Over the last couple of days, I’ve become more and more concerned about the direction that Europe has been taking regarding the Brexit mess. European leaders have a choice, they can either try to minimize the economic damage, and get on with the task of improving the EU, or they can try to punish the British public pour encourager les autres.
So far, European leaders look to be taking the punitive approach. The Guardian reports that EU leaders are refusing to engage in any discussions with British before formal Article 50 signing. Wolfgang Schäuble is even more explicit that he wants the British public to suffer for their decision.
The New York Times reports that the punishers are gaining ground in European deliberations,
Even Ms. Merkel, who over the weekend warned against pushing Britain to leave hastily and said Europe should not be “nasty” toward Mr. Cameron, struck a tougher tone on Tuesday, shifting toward a position staked out earlier by France and others that Britain must pay a price for leaving as a deterrent to other nations tempted by populist promises.
This is insane.
The punitive approach is bad for Europe, Britain, and world economy, and hence a matter of US concern. Why? A punitive approach will disrupt economic activity and cause fear both in Britain and Europe, discouraging investment and hiring. While Britain is a relatively small part of the world economy, it’s financial sector is greatly outsized, and deliberate EU damage will likely cause severe disruption to the global financial system. It is often forgotten that the 2008 financial meltdown actually started in London, not in New York. A crisis in London would likely trigger recessions in Britain, Europe, Japan and the United States. The global economy is already very fragile due to the lingering effects of the 2008 crash, and the downturn in China. We're essentially still in a liquidity crisis. There is very little resiliency in the global economy at this time.
President Obama should contact European leaders and tell them the the US has a strong interest in restoring international economic stability as quickly as possible. He should let them know that the US preference would be first, face-saving concessions to Britain to allow a second referendum keeping Britain in the EU, and otherwise, a smooth and rapid and non-punitive transition to Britain as an Associate member of the EU, with terms generous enough to attract British political support and enable the rapid restoration of confidence.
If the EU chooses neither of those courses, and persists in a punitive approach, he should let them know that, “back of the queue” rhetoric aside, US will do its utmost to replace Britain’s EU integration with an integration with North American economies, essentially doing its best to bail-out the British economy. If that were to be done, the threat to the EU leaders would be that Brexit could then become a positive example, rather than their intended negative one. The diplomacy must be conducted delicately, and the British encouraged to the greatest degree possible to walk back their mistake. Just as with the Europeans, Obama should use the lever of US trade ties to make sure British leaders take any olive-branches offered. The EU leaders should also be advised that an international financial crisis leading to a recession caused by punitive EU measures could lead to a President Trump.
Beyond the current crisis, this is the second time the EU looks to be trying to punish an entire country’s population for making the wrong democratic choice. If maintaining the project of European integration requires the threat of punishment to keep populations on-board, perhaps it doesn't deserve to survive.