Brexit. Minimizing the Fallout

It has been 105 days since Brexit crossed the line. Not everyone is convinced, and prominent issues remain largely unsolved.

My biggest concerns are the handling of Northern Ireland in the Brexit process and beyond. But an untidy compromise won the day, and here we are now. Who’s to say ham-fisted diplomacy doesn’t have its place in the modern world?

In 2018, amid these events, I moved to Munich. From today, I estimate that I have had 500 conversations with colleagues and friends from all over Europe about Brexit.

A majority believe Britain’s long-standing economic and political traditions have now come to a sorrowful end.

A minority appear to be more sympathetic and hold “leaving” to be an obvious mistake but expect the EU to welcome back Britain with open arms when doomsday arrives. Others, more optimistically, think Britain is onto something.

But there is no escaping the facts. Brexiteers wanted to leave, and 17.4 million voters backed them whilst the rest of us bowed before the storm.

Interestingly, Brexit appears to have struck a chord with Italian and Spanish persons. My conversations with friends from both nations seem to confer general public opinion. What’s highly interesting is that generally, both view Brexit with some support. Historically speaking, it’s quite a paradox — for Italy in particular.

A few years after Italy joined the EU on the 1st January 1999, economic activity skyrocketed. One would wonder why then, do the Italians sympathise with the Brexiteers?

Although problems predated Italy’s membership in the Eurozone: poor education rates, an ageing population, inactive improvement in living standards, lack of industrial modernisation, and heavy reliance on small businesses, by 2012, Italy gradually became an export-oriented economy. With an export portfolio, any other nation-state would be proud to have at the time, the turnover was significant.

The production of cars, pharmaceuticals, consumer electronics and software, just to name a few, leapfrogged Italy out of temporary debt. But something went astray, and the nation quickly twirled into another recession.

There is no one common cause as to why Italy appears to fall on hard times regularly.

There are numerous variables to consider.

Most certainly, the government’s financial ministration and the Bank of Italy have not covered themselves in glory. The Bank’s attitude towards joining the ECB during the 1950s was one of tolerance and influence in the interests of Europe's revival after two successive World Wars. The Italians, much like other now EU members, treated and framed the currency of the Euro as “hot money”, vital for developing future Euromarkets but not necessarily the best strategy to create robust monetary policies appropriate for Italy’s then-existing situation. The state’s financial machinery crisscrossed itself by other means and has since remained crisscrossed.

A good place to start analysing this in more detail would be the 1936 Banking Law which empowered the Bank of Italy to shape the banking sector in market specialisation (i.e. medium- versus short-term credit) and territorial competence.

After 1945, the Bank of Italy favoured the opening of new branches by establishing regional banks, which would provide finance to SMEs. This meant granting special fiscal regimes and subsidised credit to SMEs and artisan firms, on condition that such firms joined business associations independent from the Confindustria (General Confederation of Italian Industry) and other regulatory bodies.

From the early 1950s, regional institutions specialising in medium-term credit to SMEs were of vital importance.

After the Second World War, this was one of the factors that led to the fast development of Italy’s industrial districts – geographic clusters of small firms, each specialising in one or several phases of the same production process.

Today, it’s a rather different picture as many SMEs have become the first stage in the lifecycle of capitalist firms or have become completely polarised by being independent of the Confindustria and subject to EU regulatory entanglement and internal petty politics.

In short, Italy’s banking system was geared towards meeting the financial requirements of SMEs, not the EU Banking Directive.

Fast-forward to 2020, and a malicious world pandemic has brought most of the world, including the EU, to its knees. Italy’s economic performances are now on the verge of another unmerited windfall.

The International Monetary Fund (IMF) has added more gloom to the doom. The IMF forecasted that by 2024, Italy’s output will still be lower than in 2007. The immediate effects are already visible.

The GDP ratio has inflated rapidly, and like other Eurozone members, such as Spain, after severe pandemic outbreaks, youth unemployment increased, far higher than expected — in Italy as of 2020; the figures were nearly 30%, with the rate expected to increase by 11.6% in 2021.

Often when such financial crises occur, the playbook would recommend reducing interest rates and devaluing the nation’s currency. It’s the oldest trick in the book and practically medieval.

Before EU membership, this was a reasonably brisk exercise. Presently, this is no longer a straight-line decision. Decisions for such matters are decided in Frankfurt rather than Rome.

New financial measures issued in 2021 by Mr Draghi hope to increase Italy’s GDP by 5.7% while the government deficit could grow by 7.1%.

However, these measures will be partially effective and provoke internal conflicts with the nation split on deciding who and what will get a fair share of the surplus.

The sorry state of affairs is rather unrelenting and far removed from Britain’s starry-eyed Brexit operation. Italy has many more reasons to hold extreme doubts about the credibility of the EU project than Britain. Italy appears to be closer to reality. The world pandemic may just be the icing on the cake.

The same also appears to be for Spain, with many Spanish acquaintances describing something similar to me shortly before lockdown restrictions thwarted further discussion.

In Spain, the EU as an economic model still commands emotional support in parts of the country.

Still, other areas have failed to recover from multiple financial crises over the past decades. Like Italy, unemployment remains a huge issue. Since 2013, unemployment throughout Spain has fallen rapidly from 26.9% to just 13.2%. The results are damning. Currently, Spain has the highest unemployment rate of all EU member nations.

For both nations, a cash-flow crisis has become a familiar story to those on the ground. But the “shake it off” mentality only goes so far.

Workers rights in Spain have been relentlessly squeezed over the years, and the talk of Socialism is liable to scale the longer this continues. While in Italy, many of the population's young entrepreneurs and skilful workers have packed their bags to live and work in other Eurozone member states.

My conversations about Brexit with German and French persons have been emotionally the complete opposite.

Although they accept the EU has outgrown itself and demands reform, the EU and Europe’s idea, as a region and a continent, transcends treaties and bureaucracy.

If it weren’t for this perspective, there would have been Grexit before Brexit when Merkel ruled, in 2015, that Germany would take in over a million refugees. Merkel stands by her original decision, and so far, the gamble has paid off. But this wasn't a mere goodwill gesture; this was a desperate diplomatic settlement to avoid deeper political divisions within the EU from becoming even more severe.

Nevertheless, I am starting to roll my eyes at all the cliches and generalisations surrounding Brexit across European Media outlets in particular. No, not all Leavers are ignorant. No, not all Leavers dislike the EU. A majority of people and friends I speak with accept, perhaps too readily, the view of Leavers being hoodlums, with no sense of proportion and long for Britain to return to its romantic past. But this is very naive.

Most Leavers believe Brexit is the right thing to do because they thought at the time, and still do, the EU and the ECB as a failing enterprise. More importantly, they view Brexit as a joint failure of both the British and the EU’s own doing. This is something which they find more worrying than Brexit itself.

There is no doubt that the Leave campaign accommodated and spread lies. The same can be said for the Remainers. But being caught lying, it seems, is no longer a career-ending offence for a politician.

In my view, this distinction is unjustified. The British who turned out to vote did their homework. Some less so than others.

But the British have some of the most advanced Broadcasting Services in the world. Free Speech is central to the whole system. There was high-quality debate printed, televised and listened to for some time. There is a good deal more to this than the familiar cliches spoken of and written about so far around Europe.

At present, I write this as a Remainer. I also believe that Europe, as a civilisation and ideal, transcends borders, bureaucracy and trade deals. I also think London will suffer terribly.

However, from my experiences so far and from numerous conversations I have had in Europe, Brexit may just be a suitable catalyst required for necessary change throughout the EU and ECB.

The regional association we call today the EU remains the strongest and closest inter-state association globally. Paradoxically, it is located in a continent with the most significant degree of political fragmentation. Since time immemorial, no single state or conqueror has been able to unify Europe.

The EU has been a success, but one which has indirectly started to do more damage than good. Unless critical reflection of the EU is accommodated internally, there is only so long the current superstructures of the EU can continue to withstand.

There is no hiding from Brexit and Britain will have to adapt.

Beyond Brexit, Britain will feel the awakened political and legislative trembles of the EU every day.

But to frame Brexit solely as a British problem is wrong. It certainly does not coincide with the many intimate conversations I have had over the past three years with numerous friends from all over Europe.

The internal mechanics of the EU are under immense pressure. This is relatively obvious. It is a genuine issue that ought to be spot-lighted sooner rather than later.

In hindsight, I can’t help but think that the biggest diplomatic mistake made so far was not Britain leaving the EU on sorry terms.

The biggest mistake was and still is the EU’s belief that the EU is perfect the way it currently exists.