British voters triggered a geopolitical earthquake Thursday, as a fed up majority stunned politicians and the media by choosing to leave the European Union in a move commonly referred to as Brexit.
Meanwhile, a top U.S. economist says the move exposes the deep flaws of the EU, positions the British economy well in the near future and will likely encourage other nations to follow suit.
Polls suggested the referendum would be a close vote and Thursday’s results reflected that. Investors clearly did not believe voters would cut ties to the EU, as the Dow Jones Industrial Average plummeted 611 points on Friday and other world markets did much the same.
While politicians and economists were wringing their hands about the economic impact on the UK and world markets over the short and long term, a top American economist believes voters did the right thing.
“The biggest loser from Brexit is not Britain. It is the European Union. Once Britain declares independence, then other countries are going to want to declare independence too. They don’t like being governed by Brussels either,” said Diana Furchtgott-Roth, a former chief economist for the U.S. Department of Labor who is now a senior fellow at the Manhattan Institute.
Brussels, Belgium, is the headquarters of the European Union.
Furchgott-Roth says the EU is a proven failure.
“I think the whole system, where you have unelected bureaucrats in Brussels controlling the individual countries, clearly is not working. Rather than pointing just to the structure, just look at the EU growth rate. It has some of the most educated people in the world and it is growing at about one percent,” she said.
Youth unemployment is especially bad, with some nations seeing rates as high as 50 percxent. Furchtgott-Roth says the EU is in rough shape.
“By many, many measures it is worse off than the United States or other countries or even Britain,” said Furchgott-Roth.
She says the EU started off fine but eventually began imposing far too much on member nations.
“It started off as a free trade zone. I think that was fine. When it gets into regulatory harmonization and tax harmonization, countries think that is too invasive. It really needs to rethink how it operates in order to make itself more attractive to it’s members,” said Furchtgott-Roth.
Economics wasn’t the only issue. Legislation passed by member nations has to receive approval from the EU before taking effect, which many see as an erosion to national sovereignty. There are also major concerns in Britain and beyond about the EU’s ability to put forth a counter-terrorism strategy or stem the tide of Middle East refugees.
Many liberals see the Brexit as especially damaging to British trade. Furchgott-Roth says it’s exactly the opposite.
“China is apparently very happy with Brexit. They want to sign deals with the United Kingdom. Different former commonwealth countries such as Australia, New Zealand, Canada, also want to be signing deals. People are going to be waiting in line. They are waiting in line to sign trade deals – to have the advantage of Britain as a market for their products,” said Furchtgott-Roth.
If this is so good, why did the markets recoil in horror on Friday? Furchtgott-Roth says the reaction of investors was expected because the election results were not.
“Investors don’t like uncertainty. They didn’t see this coming. They were brainwashed by the more socialist elements in Europe and in Britain, saying that this could not occur and that the British would vote to stay in the EU. Now they’re surprised. No one likes uncertainty or surprises. Hence, the falling market,” said Furchtgott-Roth.
She adds that the biggest mistake Britain can make now is waiting for new leadership elections before embarking on new trade deals, believing the sooner those are established the better so certainty can emerge again.
