Crashed
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II
When confronting Syriza the year before, German finance minister Schäuble had declared that as far as he was concerned, elections could not be allowed to interfere with the fundamentals of economic policy. Greece’s economy accounted for 1 percent of the EU’s GDP. In the Brexit referendum a simple majority would decide over the future of a country whose economy accounted for 17 percent of the whole. For the UK the stakes were enormous. Half of Britain’s trade, or c. $200 billion, went to the EU. Of Britain’s stock of $1.2 trillion in FDI, half was from the EU. Both European and non-European investors favored Britain because of its membership in the union. The Japanese car industry had made the UK into its main base for exports to the rest of Europe. By 2015, 3.2 million EU citizens were living in the UK, of whom 2.3 million had jobs, 7 percent of the workforce; 1.2 million UK citizens lived permanently in the EU. Of course trade, investment and migration would have happened between the UK and Europe whether or not the UK was a member of the EU. But how much? According to the best guesses of the economists, trade with other EU members was 55 percent greater than one would have expected without EU membership.27 For the City the questions were even more acute. Tens of thousands of jobs and billions of pounds in business depended on the so-called passporting arrangements, which allowed banks in London to operate as though they were inside the eurozone. It was a convenient fiction for European, British, American and Asian financial firms. It was not a concession that London could hope to maintain if it was no longer even a member of the EU.
Popular support for the EU was uncertain. Brussels was a red rag to the nationalist Right. The bankers and the London “elite” were unpopular. The answer of the Remain campaign was to double down. It set up its base camp in the City. Its strategy was never to win voters to the EU. The EU, the strategists decided, was unsellable. Europe’s politicians were asked not to make appearances in Britain. They would only make matters worse. Headed by the top PR team of the conservative party, backed up by Liberals and Labour, the Remain campaign had one message: “British voters will never love the European Union. But maybe they can be terrified into voting not to leave it.”28 It was a strategy aptly dubbed “Project Fear”—a term first coined in the context of the Scottish independence referendum in 2014. Its architects were the Australian PR guru Lynton Crosby and Jim Messina, who had been hired from Obama’s White House. Messina made clear what he thought the stakes were: “Given these challenging economic times, the very last thing we should do is risk the U.K. and EU economies with this risky [Brexit] move.”29 What Messina and his cohorts meant by “the economy” was business. So their campaign set itself to winning a popular majority for the simple and unapologetic proposition that if the EU was good for UK business, then Remain was good for Britain.
Fifty of Britain’s leading firms were persuaded to sign a statement that Britain will be “stronger, safer and better off” in a “reformed EU.”30 Behind the scenes there was an effort by the Confederation of British Industry to persuade its leading members to put warnings about Brexit in their annual reports.31 The City of London Corporation overrode objections from Brexit voices to openly support Remain.32 Some business leaders worried, somewhat squeamishly, that to spell out the job losses and the cancellation of investment projects that would likely follow on Brexit might have the air of blackmail. At least as far as the trade unions were concerned, they need not have worried. Labour MP Pat McFadden, a former government minister and cochair of the Labour Party’s Remain campaign, insisted, “I think business has a legitimate voice in the debate and if they want to make their views known they have every right to do so.”33 Unite, Britain’s biggest trade union and principal donor to the Labour party, with around 500,000 members, sent a clear message: “The message to our members in BMW, Airbus, etc., is very straightforward—it’s jobs, rights, remain.”34
The same message was echoed from around the world. On April 12 the IMF announced that “severe regional and global damage” might follow if Britain voted to leave. According to the IMF, the mere fact of holding the referendum was so damaging to investor confidence that the Fund was forced to lower its forecast for UK growth by 15 percent, from 2.2 to 1.9 percent. The consequences of an actual Brexit, Lagarde warned, ranged from “pretty bad to very, very bad.”35 The G7 meeting in Tokyo let it be known that a “UK exit from the EU would reverse the trend towards greater global trade and investment, and the jobs they create and is a further serious risk to growth.” As Angela Merkel put it, the G7 intended to send “the signal that all who sat here want Britain to stay part of the EU.”36 Back in Britain the UK Treasury came out with a lengthy report claiming that the damage would be between £2,600 and £5,200 per annum per household. By 2030 GDP might be lower by as much as 6 percent, costing the government between £20 billion and £45 billion in tax revenue, doing severe damage to public services, or forcing a substantial increase in tax rates.37
The Remain campaign was the legendary Clinton-era slogan “It’s the economy, stupid” transposed in the most literal and massive form. It echoed the determinism of Thatcher and Merkel’s “There Is No Alternative.” The total alignment of interests and expertise that it presented could not but appear uncanny. Characteristically, Chancellor Osborne gave voice to the unease that many felt but most did not openly express. The total unanimity of authoritative opinion behind Remain, he told journalists, was “not a conspiracy. It’s called a consensus. . . . [T]he economic argument is beyond doubt.”38
It was never, however, quite as monolithic so the Remain campaign would have liked. Given that the outcome was uncertain and a large part of the population clearly preferred Brexit, there were risks for companies identifying too openly with Remain.39 The City of London was not unanimous. A libertarian wing was attracted to the idea of breaking with Brussels. All the more telling was the stance of the major foreign investors in the City. The loudest of all and the most committed to the Remain cause were America’s investment banks. Given their role in the City of London, they had a huge stake in Britain’s position in the EU and they were not afraid to say so. London was their gateway to the European economy and to eurozone business. As economists from Goldman Sachs pointed out, BIS statistics showed that US banks held $424 billion in claims (assets) on UK borrowers at the end of 2015, including $46 billion in loans to UK banks. Derivatives, guarantees and credit commitments brought the total to $919 billion. UK bank exposure to the United States was even larger, at $1.4 trillion of financial claims.40 Given these investments, it was hardly surprising that Goldman Sachs, J.P. Morgan and Morgan Stanley all made substantial and early donations to the Remain campaign.41 Jamie Dimon of J.P. Morgan campaigned openly alongside Osborne in favor of Remain.42
That the United States was not indifferent to Britain’s position in Europe was the message that President Obama came to London to deliver in person on April 22, 2016. He made his visit at Cameron’s personal request. Obama was hugely popular with the UK public and he did not hold back. In the BBC’s words, the American president delivered a “full on, no-holds-barred effort to persuade Britain to stay in the EU.” The special relationship, World War II and the challenges of the present all demanded that the UK remain an integral part of Europe.43 Obama understood that it might be sensitive for an outsider to address Britain at such a delicate moment, but “I will say, with the candor of a friend, that the outcome of your decision is a matter of deep interest to the United States.” Furthermore, the British public needed to know that the Brexit campaign’s hope that it would be able, rapidly, to strike a new trade treaty between an “independent” Britain and the United States was based on false premises. America’s focus in trade negotiations was on the big blocs. The Transatlantic Trade and Investment Partnership between the United States and the EU—the Atlantic counterpart to the TPP in Asia—was the key to the future. “Maybe some point down the line there might be a U.K.-U.S. trade agreement,” but “it’s not going to happen any time soon. . . . The U.K. is go
ing to be in the back of the queue.”44
American power and money were clearly signaling where it wanted Britain to line up. The extension of Wall Street to Europe by way of the City of London, which had defined international finance since the 1970s, was on the line. Little wonder that the leading intellectual journal of the Left put the choice as follows: “[A] vote to remain, whatever its motivation, will function in this context as a vote for a British establishment that has long channeled Washington’s demands into the Brussels negotiating chambers, scotching hopes for a ‘social Europe’ since the Single European Act of 1986.”45
III
The monolithic focus of the Remain campaign aimed not only to “own the economy, own business, and own the fact that you’ll be better off [by voting to stay]”; in so doing they set out to draw a line between reasonable and unreasonable politics. Without economic arguments, the Brexiteers would be driven onto more marginal terrain, above all immigration and “isolating Britain from the world.”46 This, the Remain team hoped, would bring the more eccentric and troubling elements of the Brexit camp to the fore, notably Nigel Farage and the UKIP. Their inflammatory rhetoric would drive away undecided middle-of-the-road voters. As a tactic it had the intended effect. The Brexit campaign did indeed bring immigration to the fore. What the Remainers underestimated was the risk they were running. They did not appreciate that along with the desire to put two fingers up to the establishment, immigration and xenophobia were, in fact, winning cards.
The racial politics did not stop even at the person of the president of the United States. What right, Boris Johnson demanded to know, did Obama have to suggest to Britain concessions of sovereignty that the United States would never accept? Why should Britain trust a president who had removed the bust of Churchill from the Oval Office? “Some said it was a snub to Britain. Some said it was a symbol of the part-Kenyan President’s ancestral dislike of the British empire—of which Churchill had been such a fervent defender. Some said that perhaps Churchill was seen as less important than he once was. Perhaps his ideas were old-fashioned and out of date.” Johnson’s artfully placed dog whistle about the “part-Kenyan President” did the job. Johnson whistled and Farage came. Where Johnson prevaricated, Farage’s racist growl was unambiguous. As far as the leader of the UKIP was concerned, it was obvious that “Obama, because of his grandfather and Kenya and colonialization, bears a grudge against this country.”47
In May, as the Brexit campaign gathered pace, it was immigration that came ever more to the fore. Cameron himself had given hostages to fortune. Five years earlier he had promised that the figure would be cut to “tens of thousands.”48 In late May 2016 the Office for National Statistics reported that net migration in the previous year had, in fact, reached 333,000, the second highest figure on record. On June 16 the Farage wing of the Brexit campaign unveiled its most dramatic poster. Entitled “Breaking Point,” it featured a bedraggled column of Syrian refugees marching toward what was, in fact, the Slovenian border. It had little to do with Brexit as such, but it gave new meaning to the slogan of taking back control. European disorder was what Britain must be defended against.49 Later that same day a crazed neo-Nazi advocate of Brexit murdered the popular Remain MP Jo Cox in broad daylight. Remain’s Project Fear had met its match.
Referendum day began with Remain in a relatively confident mood. By the early hours of June 24 it was clear that Brexit had won a narrow victory. In retrospect, the polls had been indicating the likely outcome for some time. Brexit won in the same areas that the UKIP had triumphed in in 2014. And it won with the same kind of people. Core Tory voters, the elderly, provincial middle class, voted en masse for Brexit. They probably always would have. But they were joined by a large cohort of lower-income, less-well-educated voters who had been drifting to the right since the 1990s. According to one polling group, 60 percent of people in the upper-middle- and middle-class socioeconomic groups—those in professional and managerial jobs—backed Britain’s EU membership, whereas among the unemployed and unskilled workers the percentage was reversed.50 Sixty percent of Labour voters turned out for Remain. But that went only to show that in much of the country, the Labour Party was largely divorced from poorer and less-well-educated voters. Apart from education, the other socioeconomic variable that weighed heavily in the balance was the pain inflicted by austerity since 2010, and that hurt worst where decline was a long-term phenomenon.51 But even more than low education and low income, Brexit voting was correlated with authoritarianism. On the kind of cultural maps drawn by marketing experts, Brexit voting sat in close proximity to values like security, support for the death penalty and a preference for the public flogging of sex offenders.52
A Brexit vote, whatever its motivation, added fuel to the nationalist fire. What is far less clear is that a Brexit vote was a vote against globalization. That was the assumption of commentators around the world.53 And it was a reasonable thing to imagine on the basis of a conventional understanding of Brexit’s likely impact. But it was to misunderstand the mind-set of the Brexiteers. They, in fact, imagined that leaving Europe was a way to restore Britain’s greatness and freedom. As a nationalist vote against Europe, Brexit was not a vote for Britain to play a smaller role in the world. Rather on the contrary, it was a demand that Britain should play a role in the world independent of Europe, not submerged within it. As Tory party Home secretary and future prime minister Theresa May would put it, what Britain had voted for on June 23 was “to leave the European Union and embrace the world. . . . It was the moment we chose to build a truly Global Britain.”54 Brexit was a vote for autonomy. Or to put it less politely and more truly in the spirit of the vote, it was a vote for national adventurism. And an adventure is certainly what the UK got.
IV
As the referendum result was announced, sterling suffered its biggest one-day loss in history.55 There was a brief moment of panic in real estate investment funds. Would a collapsing pound unravel international investments in London? On Friday, June 24, global stock markets saw $2 trillion wiped off share values.56 By the following Monday losses had risen to $3 trillion. Whereas investors had been expecting interest rates to keep edging up as the Fed moved away from quantitative easing and were thus rebalancing their portfolios away from fixed-income bonds, funds now flooded into safe assets like Treasurys, driving yields down.57 Was this a prelude to another 2008?
Diagnosing the economic data was itself a political issue. Remain had predicted that Brexit would be a disaster. They had laid out an apocalyptic scenario. And in the aftermath, governor of the Bank of England Mark Carney stuck to the script. The economy was suffering, he told journalists in July, from “economic post-traumatic stress disorder amongst households and businesses, as well as in financial markets.”58 The swap lines were readied for reactivation. Despite sterling’s plunge there would be no shortage of dollar liquidity. On August 4 Carney ramrodded an emergency stimulus package of bond buying through the Bank of England board. Viewed from the bleak perspective of a defeated advocate of Remain, this made perfect sense. Carney was doing his best to forestall the worst. But it was the advocates of Brexit who now set the terms and Carney’s actions infuriated them. For the Bank of England to be activating swap lines and lurching into another round of QE was to signal a crisis, of which the most die-hard Brexiteers denied the reality. In their view, far from calming the markets, the Bank of England’s overreaction was feeding uncertainty, inducing the panic that Remain had predicted but which had failed to arrive.59 For Ashoka Mody, a nonconformist ex-IMF economist who had seen the Irish crisis in 2010 close up, the drill was all too familiar. Though Carney’s instruments were different—implementing QE rather than refusing it—it was a strategy of tension like that pursued by the ECB during the eurozone crisis. If the Bank of England kept its cool, allowing the pound to slide and the British economy to rebalance, there was no reason to expect a crisis. Ruth Lea, a pro-Brexit economist, declared, “The BOE’s package on Aug.
4 was premature and may well turn out to be, if not unnecessary, actually counterproductive. . . . I’d have much preferred if he had kept quiet and just waited until he had some hard data.”60 Once the initial shock had worn off, far from collapsing, consumer demand surged on a wave of cheap credit as households sought to get ahead of whatever price increases might be coming their way.61 The handful of economists who had supported Brexit demanded that their Remain colleagues apologize for misleading the public about the likely fallout.62
It was true. There had been no implosion. But there had not been any Brexit either. Brexit, it turned out, was a process, not a single moment of decision. It was an unfathomably complex and protracted process. The Brexiteers had promised freedom and control. They had promised regime change. And as Adam Posen, president of the influential think tank the Peterson Institute in DC, and formerly of the Bank of England Monetary Policy Committee, put it: “Regime changes are not neutral. Constitutions reflect the interests of those dominant at the time.”63 But who was dominant in post-Brexit Britain? That precisely was the question.