Britain, Europe, and the Presidential Election

There is no constitutional mechanism for a federal referendum in the United States.  The federal government has only limited authority over elections, and that limited authority does not give the federal government the ability to put legislation to a national referendum.  That is not the case in other countries.  In recent years, the United Kingdom has put major constitutional issues to a referendum.  This Thursday will see the latest of these referendums in which the issue is whether the United Kingdom will stay in the European Union.

The European Union is not (at least not yet) the United States of Europe.  It’s powers are, however, somewhat more substantial than the Continental Congress had under the Articles of Confederation.  In thinking about the European Union, the original structure of the U.S. government provides an analogy.  The “legislative” branch of the Union is composed of a parliament of legislators directly elected from the various member states and an upper house composed of a “Council of Ministers” composed of the members of the government of the member states (who represents a country at a given meeting depends on the issue, sometimes it is the head of government and sometimes it is a department head).  Finally, there is an executive branch composed of the appointed heads of the various departments (with a President elected by the parliament).  Most of the legislative power lies with the Council of Ministers but both the Parliament and the Commissioners (the department heads) have a role in drafting rules, regulations, and legislation.

All of the member states belong to what is called the “single market.”  The basic rules of the single market is a lack of tariffs on products from other member states and uniform standards across the Union.  (In other words, the folks in Brussels define what makes a wine cabernet or merlot and any wine that wants to advertise itself as cabernet must meet those standards even if the folks in Britain or Poland used to have different standards.)  Additionally, any citizen (or person with an employment visa) in any member state can move to any other member state.

Besides the single market, some members of the Union belong to an “open borders” group in which there are no customs or other border checks on goods and people crossing between those countries, and some members belong to a “single currency” unit.  Both of these entities have had some problems and are on somewhat shaky footing, but the United Kingdom currently does not belong to either.

The United Kingdom has always been a somewhat reluctant member of the Union, resisting steps toward further integration with its continental partners.  However, a substantial amount of British business relies on trade with the continent or is located in Britain for the purposes of gaining access to the single market.  This business dependence on Europe is what makes Thursday’s vote significant to the rest of the world.

There is no precedent for a member leaving the Union.  If the United Kingdom votes to leave, there will need to be several years of negotiations regarding the relationship of the United Kingdom to Europe.  Furthermore, a lot of the United Kingdom’s current trade treaties with the rest of the world are as a member of the European Union and will have to be renegotiated (without the leverage of being part of the larger Union entity).  Additionally, the part of Britain most likely to vote to leave is England and some of the other parts of the United Kingdom (primarily Scotland) may opt to leave the United Kingdom in order to stay in Europe.  In short, nobody knows what the new relationship of the United Kingdom (or whatever is left of the United Kingdom) will be to Europe and the rest of the world.  The expectation is that the United Kingdom will find itself on the short end of the stick in terms of its trade relations, but the question is how much worse will those relations be.  Those supporting leaving the European Union hope that the new trade deals will not be that much worse than the status quo and that the freedom from the Union bureaucracy will offset any disadvantage from leaving the single market.

The uncertainty of what will emerge over the next few years (if the United Kingdom leaves the Union) is what concerns those attempting to forecast economic growth the next couple of years.  Everybody believes that a Brexit will be bad in the short term for both the United Kingdom and Europe, but how bad  a European recession/depression will be and how much it drags down the global economy are unknowns.  Business hate unknowns and tend to act cautiously as unknowns increase.  This concern about the global reaction to a Brexit leads into the potential impact on November’s elections here.  If businesses believe that trade to Europe may decline due to Brexit causing a European depression, there may be less investment in new manufacturing capacity in the United States leading to an economic decline here in the months leading up to the election.  People who are worried about economic decline tend to punish the party in power.

Polls right now show a close race — potentially a narrow win for the remain coalition (which has done a rather poor job of it).  We will know the result in about seventy-two hours.  Then, we will either have put this issue to rest for the next couple of decades or chaos will begin (starting with the resignation of the current U.K. government).

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