Friday, June 24, 2016

Seeking Credibility After U.K. Leaves EU

After England carried a U.K. referendum for independence from the EU, outweighing the pro-EU sentiment from Scotland, both the British government and the EU will have to go through an extended process of rebuilding credibility.

Governance problems in the EU which lend too much influence to multinational corporations ultimately allowed the Leave vote to carry the EU referendum in Britain. There have for years been rumblings of discontent across Europe about the EU’s many concessions to big business. EU leaders who through yesterday felt comfortable in ignoring the problem may now realize they have to do something to reduce the risk of the whole EU splitting apart.

One measure of this is a controversial nuclear plant project in Britain which with EU support was ready to go ahead against local opposition. Now the whole project is up in the air again with financing in doubt and new uncertainty about the demand for the generated electricity.

In manufacturing too Britain will face a period of hesitation from foreign investors. One analyst suggested that Toyota would be less likely to locate a new factory in a post-EU England. It is a far-fetched example that perhaps shows how little impact foreign manufacturing investment has on the British economy. Britain only has to show that it can keep doing what it’s doing to maintain its credibility in the world.

Among the many questions that remain open is the issue of independence for Scotland. The strong pro-EU vote in Scotland highlights how separate Scotland has become from the rest of the U.K. The “better together” meme that narrowly defeated the referendum on Scottish independence rings hollow today now that England has voted directly against the same idea.