When Brexit was first proposed, fear-mongers from the “stay” side tried to scare their “leave” opponents by warning that exiting the European Union would cause immense harm to the British economy.
As happens with many big changes, a fear of the unknown had taken hold with those desiring to keep the status quo. However, the reality was that the EU already had many severe problems.
We consider the leave one of the smartest political moves of the 21st century. The United Kingdom, for all its faults, is still one of the most economically sound democracies in the world today. The EU, on the other hand, is a lightly tied formation of multiple nations facing economic disasters that are literally keeping them hanging on by a thread.
When we look back on this era, our belief is that the UK Brexit vote will be seen as one of the smartest decisions of the 21st century.
Taking a deeper dive into the formation of the EU, we observe that the Union’s structure was poor from the outset. It was set up to have European countries act as one group politically, but had little-to-no oversight of individual countries’ fiscal governance.
The Union also adopted the euro as its central currency but allowed many countries to keep their own currencies. Today, those countries that have been good stewards of their own economies are supporting countries that are not good stewards. Italy, Spain, Portugal and Greece are in deep financial duress. Banks in those countries are holding debt at artificial valuations, while their governments continue to spend money they don’t have, at an unsustainable pace.
Some EU countries, then, are living in an unrealistic environment. It used to be that if a country were doing poorly, its currency would weaken and its leaders would adjust the path forward to fix the problem. Unfortunately, the EU has constantly “kicked the can” down the road, assuming that things would change on their own while these dysfunctional countries’ leaders kept returning to the European Central Bank, asking for additional funding to remain afloat.
Greece is the primary example. For five years, Greece has displayed a lack of fiscal responsibility in addition to a lack of economic viability. The EU has kept that nation running, but Greece’s problems persist.
Here, it’s important to note that the EU is unable to be intimately involved with Greece’s inner workings. Instead, the Union demands reforms and austerity and threatens to stop giving money, but never takes that step.
Unfortunately, such enabling actions resemble bad parenting rather than a unified group of nations. The solution should be to remove Greece and the other poor stewards from the EU, or else let them collapse onto themselves.
Either outcome would at least give Greece a chance to fix itself, but in the current political environment this will not happen. There are many other countries suffering the same way Greece suffers; however, their economies possess enough of a buffer to keep them from the Greek plunge.
When the UK voted to leave the Eurozone, the initial reaction was a negative market. Uncertainty took hold but lasted briefly; then reason returned to the markets.
Yes, post-Brexit, there will be some difficulties along the road, but the UK is responsible for its own future. The biggest problem will be to renegotiate trade deals, work visas and passports, but these are all temporary setbacks. When the transition is complete, the UK of the future will be as vibrant a country as it was in the past.
Many UK voters opted to leave the Eurozone for reasons different from the economic ones outlined above. However, when we look back on this era, our belief is that the UK Brexit vote will be seen as one of the smartest decisions of the century
This article was originally published in the October/November 2016 issue of Worth.