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Analysis
Europe’s surreal referendums

Europe’s surreal referendums

Britain’s go-slow advantage

by David Marsh in Athens

Wed 29 Jun 2016

Athens is a useful vantage point from which to reflect on the surreal nature of European plebiscites. After Britain’s 52% to 48% vote against European Union membership on 23 June, the lesson of history – especially the bizarre referendum U-turn over Greek austerity a year ago – is that a complete British divorce from Europe in the years ahead is highly unlikely.

Much more probable is a flexible ‘halfway house’ relationship, far from the absolutist or apocalyptic predictions of Leave or Remain campaigners. The UK and its EU partners will still carry out substantial trade and investment. Britain will make reduced payments into the European budget. And restrictions, but no swingeing clampdown, will be in place on the free movement of people between the UK and the EU.

Almost nothing any protagonist said before the referendum – whether the ‘in’ or ‘out’ camp, or pontificating foreign government or business leaders – holds true in the new post-referendum world. The circumstances embody a touch of fantasy. David Cameron, the UK prime minister, has lost a referendum he probably never believed would take place and that his opponents (led by Boris Johnson, the now somewhat baffled-looking former mayor of London) never really expected to win.

The punitive post-Brexit emergency budget threatened by George Osborne, the chancellor of the exchequer, will probably remain a piece of dark fiction. Formal exit talks under Article 50 of the European treaty, promised before the referendum and demanded by EU partners, will not start quickly and may be bypassed by other negotiating mechanisms that Britain believes are more propitious and less threatening.

A second referendum on the issue, universally ruled out pre-23 June, may take place in the next few years. Equally – after the dreamlike poll aftermath – the UK may decide to hand back sovereign decision-making to where it resides, with parliament, possibly after an early general election that lawmakers would have to engineer (with difficulty, under Britain’s new fixed-term parliamentary system) for later this year.

Over the past 25 years Denmark and Ireland have held referendums rejecting aspects of their countries’ EU relationships, but accepted modified terms later. France and the Netherlands both turned down the European constitutional treaty in 2005, but the Lisbon treaty was accepted four years later.

A year ago – on 5 July 2015 – Greece opted 61% to 39% in a nationwide vote to reject a deal with creditors on a bail-out loan package designed to keep the Greeks in the euro.

A week later, Alexis Tsipras, the left-wing Greek prime minister who had railed against creditors’ ‘ultimatums’ and ‘blackmail’, signed into law the exact measures he had fought, including tax increases, privatisations, and pensions and pay cuts. One year later, despite many unresolved problems, Greece looks set for a modest recovery in the next two years. Creditors are working discreetly on a landmark debt restructuring deal, which could be unveiled this autumn, to fix for up to 30 years ultra-low interest rates on around €150bn of Greece’s foreign debt, significantly improving the county’s credit rating.

Greek bankers praise Tsipras for pro-reform policies reminiscent of Margaret Thatcher, the UK’s free-market 1980s prime minister. Euclid Tsakalotos, the softly-spoken Marxist Greek finance minister who took over after last July’s referendum from Yanis Varoufakis, his firebrand processor, has earned praise from the German government – and damaged his domestic left-wing credentials – for rebuilding relations with European finance ministers.

Greece is one of the many countries in no hurry to see Europe’s political map redrawn: Athens would be excluded from any attempts to forge greater cohesion with an economically stable ‘hard core’ of pro-integration EU members. By going slow on exit procedures, which will delayed at least until the Conservative party chooses a new leader in early September and possibly until after a general election, Britain can turn the political timetable in Europe to its advantage.

The closer the UK negotiations draw towards fraught French and German elections in spring and autumn 2017, the more difficult it will be for France or Germany to mount a common offensive against British negotiating demands, since a breakdown in exit diplomacy would spark political upheaval disrupting incumbent leaders. For all concerned, there is a great deal still to play for.

David Marsh is Managing Director of OMFIF.

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