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Tuesday, June 21, 2016

THE GREAT BREXIT: The End of the European Union?

On Thursday, the United Kingdom votes to exit the European Union, or Brexit (British exit).  I call it The Great Brexit for three reasons.  First, the term is obsolete, as Brittania (also Britannia) or the island of Great Britain, leaves out Northern Ireland and some minor other islands.  Secondly, in the 19th century, the term British Empire  (map of 1919) applied to the global imperial power, where the Sun never set, which is no more.  Note how relatively tiny the British Isles are compared to, say, Australia or Canada or India or those African nations.  Of course, the USA, too, was once a mere colony.  Third, if Brexit prevails, this vote could well be cataclysmic for the UK, European Union and World.

There are fears that a UK departure would be the straw that breaks the will of the European Union, which is an economic basket case already metastable because of Greece, Italy, Spain and Portugal, and torn by immigration issues.  The abandonment of the Euro and disestablishment of the Union will crash the world stock market.  In the UK, economic recession is an almost certainty and the prospects of Scotland seceding will become all too real.  Only 44% voted for separation two years ago, but that number will materially increase if Brexit occurs.

As  recently as 2012, Monocle ranked Britain (yes, you can actually still refer to the UK as Britain) as the most powerful nation on Earth.  Sure, the magazine is headquartered in London and the comparative dimension was one of soft power, where "positive influence" was the key factor, and current events like hosting the Summer Olympics, number of top music albums, dominance of James Bond films, conquering of the Tour de France by Bradley Wiggins and the tennis skills of Andy Murray were considered to be impactful, but there was a matrix of 50 items.

Soft power is taken seriously in some quarters.  While the USA regained #1 status in the most recent Monocle release and the Portland Index had the U.S. at #1 this year, the Elcano Global Presence Report had the European Union over the USA.  But if you go to the report itself, the U.S. is #1, followed by a bunch of EU nations.

In case you were wondering, both Portland and Elcano are European media companies.  In any case, while it is touted that Britain's military today would defeat China, the fact of the matter is that the British Empire is a weak facade.  On the other hand, if only a glitch in banking and real estate financing can cause the stock market debacle six years ago, there are worries on how catalytic Brexit could be.

George Soros remarked that Brexit would trigger a Black Friday and the crash of the British pound.  Christine Lagarde (left), chief of the International Monetary Fund, said Brexit would result in a UK recession.  Here is a likely scenario if Brexit wins.  Both Prime Minister and President Barack Obama have pleaded for voters to shun exit.

So why is Brexit even happening?  Two words:  arrogance and unaccountability...of the EU.  The UK never accepted the Euro anyway, and the combined recent issues of migration and economic freedom might turn out to be too much to bear.

Polls on Brexit have jumped around, and most recently, exiting is at 44% and remaining at 42%.  That leaves 14% not sure at this time.

Forget those public surveys.  Betting odds peaked to leave two weeks ago.  Today, the odds are high that Brexit will fail:


As an aside, let us look at the upcoming U.S. presidential election.  Hillary Clinton's odds today are around 2:7, meaning that she has a 78% (7 divided by 9) chance of winning.  Donald Trump is at 3:1, meaning that his presidential prospects are only at 25%.  Gary Johnson?  Less than 1%.  The total should be less than 100%, but this is close enough.

Thus, all the above fears will most likely not come to pass, for all signs now point to BRemain as prevailing.  But if UK voters vote to leave, watch out for a Friday version of Black Monday (there were two:  1987 and 2008), and, hopefully not, Black Tuesday (1929).  Then what?

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