The economic and political impact of the Brexit vote is enormous, by any reckoning. Marnie Holborow looks at it’s implications.
The UK, the EU and Ireland face a political crisis, a possible recession and a period of prolonged uncertainty. With Remain votes in Scotland and Northern Ireland, there is likely to be a second Scottish referendum, possibly leading to its leaving the UK, and a renewed debate about the status of Northern Ireland.
Globally, its effect could be no less significant. For the US, the EU project represents a crucial pillar of a US dominated international order. Any cracks in the EU edifice will make it harder for the US to rally European governments effectively behind its lead, either militarily or in terms of pressing ahead on its deregulation agenda, such as TTIP.
The Brexit vote, it is true, could resonate with right wing groups such as the National Front in France and Geert Wilders’ Party for Freedom in Holland. But it could also reinvigorate movements against the hated austerity of the neoliberal EU.
In Southern Ireland, the already fragile minority government, if it seeks further cut-backs to weather the storm, will find itself under further attack from an anti-austerity movement confident from its victory on the water charges.
Tories and Britain, divided and in crisis
Amid all the various reactions to the Leave voters, it is important to recognise the extent to which the Brexit vote represents a deep crisis for the ruling Tory party and a serious risk for British capitalism as a whole.
The Remain camp were convinced they were going to win. Cameron’s and Osborne’s Project Fear strategy stemmed from this arrogance. It only served to fuel political disaffection and the belief that politicians tell lies to suit their ends. Their spectacular miscalculation lost them the vote, their leader and left them in a spiralling crisis. The Leave camp will find it difficult to repair the divisions as their leadership campaign may stretch out until October with a bitter Remain flank of the party lurking in the background. The Tory project – including its austerity cut backs – will be on hold, its authority weakened and itself immobilised.
Meanwhile the government at the centre of this crisis has no effective head and the vacuum may destabilise things further. The British capitalist establishment was flabbergasted by the Brexit vote. The Financial Times, the weekend after the vote, carried a dozen pages of shock and horror. It is not surprising that the vote had this effect on the British ruling class. For more than 40 years Britain saw itself as instrumental in shaping a neoliberal world order.
Now the Brexit vote threatened to destabilise the deregulated model British capitalism had sought to create. The crash of sterling following the vote reflected this panic. Sterling plunged down to $1.40 at one point, lower than it was in the currency crisis in 1985. Its fall of 11.08% was the greatest fall in one day since the currency was allowed to float in 1972, and worse than Black Wednesday in 1992 (when the UK withdrew from the European Exchange Rate Mechanism).
The result of the vote indicated just how low the reputation of the hated financiers and bankers had sunk. Even the FT was forced to admit that where before 2008 the electorate could have been expected to listen to what the City of London was saying, today it was the toxic symbol of Britain’s 1%. The Brexit vote was an outcry against the City, the bankers, and the rich commodity traders as much as it was against Europe. The dire warnings from the institutions of the capitalist establishment – from the Bank of England, the IMF, the OECD, the President of the US went completely unheeded.
This was the pent-up anger against the makers of the 2008 crash. The elite – so removed from its effects – would pay for it now.
Even the market – ever praised by neoliberals – got it spectacularly wrong. Just before the vote, the value of British retail banks actually rose by more than one tenth, and sterling rose to $1.50, the highest in a year. Foreign exchange markets were foolishly down on record as judging the risk of Brexit to be around 10%.
The dramatic democratic reckoning effected by the Brexit vote reminds us of a simple fact: that for all the acclaimed power of the city, and the financial institutions, people can make their voice heard.
Had the Labour Party rallied to this feeling and understood its cause in years of austerity and hardship, it might have been able to give voice to this anger. As it was, the loudest Leave voices were about immigration.
In fact, class and inequality, as shown by the large Leave vote in working class areas, was what this vote was about. It was a chance to vent anger, free of the confines of discredited political parties, at all the other crises and failures of recent times, the terrible wars, obscene corporate wealth, and the neoliberal model that served the wealthy financial and populous hubs but left swathes of the north, the north east and Wales in decline and politically ignored.
This is not unique to Britain. Worried about the possible effect that the vote will have in other austerity- weary countries, the EU elite may well force the UK to suffer as a consequence for its decision to exit. Governments in France and Germany, fearing for the very survival of the European project that they have spent 60 years building, will do all they can to stop any other countries going for exit. The collapse in the pound in the markets serves their purpose in this respect. France, amongst others, may well seek to have Britain suffer punitive terms in order to send a clear message to others governments contemplating any such move. This, too, will exacerbate the crisis and uncertainty.
EU – the centre cannot hold
Extricating a member state from the legal, political and economic bureaucracy of the EU is difficult enough. The UK exit, given that it is the fifth largest economy and an influential member will be all the more destabilising.
Following first the Euro crisis, and then the divisions on how to treat migrants, Brexit comes in the middle of what has been a rolling crisis for the EU. Even before the vote, economic growth across the Euro area was weak – forecast for 2016 at 1.8% but in reality less. This crisis could well tip it over into recession. Greece is still reeling from the fiercest austerity plan imposed by Syriza. Spain, amid evictions and economic turmoil is returning the anti-austerity Unidos Podemos as its second largest party.
Autonomy movements, like those in Catalonia and Galicia are growing and will be given a boost by Britain leaving. The Brexit vote lands amid all these divisions of the EU in which the traditional parties – in the form of conservatives and social democrats – have lost control.
More disintegration will exacerbate the crisis of the EU. After the Brexit vote, France’s Cac and Germany’s Dax stock markets were more than twice the drop in London’s FTSE index. The EU is more unpopular in France than in Britain, as French workers’ recent huge strikes against labour deregulation shows. The feeling that the EU is more and more undemocratic showed up a decade ago in France’s rejection of the proposed EU constitution. It is not surprising that immediately after this vote, the French ruling Socialist Party Minister Manuel Valls reflected the crisis-ridden gloom of his discredited neoliberal government: “At stake is the break-up of the union, pure and simple”.
Belfast not a mere spectator
The Brexit vote brings home all the wrongs of the fact that Britain still rules the six counties.
Will the North be represented in the formulation of a negotiating position? By whom and on what basis? What mandate from the Assembly and what mandate from the people who voted? The UK government expects Northern Ireland to be mere spectators as they negotiate with the EU bureaucrats. Theresa Villiers insists that it is Parliament – by which she means London – which must decide on any eventual deal and the DUP appears to have no problem with this.
The vote has brought to the fore the undemocratic nature of Northern Ireland and the artificial nature of the border.
What will matter to people in the North Ireland from both communities is that Brexit should mean exiting not just the EU but also the Transatlantic Trade and Investment Partnership (TTIP) intended to consolidate the grip of multinational companies on every European economy. A campaign against TTIP will alert people to how the EU is force for deregulation and privatisation, contrary to what SF’s Remain campaign argued. As one of the poorest regions, the people of Northern Ireland will be worried how the UK leaving the EU will impact on already existing cutbacks, poverty and marginalisation.
The key demand must be that Northern Ireland will not lose EU funding for vital areas. Public sector receipts from the EU to Northern Ireland in 2015 amounted to £124.9m. The Common Agriculture Fund, the Common Fisheries Fund and the Investment for Growth and Jobs Initiative, Northern Ireland received £320m in the same year. Special EU funds such as the PEACE IV initiative and the INTERREG fund amounted to another £50m that year. Over the period 2014-20, the Special EU Programmes Body has committed to €820 million in EU funding in the North. Will Stormont insist that these funds continue to flow? The Assembly must be pressurised to listen to the people of Northern Ireland and make provisions for this funding to be maintained.
FG government – revamping of austerity?
Despite the keep-calm impression given by Kenny, Brexit represents a serious challenge to the Southern government. It had hoped that the recovery could allow it to stem the cuts in public spending which could contain, it hoped, the strong opposition to its austerity stance. Its plan for ‘new politics’ was premised on these concessions. The crisis may throw all of this up in the air and make things seem like old austerity politics again.
The effects of Brexit landed like a bombshell in the South. The Brexit vote led to sharp drops on the Irish stock exchange too. Shares in Ireland’s biggest banks has dropped by more than €360 million, and the Irish state has significant stakes in both banks as a result of the bailout, owning about 14% of Bank of Ireland and 99.8% of AIB.
Previous forecasts of 6% growth in the South are bound to be downgraded as agriculture, food production and tourism suffer from sterling’s weakness against the single currency. A reduction in the UK’s GDP would also negatively affect Irish GDP. Any contraction of the UK economy will badly hit the 37% of Irish indigenous exports which go to Britain.
This will reduce the government’s room for manoeuvre. The so called ‘fiscal space’ much heralded during the last election, could be reduced by a considerable amount, possibly by as much as €3billion, according to the Sunday Business Post. In any event, it will be the protection of business interests – not working class communities – which will be first on their priority list. Minster for Enterprise and Jobs, Mary Mitchell O’Connor, immediately responded to the Brexit vote by calling in ISME, IBEC and Irish Exporters Association for talks. Trade unions, community representatives, nurses and teachers are not considered worth consulting, apparently.
The FG minority government, despite its promises to ease up on public spending cuts, will most likely begin arguing for selective further cuts and a revamping of austerity. Who, in the present climate in the South, would trust them? Already during the Brexit referendum campaign, FG was practicing double speak. Behind the scenes even while the Government was urging the Irish in the UK to remain, the IDA was given the go-ahead to make pitches to Royal Bank of Scotland and Standard Chartered to lure them to relocate to Dublin if the vote went the other way.
Along the same lines, commentator David McWilliams is suggesting that Brexit may provide a unique opportunity for Ireland – of course along the EU-established lines of deregulation and favourable treatment of the corporations. Foreign investment from Britain, he insists, should be diverted to Ireland. The particularly sick rider to this proposal is that the government should instigate immediately a massive housing programme – not for the existing thousands who are homeless – but in the name of boosting FDI in Ireland.
The question of writing down the debt from the banks becomes a live issue again. If we were not paying back debt to the EU banks we would not need to see any adjustments to our public spending. Ireland paid interest of €1 billion to IMF last year. The State has spent €28.5 billion servicing the national debt since 2010.
It is clear that the same conditions that led to the revolt in the Brexit referendum exist here. The disconnect between the political establishment and the people already made itself felt in the election on foot of the massive water charges movement. Because of its success, opposition to the austerity government in Ireland is positioned to take a radical left, not a racist or right-wing direction. As FF and FF combine to pass measures ‘in the national interest’ we socialists in People before Profit alongside others must ensure the determination of those movements to be mobilised again.
In the turmoil of this current Brexit crisis socialist voices which put the case that it cannot be the working class that pay again are well placed to expose the neoliberal failure that has been the EU.