Brexit: No Good Options

Brexit: No Good Options by Jim Rickards for Daily Reckoning

The Battle of Britain (1940) was one of the most famous and important conflicts in history. The Battle of Brexit is proving no less decisive even if the weapons are financial and political, not kinetic.

The U.K. joined the European Communities in 1973 and that membership was ratified by a U.K. referendum in 1975. Membership divided the right and left in U.K. politics in the late 1970s and 1980s with the left initially opposing membership.

Over time, the left began to favor the concept and it was the right, led by Margaret Thatcher, that voiced opposition. In 1993, the European Communities transformed into the European Union, EU, as a result of the Maastricht Treaty. The U.K. was a full member of the EU and seemed set to remain a member indefinitely.

Jim Rickards in London

Your correspondent on St. James’s Street in London during a recent visit to the U.K. The period 2016–19 has been one of the most politically fraught in U.K. history. A referendum on exiting the EU (“Brexit”) was announced in February 2016 and held in June 2016. Subjects voted to “leave” the EU, but that vote merely started the turmoil and did not resolve anything. Politicians have been arguing over Brexit terms ever since.

While the U.K. joined the EU, it did not join the eurozone of countries that adopted the euro as a common currency. The U.K. rejected the eurozone and maintained its currency as the pound sterling (GBP). Given the size of the U.K. economy (fifth-largest in the world), this made for an awkward relationship with other major EU members including Germany, France and Italy, which all adopted the euro.

Yet the economic benefits of EU membership, including free trade and the “passport” concept (a business licensed in one member country can expand throughout the EU with minimal registration requirements) were undeniable. Both the EU and U.K. prospered as a result.

Still, opposition to EU membership never disappeared in U.K. politics. The right’s concerns were transferred from the Tories to a new U.K. Independence Party (UKIP), which grew in popularity from the 2010s forward. Despite UKIP, Euroskeptics remained a force in Tory politics.

The U.K. held a general election in 2015. Tory leader and Prime Minister David Cameron promised a referendum on leaving the EU as a way to shore up support from the Tories and attract votes from both Euroskeptics and some UKIP members. Cameron’s party won, and in February 2016 he announced the referendum scheduled for June 23, 2016.

Cameron would probably have won the election without the referendum pledge. His decision to hold the referendum was based on his overconfidence that the U.K. as a whole would vote to remain in the EU. This turned out to be one of the greatest miscalculations in the history of U.K. politics.

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