Brexit | Council on Foreign Relations

The United Kingdom and the European Union have been unable to reach a deal to define their post-Brexit relationship after nearly a year of talks. A severe disruption to trade between them looks increasingly likely.

In Brief by Andrew Chatzky and Anshu Siripurapu Dec 14, 2020

What Brexit Means

Brexit supporters argue that the EU threatens sovereignty and stifles growth, while opponents counter that EU membership strengthens trade, investment, and the UK’s standing in the world.

Backgrounder by James McBride Jul 22, 2019

Brexit’s Stickiest Point: The Irish Backstop

UK Prime Minister Theresa May has been unable to convince her own party to pass the Brexit deal she negotiated with the European Union because of its backstop provision. What is it, and why does it matter?

In Brief by Andrew Chatzky Mar 19, 2019

Politics and Government

The World Next Week: June 1, 2017

The United Kingdom holds elections and the United Nations hosts a conference on ocean sustainability.

Podcast with James M. Lindsay and Robert McMahon June 1, 2017 The World Next Week
United Kingdom

Brexit: Now for the Hard Part

The weekend’s European Union (EU) Summit provided little love for UK prime minister Theresa May. Leaders approved a tough opening position in the upcoming Brexit negotiations, and warned against “completely unreal” expectations of a swift and favorable deal. EU negotiators will seek early agreement on the terms of exit (including citizen’s rights and the financial exit payments) before moving forward on a long-term trade agreement, while the British government seeks agreement on all three tracks together—“divorce”, transitional terms, and the long-term deal—by March 2019. Hard talk at the start of the negotiation should not be a surprise, but in some respects this past week does reflect a turning point. In my May monthly, I review the state of the negotiations and argue that the hard part of Brexit begins now. In particular: While the UK economy has held up impressively well to date, the longer-term economic costs of Brexit are becoming more apparent. The primary cost of Brexit was never to be measured by short-term dislocation, but rather through the long-term reduction in investment and reduced efficiency that comes from lost access to Europe’s common market and a less prosperous economic future. Economists estimate that the loss in UK gross domestic product from Brexit ranges from 1.5 percent to 9.5 percent, attributable to increased barriers to trade and migration and to the financial services sector shrinking as a result of limits to cross-border activity. The new relationship between the United Kingdom and the European Union, as well as the rest of the world, will take years to work out. An extended transition to an uncertain future will further stress UK and EU economies. The election cycle—most important, the ongoing French elections and German elections in the fall—makes it impossible for leaders to make tough decisions on the future of Europe. After those elections, and allowing some time for preparation, negotiators will have roughly nine months beginning early in 2018 to make the critical decisions on the path forward, in order for the exit agreement to be confirmed and implemented by the March 2019 deadline imposed by the Lisbon Treaty. The disconnect between political and economic timelines remains a significant, and underappreciated, cost of Brexit. Long-term investment decisions take time, as does the relocation of jobs and production to the continent, and the regulatory approval process adds to the challenge. All this suggests that, although investors have been patient and there has not been substantial movement of jobs to the continent so far, the pressure to make long-term decisions will intensify in the coming years, leading to investment and job shifts that could, in turn, affect the politics of Brexit. The challenge of launching a fundamental renegotiation of Britain’s economic and political relationship with Europe—a process that could take a decade—is straining political consensus in the United Kingdom and on the continent. Brexit will produce a Britain that is poorer and less of an economic and financial power than if it had remained in the European Union. At the same time, the Brexit vote adds to the populist and inward-looking centrifugal forces pulling at Europe. A chaotic Brexit remains a serious risk.

Blog Post by Robert Kahn May 1, 2017 Macro and Markets
Global

The World Next Week: April 20, 2017

France holds presidential elections, Manila hosts an ASEAN summit, and Brussels stages a special EU summit to discuss Brexit.

Podcast with James M. Lindsay and Robert McMahon April 20, 2017 The World Next Week

United Kingdom

The Scottish Play: Will Brexit Spell the End of a United Kingdom?

The decision by British voters last June to leave the European Union (EU) has thrown that bloc into turmoil. But its implications for Great Britain could be even more profound, portending the dissolution of the United Kingdom. Prime Minister Theresa May could trigger Article 50 of the Lisbon Treaty as early as March 15, starting the two-year timetable for negotiating the terms of the UK’s divorce from the EU. The prime minister should beware the Ides of March: It seems all but inevitable that Scotland’s government will respond by calling for a second referendum on Scottish independence. The ultimate result could be the reemergence of a sovereign Scotland, more than three hundred years after the Acts of Union (1706–1707) united the cross of St. Andrew and the cross of St. George. When Scots rejected independence by a 55-45 percent margin in a September 2014 referendum, most assumed the matter had been put to bed for at least a generation. The shocking Brexit vote upended that expectation. As Scotland’s sovereigntist-minded First Minister Nicola Sturgeon observes, Scots who voted for “union” less than three years ago assumed that the (still) United Kingdom would remain in the EU. And in the more recent “Brexit” vote, they overwhelmingly (62 percent) supported the “Remain” camp. Given the dramatically altered landscape, Scots deserve the opportunity to reconsider their ties with the United Kingdom. As Sturgeon sees it, the Brexit outcome revealed “a wider democratic deficit within the UK, where decisions about Scotland are too often taken against the wishes of the people who live here.” Her Scottish National Party (SNP) has been cheered by the comments of no less than former UK Prime Minister Tony Blair, who says Brexit makes the case for Scottish independence much more credible. In October, the Scottish government published a draft bill that would (if approved by the Scottish Parliament at Holyrood) launch consultations to authorize a second referendum. Wittingly or not, Prime Minister May has bolstered Scotland’s independence movement by insisting on a “hard exit” from the EU. Scottish members of the UK Parliament in Westminster worry about losing access to the EU’s single market. True, trade between the UK and Scotland (worth £49.8 billion in 2015) is four times the value of Scottish exports to the rest of the EU. But the benefits of the single market are substantial—and many Scots are not willing to risk them in return for greater UK restrictions on migration. On February 7, the Scottish Parliament voted 90 to 34 in favor of a motion that the European Union (Notification of Withdrawal) Bill should not proceed. Although purely symbolic, it sent a clear message that Scotland opposes a hard Brexit. In an effort to preserve Scottish access to the continental market, Sturgeon’s SNP government in December released Scotland’s Place in Europe. The paper set out “compromise proposals” designed to allow a post–Brexit Scotland to maintain as many links with the EU as possible. The complex, and probably unworkable, scheme would require the UK Parliament to devolve additional powers to the Scottish Parliament—including control over immigration, business regulations, and international trade negotiations, among others. But the UK government has still not formally responded to the SNP paper, and SNP officials have accused the May government of attempting to hide documents setting out its views. More generally, Scottish officials are increasingly annoyed that their concerns are being ignored as the UK government proceeds with its Article 50 plans. Disentangling Britain from the EU will have enormous implications for the UK’s devolution settlement with Scotland (as well as with Wales and Northern Ireland), the London-based think tank Chatham House explains. As numerous laws and powers are repatriated from Brussels, UK and Scottish officials will bicker over the division of authorities on matters ranging from immigration to agriculture to trade. Sturgeon complains about the lack of consultation between London and Edinburgh. “Scotland’s voice is simply not being heard or listened to within the UK,” she says. May is on firm legal ground in deciding to go it alone. On January 24, the UK Supreme Court ruled that the UK Parliament had to approve any Article 50 negotiations. But that same decision also declared that May was under no legal obligation to consult with Scotland on Brexit. The political terrain is trickier, however. The court’s decision angered Scottish politicians, exposed fissures in the UK’s constitutional structure, and renewed momentum for Scottish independence. To be sure, the outcome of any second referendum is hardly preordained. Support for independence is up several points from a month ago, but, according to a recent BMG poll for The Herald, Scots remain nearly equally divided, with a narrow majority (51 to 49 percent) favoring remaining in the UK. Such numbers should be taken with a pinch of salt, of course. The same polling firm undercounted support for Brexit by four points last June, wrongly forecasting a 52-48 victory for the “Remain” camp. More substantively, the situation is fluid and volatile. Actual Brexit negotiations have yet to begin, and the harder a break that May pushes for, the more ignored and isolated Scots will feel, likely causing opinion to swing toward independence. Alienation from Westminster and disillusionment are already riding high in Scotland. Following the failed 2014 independence referendum, Prime Minister David Cameron’s government sought to win over Scots by passing the Scotland Act of 2016. Intended as a new and improved devolution settlement, it stated that the UK Parliament would normally legislate certain matters only with the express agreement of elected members from Scotland. Cameron promised that Scotland would have the “strongest devolved parliament in the world.” One of the act’s selling points was the argument that continued membership in the UK was the only way for Scotland to stay in the EU (something it might have trouble doing as an independent state). The outcome of the Brexit vote turned that logic on its head. Scotland stayed in the United Kingdom but suddenly stands to lose the EU. Brexit has shown devolution to be “worthless,” declares Scotland’s Brexit Minister Michael Russell. It has “exposed statements” by British officials “that the UK government and Scotland are equal partners” to be “empty, diversionary rhetoric.” Prime Minister May has offered to consult Scotland (as well as Wales and Northern Ireland) on the Article 50 negotiations, but has also made clear that the devolved administrations will play no decisive role in Brexit. Given this context, SNP officials argue, Scotland has no choice but to vote again on independence. Many observers expect a major announcement from the emboldened Sturgeon on March 17, when the SNP holds its Spring conference in Aberdeen. This could include naming a target date for the second independence referendum (which would likely to be held in autumn 2018). Here is where things could get tricky—and could spark a constitutional crisis. Under the Scotland Act of 1998, which established the devolved Scottish Parliament, the British Parliament must consent to any new Scottish referendum. Sturgeon has declared that it is “inconceivable” that the UK government, in the wake of Brexit, would try to block Scots from exercising their right to self-determination. This may be wishful thinking. On February 2, Michael Fallon, the UK Defense Secretary predicted that the House of Commons would veto any such a referendum. Other British officials, while avoiding the term “veto,” confirm that May’s government intends to do just that. Although, sources are now suggesting May could agree to a referendum vote as long as it was after Brexit. Meanwhile, Conservative Scottish MPs are accusing the SNP of "weaponizing" the Brexit debate, “cranking up the grievance machine” in Scotland to ensure Britain’s disintegration. But if Theresa May has plenty to worry about, so does Nicola Sturgeon. Among the many uncertainties in the Brexit/”Scexit” dance is whether an independent, sovereign Scotland would actually be welcomed into the EU—and, if so, how soon and on what terms. Some experts argue that an independent Scotland could be fast-tracked into the EU, potentially by 2023. However, this relies on generous assumptions about the likely reactions of the bloc’s member states. Some EU countries (not least Spain) may be reluctant to ratify Scotland’s EU accession, for fear of emboldening their own restive regions (Catalonia and the Basque country, in this case). Scotland also faces a £15 billion deficit, higher than every EU member state as a percentage of GDP, including Greece, which itself has caused such turmoil for the eurozone. One thing is clear. March 2017 is shaping up to be a momentous month in the histories of the European Union, the United Kingdom, and Scotland, as leaders try to strike new bargains over how political power and sovereignty should be allocated at the supranational, national, and subnational levels.

Blog Post by Stewart M. Patrick March 2, 2017 The Internationalist
Brexit

Facebook Live: Brexit, Erdogan’s Crackdown, and South Korea’s Political Scandal

I sat down yesterday with my colleague Anya Schmemann, CFR’s communications director, to review some foreign policy events in the news. We discussed the British High Court’s ruling that the British Parliament must vote on whether Britain should leave the European Union, Turkish President Erdogan’s wide-ranging crackdown on the media and Kurdish political opposition, and the fallout from the political scandal that has engulfed South Korean President Park Geun-Hye’s presidency, among other topics. You can check out the video of our discussion below or on Facebook. Note: If the video is not displaying in your browser, please click here.

Blog Post by James M. Lindsay November 8, 2016 The Water's Edge
Brexit

Global Economics Monthly: August 2016

Bottom Line: Markets have absorbed the initial economic shock from Brexit, but navigating the new landscape will remain a challenge. Two months after the vote, the politics of Brexit is producing a lengthy and uncertain renegotiation of Britain’s place in Europe and the world. Such extended uncertainty is likely to produce a long-lasting drag on both UK and European economies, which could ultimately threaten the viability of the European Union (EU). Brexit at Two Months The June 23 Brexit vote was not a “Lehman moment,” as some analysts had feared. That it did not cause a financial market freeze similar to what followed the fall of Lehman Brothers in August 2008 is a result of the strong central bank action to calm markets and subsequent monetary easing from the Bank of England. Markets have stabilized and the recent economic data has been solid, leading many market analysts to declare the crisis over. Such optimism is premature. For the United Kingdom, which before the vote was expected to grow at 2 percent annually, the damage to growth still could be severe, perhaps on the order of 2 to 3 percent of gross domestic product over the next eighteen months. This contraction reflects the substantial political and economic uncertainty created by Brexit and its likely effect on investment and consumer demand. The exchange rate depreciation and easy monetary policy will provide a powerful offsetting boost, but it will take time to be felt. The United Kingdom remains on the front line of this event. The more difficult question is the extent of contagion to the rest of the world and in particular Europe, given the EU’s weak economy and its population’s increasing frustration with its economic prospects. As in the United Kingdom, uncertainty about post-Brexit relations is likely to weigh powerfully on investment throughout Europe. Financial stability is also an issue: European bank stocks continue to underperform and the continental banking system is struggling with the legacy of the crisis and weak profitability. Lower interest rates will not help on that latter score. The European Central Bank can ensure adequate liquidity to troubled banks, but it cannot make them lend. If Europe wants above-trend growth in this environment, fiscal policy will need to do more. Looking ahead, I see two systemic market risks coming out of Brexit. The first is the potential for lengthy negotiations to extend the exit process at a significant economic cost for markets that crave certainty. This tension is the result of a disconnect between economic and political timelines. The second risk is that it will distort decision-making by European policymakers on critical economic questions. Although many of Europe’s challenges would have presented thorny problems absent Brexit, the UK vote creates a low-growth, populist environment in which decision-making will be even more difficult. Consider each of these drivers in turn. A Disconnect Between Political and Economic Timelines Immediately after forming her government, UK Prime Minister Theresa May announced her intention to trigger Article 50 at the end of 2016, beginning the formal process of Britain exiting the EU. Now, there are reports that invoking Article 50 may be delayed until the end of 2017 and a formal exit delayed until the end of 2019. In one respect, this delay simply reflects the reality of the difficult environment facing the UK government in negotiating a favorable deal with Europe. Upcoming elections in 2017 in France (May) and Germany (likely October) mean that Britain does not know who its principal negotiating partners will be, and it is hard to imagine either of those countries making significant concessions ahead of their votes and risking domestic backlash. The UK government itself is far from ready as it launches a come-from-behind effort to put in place the right people, gather the necessary information, and prepare positions before negotiations. Until recently, the UK government had less than ten people with substantial trade negotiation experience, far short of what will be required to negotiate the thousands of new rules and conditions determining the United Kingdom’s future relationship with the European Union. One response to this monumental task would be for the UK government to seek an off-the-shelf solution, mirroring the agreements that countries such as Norway or Switzerland have. Putting aside questions of whether Europe would be prepared to offer such a deal, substantial questions have been raised about whether these countries’ relationships with the EU represent appropriate models for the UK economy, which is larger and more complex. Further, such an agreement would require the United Kingdom to accept freedom-of-movement rules, an anathema to pro-Brexit voters. Another approach would be to exit the EU without a new arrangement in place, which would mean that tariffs default back to World Trade Organization levels, and then later the United Kingdom could seek to negotiate a bilateral trade agreement with Europe. But this option, though easier to implement, would sacrifice a close link with Europe that many British—especially those participating in the financial markets—believe is needed for the United Kingdom to restore strong growth and protect its preeminent status as a major financial center. These considerations suggest that the United Kingdom needs a bespoke deal, customized and negotiated to meet the specific conditions facing the United Kingdom and Europe. Such a deal could take years to negotiate. Note that, although the terms of exit are to be agreed in two years and can be approved by a qualified majority of the EU members, the new trade agreement will be far more complex and requires unanimity among EU members. It could be several years before there is clarity about the economic relationship that guides the United Kingdom and Europe. Tremendous economic uncertainty is likely to persist as long the United Kingdom’s future relationship with Europe is unknown, damaging business and consumer confidence and producing a substantial drag on investment as firms wait for greater clarity on the new economic model. Still, at some point, jobs are likely to begin to shift to the continent in anticipation of London’s reduced access to European markets. (Such shifts will be perhaps most visible in finance given London’s role as a leading financial center.) This tension between the market’s desire for certainty and the new, extended timeline for exit will not resolve easily. So far, markets have remained relatively calm, supported by strong central bank action. But that could change, and quickly, if signs of a substantial economic downturn or a flight of capital from London reach damaging levels. In that case, pressure on both the UK government and its negotiating partners on the continent to seek a quick agreement could increase. More or Less Europe European policymakers face a parallel change in how best to respond to Brexit. Six years after the start of the eurozone debt crisis, Europe remains trapped in a tepid economic recovery characterized by low growth, high unemployment, and high public and private debt. Unemployment in the eurozone remains above 10 percent. Youth unemployment rates are often more than 20 percent, undermining a generation of Europeans’ hopes for a brighter economic future. Against this backdrop, Brexit marks the realization of a significant downside risk for the European (and global) economy. The euro area, which had started the year with stronger than expected growth momentum, now faces a potentially sizeable demand shock and increased concern about financial stability. It would have been difficult in the best of circumstances to deal with the range of economic challenges confronting European policymakers in the fall, including the recapitalization of Italian banks, financing additional migration related expenditures, and fiscal slippages that violate EU rules in several countries. Brexit makes navigating the political and economic minefields surrounding these issues all the more daunting. Addressing these challenges requires a comprehensive approach of macroeconomic and structural measures. On the demand side, more support is needed. The region’s creditor countries have resisted calls for fiscal stimulus, forcing monetary policy to carry the burden of support for recovery, and the resulting negative interest rates are punishing savers, damaging the balance sheets of banks, and raising concerns about financial stability. Notwithstanding legitimate concerns in Germany and elsewhere about financial discipline and responsibility for periphery debt, fiscal authorities now need to take more responsibility for supporting demand and sustaining popular support for Europe. But short-term economic stimulus measures cannot, on their own, restore Europe’s promise. Disappointingly, structural reforms of labor and product markets also appear to have stalled. Incomplete economic union continues to cast a shadow over the economy, but a divided Europe seems less likely than ever to move forward with the measures needed to make economic unity viable. The tension between European monetary union and national fiscal policies contributes to an imbalance in policymaking and a weakened capacity to respond to crises. Although some policymakers see Brexit as an opportunity to accelerate economic and financial integration, for others, the vote and the rise in anti-EU sentiment across the region illustrate the need to set aside ambitions of greater economic unity and focus on a narrower set of security, labor, and immigration concerns. The latter approach, however, risks condemning Europe to a low-growth future that almost certainly will undermine popular support for the European project. Nowhere is the dilemma starker than in the current debate over how best to resolve the problems of the Italian banking system. It is hard to imagine the eurozone financial system thriving in the absence of comprehensive banking union, and that requires strong regulation of banks, coupled with firm market discipline and limits on state support for inadequately capitalized institutions. In Italy, these considerations all pointed to the need for a comprehensive restructuring and reform effort, and, where state support was needed, for bailing in creditors. Yet, following the Brexit vote, a weaker outlook coupled with rising populist pressures against austerity have led Prime Minister Matteo Renzi to seek an exception to the bail-in requirements ahead of the upcoming referendum on constitutional reform. Although a sensible compromise on the bail-in requirement looks possible, it would be unfortunate for the future of Europe if it delayed a serious bank restructuring. Sadly, that scenario now appears the most likely. Not surprisingly, calls for populist economic policies and less union have found fertile ground across Europe. The growing political and economic constraints on policy challenge the conventional wisdom that eurozone policymakers will make tough decisions on rescue packages if and when a crisis materializes. Conclusion Brexit is a shock, but one that plays out slowly, constrained by the complexity of the process, the high degree of unknowns, and the political constraints on decision-making in the United Kingdom and in Europe. The shock acts as a drag on growth and intensifies the risk that an incomplete European economic union will return to crisis. That may be the greater threat. If policymakers respond effectively to Brexit, the benefits could be substantial: a stronger global economy and an ebbing of the political and economic forces now pressuring UK and European policymakers. Conversely, failure to address the growth risks could cause broader and deeper global economic contagion. Looking Ahead: Kahn's take on the news on the horizon Japan Prime Minister Abe announced a 28.1 trillion yen ($276 billion) stimulus package, but much of the package consists of loans, and fresh government spending is 7.5 trillion yen. Is it the start of a shift in major economies’ industrial country fiscal policy? Group of Twenty (G20) and China G20 leaders’ summit will be held in Hangzhou September 4 through 5. In their July meeting, G20 finance ministers and central bank governors expressed their concerns about heightened global risks due to Brexit. The upcoming leaders’ summit will test China’s leadership role in ensuring that G20 takes a more coordinated approach to fiscal policy and other critical issues including infrastructure investment. Venezuela Venezuela’s economic crisis is deepening, and default seems a question of when rather than if. The government has debt repayments of $1.8 billion due in October and $2.9 billion in November, and is looking to a debt swap operation between the state oil company PDVSA and creditors to get through the year without default.

Report by Robert Kahn August 22, 2016
United Kingdom

Scotland After Brexit

As a result of the Brexit vote to leave the European Union, the United Kingdom is likely to see another Scottish independence referendum in its future.

Interview with Alexandra Abell and Richard G. Whitman August 9, 2016
NATO (North Atlantic Treaty Organization)

Brexit, Pursued by a Bear: NATO’s Enduring Relevance

The British public’s momentous decision two weeks ago to quit the European Union (EU) continues to reverberate globally. But its geopolitical implications should not be exaggerated. Brexit poses an institutional crisis for the European Union. But it hardly indicates the impending “collapse of the liberal world order,” as some pundits fret. This weekend’s Warsaw summit will remind the world—and Vladimir Putin—that the North Atlantic Treaty Organization (NATO) remains the real anchor of Western defense, and that the solidarity of the transatlantic alliance need not depend on the fortunes of the European project. Americans have long associated the Atlantic alliance with European unity—and for good reason. It was the U.S. security guarantee—formalized in the North Atlantic Treaty (NAT) signed in Washington in 1949—that provided Western Europeans the confidence they needed to take the first, difficult postwar steps toward continental integration, beginning with Franco-German reconciliation. Secretary of State Dean Acheson, who supported the emergence of NATO’s integrated command structure, was also a vocal cheerleader for a “United States of Europe” (as was his Republican successor John Foster Dulles). As a condition for Marshall Plan aid, for instance, the United States insisted that European recipients take steps toward unity. This pressure helped spur France’s proposal for a European Coal and Steel Community—the forerunner of today’s EU. Looking back, it all seems remarkable. For the first time in history, a dominant power (the United States) promoted unity rather than division in an area under its influence. Under the U.S. nuclear umbrella, Western Europe enjoyed an unprecedented period of peace, prosperity, and integration. The West’s triumph in the Cold War was thus a vindication for both NATO and European unity. In the wake of the Soviet Union’s collapse, both the alliance and the EU expanded into the former Soviet space, to the very borders of Russia itself. Given this parallel history, it is understandable that observers would regard the EU’s current crisis as a threat to NATO. That would be a mistake. If anything, the EU’s travails reinforce the alliance’s centrality as the foundation of Western liberal order. The Brexit calamity—like the eurozone and refugee crises before it—is not fundamentally about Western solidarity, security, or even cooperation. It is about the degree to which Europe’s market democracies are willing to pool sovereignty, including by accepting common regulatory standards and supranational oversight in spheres (like migration) that have traditionally been left to competent national authorities. The debate over Brexit had ugly, xenophobic, and nativist overtones, to be sure. But the referendum’s outcome also reflected populist distrust of an EU perceived to lack democratic accountability and to be trapped in a vague no man’s land between confederation and political union. Brexit, in other words, is a constitutional crisis for Europe. But it is not a crisis for NATO, which remains as it always has been: an alliance of sovereign, democratic states. NATO forces report to a Supreme Allied Commander, who is responsible for setting strategy and doctrine, as well as conducting joint operations. But it is sovereign governments that are represented on the North Atlantic Council, and they have ultimate authority over the deployment of their national contingents. Nothing about Brexit, moreover, undermines the fundamental commitment contained in Article 5 of the NAT, which obliges each member state to take prompt measures to defend any other party in the event of an armed attack. Indeed, Brexit—however lamentable for the EU—may ultimately strengthen NATO by slowing the development of stand-alone EU military capabilities. Over the past quarter century, the EU has taken fitful steps toward deepening its collective defense capacity, which London had long opposed. With British obstruction removed, some now speculate that Brexit could pave the way for Germany and France to advance European military integration. In reality, however, such efforts are fraught with political and logistical challenges. In the meantime, Europe faces immediate challenges—not least from an assertive Russia—that demand an urgent response, and which a well-oiled NATO is already prepared to address. Early in NATO’s founding cycle, Lord Ismay famously defined its role as keeping “the Americans in, the Germans down, and the Russians out.” The end of the Cold War thus posed an identity crisis for the alliance. With Germany peacefully reunited and the Soviet Union gone, why should the United States (or any others, for that matter) stay in? Having lost an enemy, NATO had to find new roles. The first was consolidating a Europe “whole and free.” The second was going “out of area,” including in Afghanistan. The third was confronting “new threats,” from cyberwar to energy insecurity. But it is Vladimir Putin who has brought NATO back to basics. Russia’s seizure of Crimea, proxy intervention in eastern Ukraine, and ongoing efforts to intimidate the Baltics have revived NATO’s core purpose as a bulwark of Western collective defense. Last month, the alliance held the largest military exercises in its post-Cold War history, involving some 31,000 troops from twenty-four nations. This weekend in Warsaw, its leaders will formally endorse a plan to deploy four multinational battalions in Poland and the three Baltic states. The British decision to command one of these units (the others will be under U.S., Canadian, and German command) sends a powerful sign that active NATO membership is compatible with being outside the EU—just as it was between 1949 and 1973 (the year Britain joined the European Economic Community). NATO Secretary-General Jens Stoltenberg has reassured rattled allies that Brexit will not undercut Britain’s long-term commitment to NATO. To be sure, talk is cheap, and UK Prime Minister David Cameron will soon depart the scene, leaving others to clean up the mess. Although some “Leave” supporters have affirmed that Brexit does not mark Britain’s “retreat into splendid isolation” but an opportunity to “find our voice in the world again,” skeptics worry that the post-Brexit UK will be both poorer and inward-looking, unwilling to support the ambitious defense spending increases that Cameron proposed last year. Will British citizens, confronting the potential economic blowback of Brexit, embrace the internationalist role that Boris Johnson touted as the future of an “independent” Britain? Others observers worry that Scotland will bolt the UK, depriving once-Great Britain of its only suitable base for its nuclear-armed submarines. These are real, practical problems. But they can be managed without calling into question either the credibility of the alliance or the British commitment to meet its NATO obligations. Nor should the EU’s current difficulties blind us to the tremendous structural weaknesses—demographic, economic, technological, and institutional—confronting Putin’s Russia, which for all the Kremlin’s bluster remains a declining rather than emerging power. In Warsaw, President Obama, Prime Minister Cameron, and their fellow leaders should drive home the basic reality: NATO faces Russia from a position of strength. The Russian bear may have pursued Brexit to the extent that it weakened an already limping Europe, but NATO is another animal altogether.

Blog Post by Stewart M. Patrick July 6, 2016 The Internationalist
Global

The World Next Week: June 30, 2016

The British government faces challenges resulting from the Brexit vote, Poland hosts a NATO summit, and Juno peers through Jupiter.

Podcast with James M. Lindsay , Elizabeth N. Saunders and Robert McMahon June 30, 2016 The World Next Week
United States

Brexit, Experts, and Trump: Is Policy Expertise Still Relevant in a Populist Age?

Among the main casualties of the populist wave now surging through Western democracies is respect for policy expertise. Michael Gove, justice secretary in the UK government and cheerleader for Brexit, captured the climate on June 2. When reminded that informed opinion was overwhelmingly opposed to Great Britain leaving the European Union, Gove uttered the infamous words that will be his epitaph: "People in this country have had enough of experts." Gove was scorning multiple respected institutions warning that Brexit would be a disastrous, self-inflicted wound. The studies in question came from the UK Treasury, the Bank of England, the Organization for Economic Cooperation and Development, the International Monetary Fund, think tanks like the Centre for European Reform and Chatham House, the Confederation of British Industry, and throngs of economists. All agreed that Britain’s risky leap into darkness would gravely harm British trade, foreign investment, employment, and productivity. Gove’s riposte was a celebration of blissful ignorance, "as if knowledge was a hindrance to understanding," the Economist noted. Gove is not the first political insurgent to dismiss expertise, of course. Political anti-intellectualism has a venerable pedigree, and tends to crest during political turmoil. His remarks echo those of the French Revolutionary judge who sent the chemist Antoine Lavoisier to the guillotine in 1794, with the curt observation: "La République n’a pas besoin de savants" (The Republic has no need of scientists). Subsequent revolutionaries, from Lenin to Mao to Pol Pot to Khomeini, have played the same game. Gove reminds us that attacking the “expertise” of educated elites remains a staple tactic for populist demagogues in Western democracies, too. It is a cheap way to communicate authenticity and signal egalitarian solidarity with the "common man" (regardless of one’s own personal wealth), and to capitalize on class resentment at a time of economic stagnation and insecurity. The populist tradition has a long history in the United States. Andrew Jackson was America’s first “everyman” president. Elected in 1828, the no-nonsense frontiersman promised a break from effete East Coast leaders like John Quincy Adams. Old Hickory’s main message, as the historian Richard Hofstadter explains in his Pulitzer-Prize winning Anti-Intellectualism in American Life, was that “practical common sense” was “more valuable than all the acquired learning of the sage.” More than a century later, Republicans derided Adlai Stevenson, Dwight D. Eisenhower’s Democratic opponent in the 1952 and 1956 presidential elections, as an "egghead"— turning Stevenson’s intelligence into a liability. Eisenhower’s running mate, Richard Nixon, would adopt a similar strategy as president, depicting effete Harvard faculty club Democrats as out of touch with the concerns of the “silent majority” of Americans. In recent years the populist temptation to dismiss expert knowledge has been most evident in the case of climate change. In the face of almost universal scientific agreement that the planet is warming and that human activity is a leading cause of this phenomenon, conservative politicians have persistently derided science to curry favor with their political base. Senator James Inhoffe of Oklahoma even penned a book titled The Greatest Hoax: How the Global Warming Conspiracy Threatens Your Future. Nor have presidential candidates been immune. As Florida Senator Marco Rubio was gearing up for his ultimately unsuccessful presidential run, he retreated from his previous acknowledgment of climate change. “I don’t agree with the notion that some are putting out there, including scientists, that somehow, there are actions we can take today that would actually have an impact on what’s happening in our climate,” he told ABC News in a May 2014 interview. “Our climate is always changing.” Donald J. Trump, who defeated Rubio to become the presumptive 2016 GOP nominee for president, similarly doubts that global warming “in any major fashion exists.” As he explained to talk radio host Hugh Hewitt last September, I am not a believer, and I will, unless somebody can prove something to me, I believe there’s weather. I believe there’s change, and I believe it goes up and it goes down, and it goes up again. And it changes depending on years and centuries, but I am not a believer, and we have much bigger problems. To be sure, the GOP has no monopoly on anti-intellectual populism. Some of the more extreme domestic policy and trade arguments advanced by Bernie Sanders, for instance, would not pass muster in economics departments. But in the current political season, it is Trump who has staked out the most audacious terrain, dismissing most expert opinion. (Besides his own, of course. As he famously told his Morning Joe hosts on MSNBC: “I’m speaking with myself, number one, because I have a very good brain. And I’ve said a lot of things.”) Trump’s anti-intellectualism is worrisome for a candidate who has no experience in government at any level. Trump’s still skeleton crew of policy advisors stands in stark contrast to the extraordinary number that former Secretary of State Hillary Clinton has assembled to develop concrete positions on innumerable topics. Clinton’s entourage may be overkill—can she make effective use of several hundred foreign policy advisors? But at least she won’t be at a loss for policy options. Trump, meanwhile, has clung to a DIY approach and, as Washington Post blogger Dan Drezner points out, it shows. Given the improvised, seemingly seat-of-the-pants nature of his campaign positions, should one take his pronouncements seriously? For those of us toiling in the ideas industry, the rise of populist anti-intellectualism presents a quandary, sharpening the ever-present question of relevance. We find ourselves in a situation reminiscent of Bill Clinton in the wake of the 1994 “Republican Revolution,” which swept the GOP to control of the House of Representatives for the first time in four decades. “I am relevant,” the president famously protested. “The Constitution gives me relevance.” The new populism poses a challenge to think tanks, which at their best provide independent, empirical analyses and recommendations on how to cope with vexing public policy dilemmas. Traditionally, think tanks have catered to elite audiences. But it is clear that this is no longer adequate. “In the post-truth politics that is rocking Western democracies,” the Economist observes, “illusions are more alluring than authority.” Going forward, broader civic education needs to be part of each think tank’s mandate. What makes this new mission especially urgent is the ongoing fragmentation of the marketplace of ideas—a trend accelerated by self-contained social media communities that reinforce each other’s biases and preconceptions. In past decades, U.S. universities might have played a leading role in reversing these trends. But in too many cases, university curricula have moved toward arcane research debates and methodologies, avoiding matters of policy relevance. Think tanks can help fill this void if they recommit themselves to providing objective policy analysis on concrete problems—and work to get them heard by the widest possible audience. Policy debates are inevitable, and welcome. But they should at least be informed.

Blog Post by Stewart M. Patrick June 29, 2016 The Internationalist
United Kingdom

What Brexit Reveals About Rising Populism

The United Kingdom’s vote to leave the EU demonstrates that rising populism in Europe and the United States are both driven by voters who feel alienated from the benefits of globalization, says CFR’s Edward Alden.

Interview with Edward Alden and James McBride June 29, 2016 Greenberg Center for Geoeconomic Studies
European Union

Post-Brexit

A few thoughts, focusing on narrow issues of macroeconomic management rather than the bigger political issues. The United Kingdom has been running a sizeable current account deficit for some time now, thanks to an unusually low national savings rate. That means, on net, it has been supplying the rest of Europe with demand—something other European countries need. This isn’t likely to provide Britain the negotiating leverage the Brexiters claimed (the other European countries fear the precedent more than the loss of demand) but it will shape the economic fallout. The fall in the pound is a necessary part of the United Kingdom’s adjustment. It will spread the pain from a downturn in British demand to the eurozone. Brexit uncertainty is thus a sizable negative shock to growth in Britian’s eurozone trading partners not just to Britain itself: relative to the pre-Brexit referendum baseline, I would guess that Brexit uncertainty will knock a cumulative half a percentage point off eurozone growth over the next two years.* Of course, the eurozone, which runs a significant current account surplus and can borrow at low nominal rates, has the fiscal capacity to counteract this shock. Germany is being paid to borrow for ten years, and the average ten-year rate for the eurozone as a whole is around 1 percent. The eurozone could provide a fiscal offset, whether jointly, through new eurozone investment funds or simply through a shift in say German policy on public investment and other adjustments to national policy. I say this knowing full-well the political constraints to fiscal action. The Germans do not want to run a deficit. The Dutch are committed to bringing an already low deficit down further. France, Italy, and especially Spain face pressure from the commission to tighten policy. The Juncker plan never really created the capacity for shared funding of investment. The eurozone’s aggregate fiscal stance is, more or less, the sum of national fiscal policies of the biggest eurozone economies. If I had to bet, I would bet that the eurozone’s aggregate fiscal impulse will be negative in 2017—exactly the opposite of what it should be when a surplus region is faced with a shock to external demand. A lot depends on the fiscal path Spain negotiates once it forms a new government, given that is running the largest fiscal deficit of the eurozone’s big five economies. Economically, the eurozone would also benefit from additional focus on the enduring overhang of private debt, and the nonperforming loans (NPLs) that continue to clog the arteries of credit. Debt overhangs in the private sector—Dutch mortgage debt, Portuguese corporate debt, Italian small-business loans—are one reason why eurozone demand growth has lagged. Eurozone banks should have been recapitalized years ago, with public money if needed, to allow more scope for the write down of private debt. But in critical countries they were not, even with the impetus from various stress tests and the move toward (limited) banking union. And Europe’s new banking rules are now creating additional incentives for delay. The banking rules require bail-ins, which are typically better politics than outright bailouts. But countries such as Italy are caught in a bind: • Clearing away legacy NPLs takes capital—capital many of its banks do not have; • National governments cannot provide public capital without bailing in a portion of the banks’ liabilities structure; • And in Spain, Portugal and Italy, many of the banks that need capital now have raised capital in the past by selling preferred equity and subordinated debt to their own depositors, so bail-ins in effect mean hitting small investors who took on a set of risks they didn’t understand (and often made investments before the banking rules were tightened). The consensus VoXEU document alluded to this problem, but didn’t quite spell out how the current banking rules could be “credibly modified.” Putting public funds into the banks does not address popular concerns about the way the global economy works. Forcing retail investors to take losses in the name of new European rules does not obviously build public support for “more” Europe. Keeping bad loans at inflated marks on the balance sheet of weak banks undermines new lending, and makes it hard for private demand growth to offset the impact of fiscal consolidation. There is no cost-free option, economically or politically. The eurozone’s ongoing banking issues highlight the broader tensions created by a conception of the eurozone that focuses on the application of common rules with only modest sharing of fiscal risks—and by a political process that has often designed those rules a bit too restrictively, with too much deference to Germany’s desire to avoid being stuck with other countries’ bills and too little recognition of the need to allow the member countries to use their own national balance sheets to spur growth. Something will need to give, eventually. * My back-of-the envelope estimate is close to Draghi’s estimate, and similar to that of Goldman. The OECD’s estimate actually suggests a slightly bigger impact on the eurozone from a similar to slighter larger fall in British output. In their model, the eurozone is facing a two-year drag on growth of about a percentage point; see p. 22.

Blog Post by Brad W. Setser June 29, 2016 Follow the Money
United Kingdom

The World Next Week: Brexit

In this special edition, CFR’s Director of Studies Jim Lindsay, Steven A. Tananbaum Senior Fellow Robert Kahn, and Paul A. Volcker Senior Fellow Sebastian Mallaby examine the implications of the Brexit vote.

Podcast with James M. Lindsay , Sebastian Mallaby , Robert Kahn and Robert McMahon June 27, 2016 The World Next Week
Elections and Voting

Campaign 2016 Friday Foreign Policy Roundup: Trump Gives Brexit a Thumbs Up

Global markets aren’t happy with the British vote to exit the European Union. But Donald Trump sure is. At a press conference for the opening of his new luxury golf resort, Trump Turnberry in western Scotland, the country where his mother was born, he called the vote “historic,” saying of British voters: They’re angry over borders, they’re angry over people coming into the country and taking over, nobody even knows who they are. They’re angry about many, many things. They took back control of their country. It’s a great thing. Trump is certainly right that the British vote is historic, though it’s far from obvious that it’s a great thing. To be sure, not all divorces are bad ideas. And yes, sometimes outcomes that horrify experts turn out to be great things in retrospect. But getting from today’s tumult to tomorrow’s smooth sailing won’t be easy or quick, if it can be done at all. Britain’s divorce from the EU will take time, and talks that begin amicably can end acrimoniously. Europeans now have to answer big questions they once thought settled about what the European Union should be. David Cameron is a caretaker prime minister while the Conservative Party searches for its next leader, and the United Kingdom may not survive in its current form. Even if it does, it’s far from clear what kind of global role, if any, a Britain outside the EU will play. The United States will largely be a bystander in all this as governments “over there” work through the many issues Brexit has unleashed. But the process could have immense consequences for the United States, which for more than half a century has counted on Europe as its main global partner. At a minimum, Brexit guarantees that a Europe already consumed with problems at home will turn even more inward. That’s not good news for Washington. Trump, though, is nonchalant. When asked if he had consulted his policy advisers about the British vote, he said "there’s nothing to talk about.” Perhaps. But I suspect that the next president will discover that Brexit has indeed given the United States plenty to talk about. In Case You Missed It Donald Trump laced into Hillary Clinton in a speech on Wednesday, accusing the former secretary of state of being “a world class liar,” perhaps “the most corrupt person ever to seek the presidency,” and someone who managed to “almost single-handedly destabilize the Middle East.” To highlight its claims that Clinton is a liar, the Trump campaign launched a new website, lyingcrookedhillary.com. Earlier in the week, Trump told Face the Nation that “profiling is something that we’re going to have to start thinking about as a country,” and that “racial or religious profiling would ‘not [be] the worst thing to do.’” Clinton attacked Trump in a speech she delivered on Tuesday in Columbus, Ohio. She argued that his economic policies make him unfit to serve as president: “Just like he shouldn’t have his finger on the [nuclear] button, he shouldn’t have his hands on our economy.” On the heels of the speech, the Clinton campaign released a fact sheet listing the criticisms that Democrats, Republicans, and the news media have leveled against Trump’s economic policies. The Clinton campaign also released a ninety second YouTube video titled “Bad Businessman.” The video challenges Trump’s business acumen and was accompanied by a new website, artofthesteal.biz, a take-off on Trump’s best-selling business book, The Art of the Deal. Morning Consult released a poll on Wednesday that found that 41 percent of voters trust Trump to keep the United States safe compared to 37 percent for Clinton. The poll also found that 48 percent of voters support Trump’s proposal to ban Muslim immigrants. Vice President Biden denounced Trump’s foreign policy proposals and anti-Muslim rhetoric. Brent Scowcroft, who served as national security advisor to Presidents Ford and George H. W. Bush, endorsed Clinton on Wednesday. Meanwhile, former Secretary of Defense Donald Rumsfeld said he was voting for Trump. Marco Rubio used his announcement that he now intends to run for reelection to the U.S. Senate to describe his disagreements with Trump and to promise to “stand up to the bad decisions and the bad policies if [Trump is] elected president.” Edward Luce argued that Trump missed an essential opportunity to moderate his platform after securing the nomination. Both Dara Lind and Chris Cillizza described Trump’s Wednesday speech as coherent, but neither was sure it marked a rhetorical change big enough to win a general election. Jeffery Lewis pointed out the dangers in Trump’s criticism of the United States’ nuclear arsenal. Zachary Karabell explored the obstacles Trump may face trying to implement an immigration ban. Dara Lind argued that his anti-immigration rhetoric is making it more difficult for immigrants to assimilate. A Moody’s analysis concluded that “the upshot of Mr. Trump’s economic policy positions under almost any scenario is that the U.S. economy will be more isolated and diminished.” The New York Times fact checked Trump’s rebuttal of Clinton’s recent speech. John Mauldin examined Clinton’s internationalism and Trump’s “America first” foreign policy. Nick Gass offered a list of areas in which Trump will continue to attack Clinton in the general election. Eli Rosenberg reviewed the many ways Mexicans are mocking Trump for his criticisms of Mexico. Isaac Stanley-Becker argued that Clinton is better equipped to handle a significant national crisis. Evan Resnick criticized Clinton’s “hawkish proclivities” as secretary of state, calling them dangerous to American foreign policy. Fred Kaplan described Clinton’s foreign policy as “the Obama-plus-a-bit doctrine.” Looking Ahead The Republican National Convention convenes in twenty-four days at the Quicken Loans Arena in Cleveland on July 18. The Democratic National Convention follows shortly after at the Wells Fargo Center in Philadelphia on July 25. Election Day is 137 days away. Brett Ekberg and Jonathan Hyman assisted in the preparation of this post.

Blog Post by James M. Lindsay June 24, 2016 The Water's Edge
United Kingdom

A Victory for Little England—and National Sovereignty

The shocking victory of the “Leave” campaign in Thursday’s referendum was a massive repudiation of the elite-driven European project and a testament to the enduring pull of national sovereignty in an age of global anxiety. It is a momentous decision that will reverberate well beyond the British Isles. Besides posing an immediate, existential crisis for the European Union and the United Kingdom itself, the outcome will embolden skeptics of international institutions and multilateral cooperation in the United States. For the European Union, the referendum is a wake-up call that may have come too late. For decades, the EU has suffered from a dramatic deficit of democracy, as well as of loyalty. Throughout the continent, “Brussels” has long been shorthand for officious, unaccountable Eurocrats meddling in everything from fisheries to the proper shape of bananas. In an effort to close this deficit, the EU and its predecessors created several new institutions, most notably the European Parliament (EP), headquartered in Strasbourg. But the EP lacks real power, and voter turnout in its elections is dismal. The EU—too often distant, opaque, and unresponsive—commands little allegiance among its 500 million inhabitants. These dynamics have been especially corrosive in Great Britain. The UK joined the EU party late (in 1973), after centuries of splendid isolation and imperial grandeur. And it has always been the EU’s “awkward partner.” The British have enjoyed perks of the common market, as well as visa-free travel to holiday in Malaga, but their primary allegiance has and always will be to the nation. Their leaders have reinforced public cynicism, repeatedly using the EU as a scapegoat while promising, in the manner of (soon-to-be former) Prime Minister David Cameron, to “fix” it. The British vote bodes ill for the EU’s future. For decades the bloc’s leaders have seized on the crisis of the day to deepen integration, arguing that the only solution was “more Europe.” That dynamic has run its course. The EU is mired in an ungainly halfway house between a confederation of sovereign states and a federal, even supranational, union. National governments retain many of their powers but delegate others, such as immigration and human rights policies, to the center. That scenario might endure in a smaller grouping of the original Six—Germany, France, Italy, and the Benelux countries. But it is clearly unsustainable in the contemporary EU, a continent-spanning behemoth encompassing twenty-eight member states. The EU’s dramatic, post-Cold War enlargement made eminent economic and geopolitical sense. But a more heterogeneous bloc is also a far more unwieldy one, as divergent national interests and political cultures complicate agreement on common policies. These shortcomings have been on dramatic display in recent years, as the EU has flailed in formulating joint responses to the eurozone crisis and the flood of refugees to its shores. For the first time in its history, the EU faces a real prospect of unraveling. Great Britain will not be the last country to hold such a referendum, or to demand major adjustments in its relations with Brussels. (Already, Marine Le Pen of France’s National Front has insisted on a similar vote.) For the bloc to survive, the continent’s elected leaders must heed the will of the people and renegotiate political bargains among EU institutions, member states, and citizens. The most likely outcome will be a “multi-speed” Europe that allows member states and their citizens greater flexibility to opt in or opt out of particular arrangements and initiatives. For some this may mean more Europe, for others less. Regardless, the accent must be on accountability and transparency. Great Britain, meanwhile, may be in for a rude surprise of its own. In an ironic outcome, Brexit may cause the disintegration of the United Kingdom itself. The Scottish National Party (SNP), which lost a hard-fought referendum on independence for Scotland in 2014, will surely insist that another vote be held promptly on that same question. And given that Scots voted overwhelmingly to “Remain” on Thursday, their English brethren will have no grounds to deny them the exercise of their own popular sovereignty as an independent nation. Britain’s choice, finally, will reverberate in the United States. While most commentators have focused on potential global economic turmoil, given London’s prominence in financial markets, the political implications for U.S. global leadership may be profound. “Brexit” will surely reignite simmering domestic debates over how to balance the defense of U.S. national sovereignty with the imperative of international cooperation. On the one hand, we live in an era of global challenges—from climate change to transnational terrorism, from pandemic disease to financial turbulence—that no nation can manage on its own. On the other, conservative nationalists like John Bolton regularly warn us that global institutions like the United Nations, or proposed treaties like the UN Convention on the Law of the Sea, place unacceptable restrictions on our national sovereignty. Those voices will get louder in the wake of Brexit, which Donald Trump himself hailed as the wise and brave decision of Britons to “take back their independence.” Americans should resist the siren song of unilateralism—and recognize how different pragmatic U.S. engagement with multilateral institutions is from British membership in the European Union. In April, President Obama implored British voters not to quit the EU. In response, Boris Johnson, charismatic former mayor of London and champion of the Leave campaign, called Obama “hypocritical” for lecturing Brits “about giving up our sovereignty,” when Americans wouldn’t even sign up to the International Criminal Court. Johnson’s riposte was weak on decorum but strong on substance: the United States has always been determined to defend the supreme authority of the Constitution and the popular will of the American people. It has never subordinated itself to supranational structures—and it likely never will. But sovereignty has two other dimensions besides authority. The first is autonomy, or the freedom to make policy decisions independently. The second is control, notably over the nation’s destiny. The dilemma is that autonomy and control often work at cross purposes in managing globalization. To get what it wants—whether reducing carbon emissions to expanding trade—the United States must often make commitments, enter into treaties, or support multilateral organizations. These arrangements can sometimes constrain its options, but they also promise the United States greater control over outcomes that it could never achieve on its own. Britain’s Brexit reminds us of the pull of national sovereignty and the imperative of democratic accountability in institutions of governance, whether at the domestic or global level. But we should also remember that no nation, even Britain, is truly an island.

Blog Post by Stewart M. Patrick June 24, 2016 The Internationalist