Today Mrs. May finally officially announced Brexit and kicked-off the process of divorce from the EU. A disaster for Britain, according to officials in Brussels, Berlin and Paris. Really?
Rarely there is such broad consensus: The British voters made a huge mistake in voting for Brexit. The country will suffer for decades to come and deeply regret the decision while the EU and the Eurozone will continue to generate prosperity and peace for the continent. This view is predominant in the media of continental Europe and it is the key massage of its politicians, who fear nothing more than that other countries might follow the British example. Therefore the costs for Brexit have to be high and punishing.
Whenever there is broad consensus it is worthwhile to challenge it. Could it be, that the British end up much better off, than we think? Here are ten reasons why:
1. No recession: According to experts from IMF to Bank of England Great Britain should already be in a deep recession. In case of a Brexit vote they projected a crash in the real estate market, a drop in consumer spending and a collaps of economic activity. In reality the economy grew faster then before. If the experts cannot predict the short term consequences correctly, how should they be right in the medium- to long-term?
2. Good shock: The steep fall in the pound contributed to this positive outcome. This has the welcome effect of supporting exports and hindering imports, therefore kicking-off a rebalancing of the British economy, which ran a trade deficit of five percent of GDP before. Such deficits are not sustainable as we can see in the crisis countries of the Eurozone. Moreover the Brexit vote has initiated a process of modernization of the British economy just at the right moment. Lower taxes, more investments and a re-industrialization of the country can lay the basis for more growth in the future.
3. Positive demographics: Latest by 2050 Great Britain will have the biggest population in Europe. Meanwhile the population and especially the workforce in most European countries will shrink at an accelerating speed. As economic growth depends mainly on the growth rate of the workforce and its productivity this is good news for Britain.
4. Attractive for qualified migrants: The population growth is linked to immigration and the Brexiteers campaigned mainly on the issue of immigration. But contrary to the popular belief there are not necessarily anti-immigration, rather they want to introduce a systems similar to Canada to attract qualified migrants. This will become a major competitive factor when compared with the EU which has no such system and encourages immigration into social welfare. Not only will Britain have less issues with integration but also be more attractive as it will have a lower level of taxation.
5. Leading Universities: Besides the world famous private schools Britain commands eight of the 100 best universities in the world. The EU (without GB) has 17 universities on this list, four of which based in Germany. World class universities will continue to attract the most qualified students from all over the world and Britain could like the USA leverage this talent to foster economic growth.
6. Free Market tradition: A study by JP Morgan already showed before the vote, that the British economy has not so much in common with those of France, Italy, Spain and Portugal. It is more in line with Germany, the Netherlands, Sweden and Ireland. Consequently the authors concluded, that Britain would be better off outside of the EU as it would not anymore need to subsidize weaker economy. In addition the British have a tradition of a pro-free-market attitude which will make Britain ever more attractive compared to a EU dominated by socialist, redistributive and anti-market forces.
7. Leading financial center: Whatever the hopes in Frankfurt and Paris, London will remain the global financial center. The competence will not move away and besides a few representative offices to fulfill EU-regulation not much more should be expected. On the contrary, a financial center with long traditions, its own currency and freed from EU bureaucracy might evolve into the new Switzerland of the 21. Century. A flood of money fleeing from the Eurozone in the coming years cannot be ruled out.
8. Renaissance of the Common Wealth: Critics of Brexit ridicule supporters who dream of a return to the order of the Common Wealth, and rightly so. On the other hand, also given the changed stance of US politics it is not out of this world to imagine an Anglo-Saxon trading area including besides the US and the UK, Australia, New Zealand and Canada. Even the Scandinavian countries might be tempted to join such a club, especially if the EU and Eurozone continue on the current trajectory.
9. Continued downturn in the Eurozone: Europe seems to head for a solid 2017. Nevertheless the fundamental flaws of the Eurozone, notably unsustainable debt levels, a bankrupt banking system and diverging competitiveness remain unsolved – after eight years into the crisis! Add to this the complete failure of the EU to address the migration issue it is easy to conceive a continental Europe on path to another lost decade with significant political pressure building up. This will make Britain all so more attractive for those with talent and entrepreneurial spirit.
Of course the British economy has issues, notably the huge trade deficit, its dependency on the financial sector and its poor performance in educating broad sets of its population. On the wall of the Brexit war room of the European Council hangs a cartoon based on the Belgian cartoon character Tintin. It shows a small boat in rough water on which the captain is firing up the flames. Title: Tintin an the Brexit Plan. The message is clear: the British have just sunk their own boat.
Another cartoon might be a better fit: the big European cruise ship has a broken rudder and a crew fighting each other. A small boat with good sailors is escaping the scene while the Germans look after it from the engine room with sad eyes.
When, after all, have the British really made strategic mistakes in the past decades?
Given the choice of putting my money on the ability to solve the challenges by the European union or the British, I would rather go with the Brits.