Brexit and the conceptual crisis of modern capitalism

Conference: Cambridge & Brexit: Mapping an Uncertain Future, Cambridge, 24 February 2017

Author: Nora Kalinskij

Abstract: This section of the The Cambridge Brexit Report discusses two political economic challenges that Britain faces today. First, it diagnoses a conceptual crisis of the contemporary economic system. Second, it addresses the strategic choice that Britain faces in the aftermath of Brexit between two economic models: a trading and industrial power or a financial power. The full report can be found at: https://issuu.com/cambridgebrexitreport/docs/00_the_cambridge_brexit_report_6352c4231b66f1
Brexit and the conceptual crisis of modern capitalism (PDF Download Available). Available from: https://www.researchgate.net/publication/316789149_Brexit_and_the_conceptual_crisis_of_modern_capitalism 

Mr. Macron – a pyrrhic victory for the EU?

Mr. Macron is likely to push for the revival of the German-French axis inside the EU. One of the central aims of this dual leadership will be European security integration. Security is at least in this case a two-headed entity. On the one hand the challenge of uncontrolled refugee flows will be central to Mr. Macron’s agenda because of the high risk of terrorism in France. On the other hand, under his leadership, Russia will continue to be pointed to as a major threat for Europe. Sanctions will be maintained as a demonstration of political will, but also as a convenient policy for bringing EU states together against a common challenge. With the departure of Britain from the EU, France will remain the only state capable of building a basis for further military and intelligence integration. Yet success is far from guaranteed, as it requires deeper integration moving towards political union, which in itself is problematic, as explained below. 

Considering Mr. Macron’s pro-European positions, he will likely attempt to salvage the euro. This, however, is likely to prove a failed battle for the following reasons: 

  1. The current eurozone incrementally faces structural problems due to the diverging economic models of Northern economies, based on the export of high-added-value products and Southern economies, based on low-added-value products and tourism from the north. Southern economies, before their integration into the eurozone, were dependent on domestic demand stimulation through expansive welfare and subsidy programs. Since their accession to the eurozone, they have become increasingly dependent on cheap credit from Northern states to stimulate domestic demand, in a situation where devaluation was no longer an option. It is difficult to envisage how Southern countries in the eurozone such as Spain or Italy may move beyond this credit-based economic stimulation model, considering the type of goods and services that drive their economies. Though the the bulk of their debt was accumulated in the period between the collapse of Bretton Woods and the advent of the euro, today’s precarious sovereign debt situation in Southern countries and their dependence on Northern credit to keep their economy running, endanger the stability of the entire eurozone. These issues are unlikely to disappear in the foreseeable future. To them must be added Eastern members’ considerable dependency on EU structural funds. The structural divergences between states in the current eurozone architecture render the common currency unstable and unreliable to deal with economic crisis, as was demonstrated in 2008.  
  2. The structural problems of the eurozone crisis may be addressed through full economic union, which includes a fiscal union. This step would increase coherence of economic policies within the eurozone but is unlikely to be attained without a full political union. This, in turn, is highly unlikely considering that it would entail the de facto demise of most national elites in Europe, who cannot all simultaneously be integrated into a federal elite. In case of a full political union in the EU, most national elites will therefore lose power. Since full political union would dependent on the agency and willingness of these same elites, such an outcome is highly unlikely.

In the light of this analysis it is difficult to envisage any policies that Mr. Macron would adopt that would, indeed salvage the euro without running into unsurmountable challenges. 

Mr. Macron’s attempts at greater integration of the EU, and those to revive the German-French axis will only kindle support for anti-integrationist parties at home, even more so considering 1) the unlikely tangible improvement in the French economy over the next five years in relation to the eurozone crisis, 2) the feeble concrete success his European integration policies may achieve in the period of 5 years and 3) the continued inflow of refuges and economic migrants into France with little restriction. 

The election of Mme le Pen may actually have been a better outcome for supporters of EU integration, in the long-term perspective because 1) she would face a cordon républicain in the parliament which would considerably hamper her projects. 2) In order to implement policies, she would therefore have to water them down and compromise with the political establishment. 3) If she would refuse to do so, the government would face a deadlock. 4) In both cases, her voters would be gravely disappointed by her performance. 5) Support for a mainstream perceived as more ‘competent’ would actually be galvanised at the next election. 

As it now stands, support for Mme le Pen and Mr. Mélenchon is only likely to increase over the next five years as Mr. Macron struggles in a move towards European integration. 

The uncertainty of Mr. Macron’s position is further heightened by the possibility that he may not obtain a working majority in the parliamentary elections next month. If so, he will have to face challenges not only from the Mr. Mélenchon’s and Mme. le Pen’s parties, but also, importantly, from the Républicains. In order to retain voter support and win votes back from the National Front, the Républicains will have an electoral strategic interest in being a vocal opposition party in the next five year. Mr. Macron is in a difficult situation to negotiate the forming coalitions with his political rivals due to the apparent malleability of his program, which his benefited him electorally, but will probably be a challenge to gain the trust of other political factions. Because of the flexibility of his program, the latter are likely to doubt how closely he is likely to keep coalition commitments

Considering these challenges, it is highly uncertain whether the revival of the French-German axis will be lasting. With results slow to come, personal relations between the French President and the German Chancellor may well deteriorate. In addition, Mr. Macron is likely to advance the interest of French business, which are not necessarily aligned with those of German counterparts. 

Solving incoherence within EU integration by creating a multi-speed Europe is advanced by some as a solution but will unlikely be greeted well by states which will be cast out of the ‘core’. States classified in the ‘slower-speed’ categories are likely to be perceive this system as a challenge to the EU’s principle of equal cooperation. A multi-speed solution may also reinforce the idea of the EU as an empire, widespread among populists. In this line of thinking, the ‘fast lane’ states will be portrayed as a metropolis and the ‘slower-speed’ states as colonies. Though this comparison is unlikely to be adopted by the mainstream, it will certainly shape the political debate in numerous member states against the proposal of a multi-speed Europe. 

The victory of Mr. Macron in the French presidential elections is seen by many pro-Europeans as a sign of hope. Yet whether this hope will transform itself into concrete achievements is highly questionable. There appears to be a strong chance that the presidency of Mr. Macron will further empower forces of disintegration within the EU. 

Some thoughts: Where does this leave Britain?

A worsening situation in the EU may actually bring certain advantages to Britain. For example: 

  1. At home, it will dampen enthusiasm for the EU, and contribute to keeping at bay the looming threat of a successful Scottish referendum.
  2. Were the EU to break apart this will cause geopolitical chaos for a while on the continent. Yet it might be an opportunity to seize for divide et impera. For a political economy standpoint, though this may mean more treaties to negotiate in the absolute, Britain may achieve more advantageous free trade deals with closer political partners in northern Europe and with states in Eastern Europe, in particular with the Baltics, that strongly depend on British military support, than with the EU as a whole during the Brexit process.