Nexit: Not a good idea!

On 23 June 2016, a slight majority – 51.9 percent – of the voters in the United Kingdom (UK) decided to withdraw from the European Union (EU). Approximately 33.6 million citizens casted their vote, out of 46.5 million persons who had registered for this ‘referendum on the issue of the membership of the EU’. At the time, the voting-age population consisted of 51.4 million citizens. Somewhat more than 17.4 million people – 51.9 percent – voted in favour of a so-called ‘Brexit’, the now household name for the departure of the UK from the EU. The number of people that wanted to remain a member of the EU amounted to somewhat more than 16.1 million. This boils down to 48.1 percent. Notably, the votes of around 25,000 citizens were either blank or invalid. Why does mentioning all these numbers seem necessary?  Well, the figures above demonstrate that 33.9 percent of the potential electorate has been decisive for this outcome, voting in favour of leaving the EU, while 31.4 percent voted against this dramatic step.  One should keep in mind that 9.5 percent of the voting-age population did not register, for one reason or another, while 28.8 percent of the registered voters did not show up. In summary, slightly more than one third of the voting-age population determined that the UK are to depart from the EU. In London, Northern Ireland and Scotland, the majority of the voters wanted to stay in the EU, in England – apart from London – people wanted to get out of the EU. Commentators often indicate this as ‘a country divided’.

The short-term impact of the Brexit decision was better than many pundits expected. However, punditry in economics seems to be hardly superior to punditry with respect to professional sports. The jury is still out on the verdict whether this is due to either the immense degree of specialization in the academic world, or to the well-developed self-complacency that features some self-declared experts, or to a combination of both. Alternatively formulated, some experts lack a helicopter view, others suffer from extreme self-confidence, while some pundits exhibit both of these features. In my view, the UK decision to leave the EU was not a very wise one, at least not from a medium- and long-run perspective, but nobody needs to take the opinion of a rather obscure soccer economist from the southern part of the Netherlands too seriously!

In the Netherlands, two parties currently represented in the Dutch House of Representatives propose a referendum on the issue of the EU-membership. First, the Party for Freedom (PVV, Partij Voor de Vrijheid) wants to leave the EU, and it wants to exit as soon as possible. The PVV is a one-man-band, run by Geert Wilders (1963), a HAVO-graduate from Venlo. His viewpoints on, for example, bureaucracy and migration sharply contrast with the current policies and practices of the EU. Second, the Forum for Democracy (FvD, Forum voor Democratie) argue that this EU is inevitably going to become the Federal Republic of Europe, with little or no room left for the nation-states. The FvD is also essentially a one-man-band, run by Thierry Baudet (1983), who wrote a PhD thesis on ‘the attack on the nation-state’ half a decade ago. The leader of the FvD considers himself as the most promising young intellectual of the country, given the number of books that he has already written. Baudet started his maiden speech in the Second Chamber of the Dutch parliament in Latin. Therefore, it is somewhat surprising, that he often seems to ignore the famous ‘multum ……, non multa’ advice of Plinius Secundus (and of modern academia, as we saw above). In summary, Baudet, a politician of the intellectual type, and Wilders, a streetwise political figure, share more or less the same opinion on what they often refer to as ‘Europe’. They are member of different generations, while their arguments are sometimes quite different, especially concerning the degree of sophistication. Other political parties in the Netherlands are often quite critical about the current state of the EU, but they do not strive for a Nexit.

Would a Nexit be good for the Dutch economy? Sorry, I have to apologize, but answering this question is way beyond my competence. The famous economist Richard Baldwin once argued that a full-fledged analysis of leaving the Eurozone (!) requires a thorough knowledge of macroeconomics, international economics, banking in Europe, private law, European law and European politics. Not too many people have collected all these competences, and I am certainly not one of them. Is this the end of my contribution? No! In the remainder of this article, I will try to present two arguments for a sustained Dutch membership of the EU. Thereby, I will assume that leaving the EU also means leaving the Eurozone. Does this assumption hold true? I so not know, but I already warned you, I am not an expert in European law at all.

The first argument follows from the Dutch economic policy in the last few decades. First, let us consider monetary policy. Some commentators argue that we should take matters in our own hands, instead of leaving it to the European Central Bank (ECB). However, coupling the former Dutch guilder to the (West-) German Deutschemark has contributed substantially to price stability, but also to economic growth and relatively low unemployment between the late 1970s and the introduction of the euro (1999). Alternatively formulated, the Dutch central bank has abandoned the possibility to conduct an independent monetary policy more than three decades ago. This has been quite beneficial for our economy. The euro may have some disadvantages, but a single currency that has to ride the waves in the economic and political turmoil of this era might be a rather risky project. Therefore, it seems hard to understand those people who argue in favour of such a policy.  Second, the Dutch economy is the textbook example of a small, open economy. The degree of openness, the ratio of the sum of exports and imports to GDP, is rather high. Trade is of utmost importance for the Dutch economy.  Therefore, it seems rather unwise to depart from an internal market that has brought the Dutch citizens so much welfare. Dutch politics has always aimed at free international trade, not at protectionism. A ‘Nexit’ would be a firm step backwards.

The second argument stems from the loss of influence that will probably result from leaving the EU. Notably, the Netherlands, albeit a rather small country, has been one of the cornerstones of European cooperation after World War II. Already in September 1944, we were one of the founding members of the Benelux (with Belgium and Luxembourg, obviously). Less than seven years later, on April 18, 1951, we signed the Treaty of Paris, to found the European Community for Coal and Steal (ECCS, Europese Gemeenschap voor Kolen en Staal, EGKS), together with France, Italy, West-Germany as well as the other Benelux-countries. The ECCS took off in 1952. The same sextet of countries founded the European Economic Community (EEC, Europese Economische Gemeenschap, EEG) by signing the Treaty of Rome on March 25, 1957. The EEC started on January 1, 1958. We remained a loyal member when the EEC integrated into the ECs and when the latter turned into the EU, owing to the Treaty of Maastricht, in 1992. More and more countries joined these organisations. The first entrants were Denmark, the Republic of Ireland and the UK, who accessed ‘Europe’ on January 1, 1973. Therefore, one should note that the British have not been there from the very start, in contrast with the Netherlands.

In my view, a Nexit, or even a referendum on this issue, would deal a serious blow to the whole project that commentators often idicate as ‘Europe’. If a country that enjoys so many advantages decides to say goodbye or even just considers it, this might trigger some other countries to do the same. Now, continental Europe is facing difficult times. In the next four years, ‘America first’ will be the leading principle of the US government, certainly as long as Donald J. Trump will reside in the White House. The former superpower Russia has returned as a self-confident player on the world scene. The behaviour of the Russians, both in the Middle East and on the Crimea, is exemplary. The UK is about to leave the whole project ‘Europe’. The last thing that the EU currently needs is one of the founders and benefiters departing as well. If we would do so, we are probably going to damage our relations with, primarily, France and Germany very seriously.

In conclusion, the UK decided to leave the EU, a decision backed only be a minority of the voting-age population. Many of those who stayed at home may have regretted their electoral inactivity afterwards. Some politicians in the Netherlands plead in favour of a Nexit. On the one hand, the populist Wilders bases this viewpoint on his apparent dislike from the migration policy of the EU and the European type of bureaucracy. On the other hand, the intellectual Baudet disagrees with the presumed decline of the nation-state. A cost-benefit analysis of a Nexit requires an enormous expertise in many fields. Two arguments against such a Nexit follow from economic benefits and from avoiding loss of international influence. Alternatively, the EU has boosted our prosperity, while we do not want to become a pariah on the international political floor.