Thus, a lose-lose situation looms after June 23 — mocking the British — or in any case a negative outcome for Europe and its peoples. Although the seriousness would not be the same. If Brexit wins, in fact, it would be even harder to maintain not only the idea of Europe, but even its current chrysalis. But it would be a blow to the right. It is perfectly understandable, on the one hand, Corbyn’s borderline Remain position (“remain and reform”) and Farage’s borderline Brexit, on the other. It would push even further all chauvinism, the identity and xenophobic impulses, if not openly racist, of which we have already very clear signals, especially in northeastern Europe.
But even in the case of Remain victory, it would deal a blow not just to the British welfare system, in a European framework which has already seen continued restriction. It is no coincidence that Brexit and Remain play their game on migrants’ backs, a true humanitarian problem, civil and political, that shakes the foundations of the wobbly European construction. It’s another clear demonstration — if further proof were needed — that a European house cannot stand on an economy, but on a currency.
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