BREXIT Referendum and Mr. Boris Johnson’s Immigration Story

Prof. Dr. Paul J.J. Welfens, President of the European Institute for International Economic Relations (EIIW) at the University of Wuppertal; Professor in Macroeconomics and Jean Monnet Chair in European Economic Integration at the Schumpeter School of Business and Economics, University of Wuppertal and Research Fellow at IZA, Bonn; Non-resident Senior Fellow, AICGS/Johns Hopkins University, Washington DC. EIIW 2015 = 20 years of award-winning research

(www.eiiw.eu) welfens@eiiw.uni-wuppertal.de    BrexitWelfensEIIW2016feb, February 23, 2016

BREXIT Referendum and Mr. Boris Johnson’s Immigration Story

The EU summit in Brussels has brought a compromise which gives new priviledges to the UK – the British conservative government was mainly interested in being allowed to postpone the access by immigrants to British social security services for about four years and not to face EU pressure on the UK to join the euro area in the future. Prime Minister Cameron has decided, along with his government, that the compromise is good enough to call for a referendum on June 23 and he has recommended that the public vote for the UK to remain in the EU. Mr. Boris Johnson, the conservative Mayor of London on the other hand has declared that he will recommend voting for BREXIT, the UK’s leaving of the EU; the anti-immigration and anti-EU rhethoric of Mr. Johnson is part of his ideological voting perspective. He, as Mayor of London, has been unable in the EU’S richest capital city to solve the problem of helping keep poor eastern European immigrants from sleeping out in Hyde Park (and other parks) overnight and to either travel home or to find a job in the greater London Area. Clearly, many people in London, and also many tourists, did not enjoy the scenes of stranded immigrants from eastern European, Turkey and other countries. Mr. Johnson’s anti-immigrant and anti-EU attitude is strange for many reasons – one of his two grandfathers, namely Osman Ali, fled from Turkey to London many decades ago; interesting, isn’t?

If he does not want to accept, at very generous terms, migrants from EU partner countries, why would EU citizens continue to consider flying to London and investing in the British capital? Also, people in continental EU countries should remember that it was UK financial market deregulation (emerging under the pressure of irresponsible big banks in London etc.; and US financial market deregulation) which brought about the massive transatlantic banking crisis that has undermined growth to a large extent in almost all EU countries. Northern Rock was facing a bank run long before the collapse of Lehman Brothers, and many big London banks were involved in cheating on the Libor interest rate and in many other deals with millions of clients. It seems very odd that Mayor Johnson now takes this anti-EU attitude.

Politicians like Mr. Johnson will lead the UK and Europe back to the 19^th century and sooner or later military expenditures relative to GDP would be back to about 4% – the relevant figure around 1900 for the leading European countries; more than twice as high as the level in 2015 and, in the historical perspective, during the period leading to the deadly World War I. The British people will make their decision independently in the referendum, but the outsider continental view favored here is to say that the UK would be very welcome to remain in the EU; at the same time, however, double-speaking politicians such as Mr. Boris Johnson will face strong opposition from millions of responsible European citizens. It is strange in any case that UKIP, with three million votes at the national election, could effectively hijack the Conservative Party in the UK and start a political blackmail maneuver against 450 million EU people on BREXIT (explanation to follow…).

Additional reflections from my January 2016 contribution

In the UK there is a long-standing debate about the option of leaving the European Union – as announced by Prime Minister Cameron there will be a referendum on BREXIT in 2016. In sections of the British press there is a debate which would seem to suggest that the BREXIT topic is a kind of rational political question (see, for example, the Economist: interview with the pro-BREXIT activist Dominic Cummings on January 21, 2016). The truth, however, is that the BREXIT question has become part of the agenda of the British government – and of that of the Labour Party – as a direct consequence of UKIP’s election victory in the European elections of 2014: only due to UKIP did the BREXIT emerge as a topic for discussion. UKIP’s No. 1 position in that election was as remarkable as that of the Front National in France and the strong showing of the populist right-wing party AfD (Alternative für Deutschland) and all three are reflecting nonsense results related to a European vertical political architecture which stimulates voters to vote for small radical parties at European elections. In Germany the Forschungsgruppe Wahlen – a leading voting analysis think-tank – has analyzed voters’ behavior and finds the following result (axplained by a representative of Forschungsgruppe Wahlen in Düsseldorf at an higl-level meeting of experts from academia):

• when asked about relevant topics at a local, regional or national government level voters have a clear view about the respective issues. However, when it comes to European elections voters have no clear idea about the relevant topics at EU level – since the EU expenditure-GDP ratio is so ridicously low (1%; 1/9 of that of the US at the federal level). As a consequence voters are inclined to vote on an emotional basis and to actually prefer small radical parties which normally do not enjoy high voters’ shares at the national level. With the financial rewards obtained for every vote received at the European level these radical populist (often right-wing) parties can then invest in national political campaigns. Thus the strange vertical political architecture with the mini-role of supranational government – defended by many German and British politicians under the headline of “subsidiarity” – has contributed to an ever-declining voter turnout at European elections (with a minor exception in 2015) and an ever-increasing share of anti-EU radical populist parties. This is not to say that one cannot find crucial points of inefficiencies and political contradictions in the EU, but the anti-EU sentiments that have grown over decades are largely the artificial result of a contradictory and inefficient political vertical architecture in Europe. Had the supranational EU level – in line with the economic theory of Fiscal Federalism – control over part of infrastructure expenditures, military expenditures and the unemployment insurance, the voter turnout for the European Parliament would be much higher, fiscal policy much more effective, the political competition in Brussels more intensive and the role of UKIP, Front National and AfD effectively negated. Mr. Cameron would never have considered the issue of a referendum on BREXIT the debate over which will largely emphasize the allegedly too large a role played by the EU and that immigration into the UK is a major problem. This is the paradox of the insufficient EU budget and could lead to a truly European political tragedy from which only China, Russia and some other countries will benefit. Is this what people – rational British voters – are really interested in?
• BREXIT will destabilize the EU, weakening the role of traditional liberal economic countries such as Germany, Denmark and the Netherlands. With Germany increasingly destabilized over time – and struggling to come to terms with the refugee wave that is bound to further reinforce right-wing populist parties in Germany – it will not take many years until there is full EU disintegration plus economic stagnation; and Germany, France, the UK and other countries will return to a stark agressive political rivalry that leads Europe back to the period before 1914. This includes defense-GDP ratios which will increase from below or close to 2% to about 4%, just like in the decade before World War I. Is this what is in the interest of the UK? The artificially strong UKIP has imposed on the British political system an artificial referendum that under normal rational circumstances – in a US-type European Union – would never play any role on the political agenda.

Does it therefore make sense to consider the elegant pros and cons of an artificial, irrational referendum on BREXIT? Not really. There is a lack of political and economic enlightenment in Europe and the potentially rather powerful European Union might face a sad long-term decline and disintegration from which primarily the autocratic and anti-democratic countries worldwide will benefit – with Russia and China to be the leaders in this regard. Disintegration of the EU will clearly undermine the integration prospects of ASEAN and MERCOSUR and the whole concept of regional integration and peaceful economic cooperation. The British people has made the UK a pioneer in democracy, liberal markets and free trade plus the rule of law. An unreflected UK debate on a BREXIT referendum would endanger half a millenium of political progress and rational decision-making. Beyond the UK referendum there are several questions to be analyzed:

• How can the EU successfully cope with the humanitarian challenge of the refugee crisis? The rather silent role of the UK in this field is strange.
• How can a more effective and efficient vertical integration generate more benefits for the EU member countries and help to bring about a more intensive political competition process?
• How can the liberal forces of the EU be reinforced and inconsistent minimum wage policies – as in France and Belgium – be avoided in the future?
• How EU integration become remain a role model for integration around the world?
• What is an adequate role for the principle of subsidiarity in the EU?
• Why are key facts on the success side of immigration – for example the more than 7 million new jobs created by immigrant entrepreneurship – so poorly known in the British public?dd