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June 23, 2016

It's either Brexit, or Brexit - a truly historic choice

It's decision day in the UK, mixed with some hope that the trend is favouring the Remain campaign. We, too, have become somewhat more optimistic in the last few days. Below are the last four polls. Note that the YouGov poll is significant because this polling organisation had Leave ahead until recently - but a one point lead is well within the statistical error margin, and there are many other sources of potential error as well. The polls of polls, this one and this one, both now have Remain ahead with a small lead. 

The last day of the campaign brought up some good commentary and analysis, which we think it is worth considering for a final time. From tomorrow, we will mercifully no longer have to argue in terms if-then scenarios. It is notable that commentators are clearly worried about Brexit, but also that many are almost equally worried about Remain. 

Among the former we would like to draw attention to only one article today, by Laurence Boone who until not too long ago was the sherpa for President Francois Hollande. She writes that, on Brexit, the EU would bring forward the European Council to tomorrow. What European leaders will absolutely need to do is to come up with substantive proposals - or risk what she calls "the fall of Europe on their watch". She proposes nothing short of a eurozone government, and a democratically elected eurozone parliament. If they do not do this, they would need to get ready to manage the end of the European project and hand over the keys to the populists.

We fully agree with her argument, with the addendum that political integration won't happen because Angela Merkel already ruled it out, and that the disintegration, while inevitable, is not as immediate as to force Merkel into an abrupt change of policy ahead of the 2017 elections. But Boone is right on her substantive point that the problems of the EU, and the eurozone in particular, are insolvable without a fully-fledged political union. If you accept that premise, then the statement that this is politically impossible ultimately implies the demise of the EU.

Simon Tilford puts it like this:

"The original sin of the eurozone is that it requires a higher level of political integration than its member-states can sell to their electorates. Many resent the loss of policy autonomy but few are prepared to see national politics supplanted by a eurozone government. The participating governments have to find a way forward which respects this need for national democratic accountability but which ensures the necessary degree of federalism to make the whole thing work."

Judy Dempsey has collected a good number of comments on the Brexit scenario. While everybody was gloomy about the impact of Brexit on the EU, we would like to focus on the far interesting impact of a Remain vote. Gianni Riotta is pessimistic about the impact of a Remain victory. He says the way the campaign has gone, the Remain camp consists largely of people who have been afraid of Brexit.

"You’ve got to understand the Queen’s subjects, Remainers and Leavers alike: they miss Winston Churchill, and Europe is offering them Jean-Claude Juncker."

Francois Heisbourg notes that a Remain victory will produce further instability in the Conservative Party. An unstable Britain is likely to head for another referendum, and that itself may deter a divided EU from taking the steps necessary to save itself.

Andrew Duff calls a Remain vote a soft Brexit. The implementation of the February deal will be complex, controversial and protracted because the EU is asked to compromise three cardinal principles of EU law, freedom to move, freedom to work, and nondiscrimination on grounds of nationality. And worst of all is the abandonment of the principle of an ever closer union.

And finally, we note a revealing comment by Simon Wren-Lewis, who still cannot get over the fact the world out there is no longer listening to macroeconomists.

"The waves of economists, businessmen, scientists, university leaders, doctors, historians and more shouting loud that Brexit would be harmful has been incredibly impressive. It reflects the fact that this is not a debate with decent arguments on both sides, but a pretty open and shut case. But I think it reflects as well the nature of the pro-Brexit campaign."

We think it arrogant to argue that an important political issue is ever a "shut case" on the grounds that experts have given an opinion. For starters, many of these experts have vested interests, like economists or other academics in danger of losing their research grants. There would not be a lot of funding for macroeconomic research in Europe without the EU. Secondly, scientific opinion evolves over time, and is subject to sometimes violent shifts, and that is particularly true of economics. And finally, the general public rightly questions the ability by economists to make long-term predictions, especially after the performance of economic forecasts over the last ten years.

The 1990s and the 2000s were the heydays of the economic profession's political influence. Academic macroeconomists were elected central bank governors and finance ministers, while previously their role was mainly to dispense advise. The profession converged towards a new generation of economic models, but one that is structurally incapable of modelling the instability the global economy has experienced since 2008. After a short period of self-criticism the profession has by-and-large returned to the status quo ante.

We do not argue that macroeconomic arguments should be ignored. But they can never be conclusive. It is not surprising that non-economists rebel against them.

We, too, hope that Remain wins, but agree with sceptics like Duff who believe that this will bring no joy. One of the reasons is connected with the previous argument about the role of economics in this debate. The Remain camp failed to make a political case for European integration. The EU as it is projected by them is a very different one than the rest of us live in.

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June 23, 2016

Brexit copycats

The Brexit referendum is emboldening eurosceptics in other countries to propose their own referendums. After the 5 Star Movement's good showing in the local elections in Italy, Beppe Grillo is again talking up the possibility to hold a referendum on eurozone membership, Reuters reports. In the Netherlands, Geert Wilders told Telegraaf in an interview that Brexit would be an incentive for him as well as others to try their own exit referendums, and that even if Remain wins "you cannot put the genie back into the bottle".

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June 23, 2016

The impact of Brexit on Greece

Nick Malkoutzis in Kathimerini looks at the impact Brexit could have on Greece. Not only does Greece stand to lose British tourists and exports to the UK if the British were to vote for Leave. It may also may cause a repricing of risk in the EU that could impact periphery countries like Greece. Athens' main concern, though, is the political impact. A leave vote would not trigger another referendum to get the "right answer" in favour of the EU, like other referendums in the past did. If they Brexit vote were for Leave, this could instead inspire euroscepticism in continental Europe, reducing the chances for more EU integration. The danger for Greece is that this lack of conviction could be reflected in a shift in policymaking that would make life even tougher for any Greek government. And, in the longer term, if Brexit were to happen it would lift a taboo, thus increasing the bets on Grexit happenning. 

Now writing in Macropolis, the same author looks at the uncomfortable parallels between the referendums in the UK and Greece. In both cases "reason has collided with emotion" and there has been a high level of misinformation.  Both the English 'Leave' and the Greek 'Oxi’ campaign had simple messages to convey, and did push emotional buttons rather than elaborating on the details of reality. In both countries this reflects a high level of voters’ mistrust in experts and politicians. According to YouGov, Leave supporters show a sizeable level of distrust, even edging above 80% in one case, for everyone from academics to world leaders. Also in both countries, perception and reality are far apart. In the UK voters tend to overestimate immigration and EU transfers. Recent polls even show that two in five British voters are not aware that MEPs are elected. Greece also has high levels of misunderstanding about the euro and its creditors, with politicians too happy to exploit it for their own purposes. 

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June 23, 2016

Spain's interior minister under fire

A scandal has broken out involving Spain's interior minister Jorge Fernández Díaz, and it appears likely to dominate the last week of campaigning for the Spanish general election. Público, an online newspaper, has been releasing conversations between the minister and Daniel de Alfonso, head of the Catalan anti-fraud office, recorded in the minister's office before the mock independence consultation organised in the November 2014. The two men are shown planning to leak ongoing investigations that could be politically damaging to Catalan separatist politicians, and the possibility of using the prosecutor's office to hide the source of the leaks.

The reaction has been loud, with all three main opposition parties demanding the minister' resignation. One of the arguments made is that the interior ministry is in charge of organising the election in four days' time. The minister denies any wrongdoing and has launched an investigation into how the recordings were made. Mariano Rajoy has come out in defence of his minister, doubting the authenticity of the recordings and calling the whole scandal an election campaign ploy. Fernández Díaz is also the leading PP candidate on the PP list for Barcelona this coming Sunday. 

The Catalan parliament has initiated the process to remove de Alfonso, who defend himself and the independence of the Catalan anti-fraud office. While admitting that the conversations took place, de Alfonso denies any illegality, and further suggests that the police could have bugged his phone in order to record the meeting, which was organised by people in the office of the national police's director of operations. Police unions have also demanded the minister's resignation. El Diario puts the leak in the context of personal tensions at the top of the police hierarchy. Among a group of police inspectors the ministry allegedly organised to generate embarrassing information to use against political opponents.

We don't expect Fernández Díaz to resign before the election, or to give up his seat in the parliament.

The timing of the leak is clearly motivated by the elections, and it is a scandal that the a minister is spied on in his own office. But for years there have been leaking unsigned reports - sometimes fake - from various police units to the press. This has to stop.

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