From the possibility of GREXIT to the reality of BREXIT, four years that shook the European Union to its foundations

In May 2012 this blog predicted that Greece would leave the 'euro zone'. Four years later Greece remains very much part of the 'European Project' whilst the United Kingdom prepares to trigger 'Article 50' and head for the BREXIT!

This blog was launched in May 2012 and, in those early days. Greece led the daily headlines. The Greeks were looking for their second bailout in two years and the economy was in a mess. Many commentators predicted that Greece would soon leave the 'euro zone', and perhaps the European Union itself. Despite the usual complaints from some Conservative MPs it was assumed that the United Kingdom was very much a long term member of the Union. In January 2013 that assumption was 'turned on its head' when the then Prime Minister, David Cameron, announced his intention to legislate for (in the event of a Conservative majority government) an 'in/out' referendum on whether the UK would remain a member of the European Union. In May 2015 (against all predictions) the General Election produced the first Conservative majority government since April 1992. David Cameron kept his promise and, (following renegotiation of the terms of UK membership of the EU), a referendum was held on 23 June 2016. Against all predictions the electorate voted by 52% to 48% to leave the European Union. Cameron resigned and was replaced by Theresa May and the the new administration is now on course to trigger Article 50 of the Treaty on the Functioning of the European Union (Lisbon Treaty) and thus begin the legal process of the United Kingdom ceasing to be a member of the European Union.

Thus from the possibility of GREXIT (remember this phrase?) we have, in four years, moved to the reality of BREXIT. At the conclusion of this decade the United Kingdom (assuming no delays) would have exited a major international organisation and brought to an end almost fifty years of participation in the so called 'European Project'. Greece appears secure in the 'euro zone' (though the Greek economy is still arguably a 'basket case') and the aim of the remaining twenty seven member states of the European Union is to proceed to 'ever closer union' albeit without the contribution of the United Kingdom. How and why did we get here? This blog post aims to assist the reader in the seismic shifts that have taken place in just over four years.

The original posts

It is worth revisiting what this blog stated back in May 2012. Here are the posts.

Grexit: what a Euro mess!

The future of the Euro

Four years on

This blog post looks at where we now are, over four years on, and asks the question why GREXIT failed to materialise whilst BREXIT is now a reality. It will be argued that the European Union was determined to maintain the integrity of the 'euro zone' regardless of the consequences to the Greek economy. The decision by David Cameron, in January 2013, to announce an intention to legislate for an in/out referendum was reckless. Contrary to expert opinion the outcome (a vote to leave) was always a possibility indeed it was likely as ordinary voters (especially outside London, Scotland, and Northern Ireland) had become disaffected with political elites and this had not been recognised. Although notions of national sovereignty and national identity were contributing factors to the vote to 'leave' immigration was by far the key single issue. which determined the outcome.

The GREXIT that never happened

Cast your mind back to mid 2012. All the news was about the impending departure of Greece from the 'euro zone'. The Greeks were negotiating their second bailout and the elections were predicted to bring the far left to power; who were making clear that they were not interested in the draconian terms on offer by the European Union,. the European Central Bank, and the International Monetary Fund ("the troika"). Civil unrest in Athens was a daily occurrence, and most European media outlets openly speculated about the imminent ejection from the 'euro zone' of Greece, possible contagion to countries such as Italy and Spain, and even the very real possibility of Greece leaving the European Union. Some went as far as to speculate about a military coup. The term GREXIT entered the popular lexicon.

The elections of 2012 resulted in New Democracy taking power. This centre right party was supportive of the austerity measures demanded by "the troika" and accepted the tough terms of the second bailout. At this point the immediate crisis was averted and talk of Greece leaving the 'euro zone' or the European Union abated. Early 2014 was to lead to a third bailout and yet more talk of Greece being ejected from the 'euro zone'; however, the real crisis was to come in 2015. Following early elections the far left Syriza led by Alexis Tsipras came to power on a manifesto to renegotiate the terms of the bailout and demand less austerity. This demand to reject austerity was to be reinforced by a referendum in July 2015 in which the Greek electorate voted to reject bailout conditions. Despite this rejection the bailout conditions were eventually accepted and talk of Greece leaving the 'euro zone' has again abated.

Was this a rejection of the democratic will of the people? Even as far back as November 2011 a government, led by George Papandreou of PASOK (centre left party), was effectively forced from office when it tried to call a referendum on the original bailout terms. The Papandreou government was replaced by a technocratic government led by Lucas Papademos. Ben Crum of the Department of Political Science of the University of Amsterdam argued in his paper, "Saving the Euro at the Cost of Democracy", that the present course towards executive federalism could be justified for preventing euro dissolution and recognising the value of national self-government; however, it threatens to come at a democratic price. Judicial Cat takes issue with this analysis. Executive federalism and national self government are two different concepts. The collapse of the Papandreou government in 2011 and the effective ignorance of the referendum of 2015 are two examples of were national self governance has been dismissed in favour of measures (unsupported by the electorate) put in place to protect a supra national currency. And this is exactly why Greece did not leave the 'euro zone' and GREXIT remains but a hypothetical concept. The protection of the 'euro zone' was put above all other outcomes. Greece was never going to be permitted to leave as to do so would mean that the 'elites' had 'failed'. The 'euro' was to be permanent and if one nation could leave then this opens the 'flood gates' and leads to the possibility of more important economies following them. The threat of 'contagion' was too much and had to be averted. Therefore the 'elites' of Europe did everything up to and including ignoring the will of the electorate, and forcing democratically elected governments from power, to protect the so called European project.

Although Judicial Cat believed Greece would leave the 'euro zone' ultimately, with hindsight, it is possible to argue that Greece was never going to be allowed to leave, for fear of the precedent it would set.

The fear of a hypothetical GREXIT led to the 'elites' of Europe ignoring the now very real reality of BREXIT.

Why Cameron granted the referendum

Since the early 1990s the Conservative Party has been divided over the merits of the United Kingdom being a member of the European Union. Arguably disagreements over Europe led to the fall of Margaret Thatcher from power. The government of her successor, John Major, was paralysed by arguments over Europe and especially the ratification of the Treaty on European Union ("TEU") (Maastricht). Central to "TEU" was the introduction of European Union Citizenship and, along with the completion of the single European market, complete freedom of movement for European Union citizens. At this time the European Union (European Community as it then was) consisted of twelve nations. Expansion to fifteen nations occurred in 1995; however, it was the expansion in 2004 and the accession of eight countries from the former eastern block that radically altered the public perception of the European Union, and which would lead twelve years later to the decision of the UK electorate to vote to leave. 

David Cameron became Prime Minister in 2010 and had to find a way of containing the discontent of his anti European Union MPs, and the surge of the United Kingdom Independence Party. Public concern over unlimited migration was also becoming an issue with arguments about access to public services, and the alleged driving down of wages in the lower skilled sectors of the economy. To combat these concerns Cameron announced in January 2013 that, in the event that the Conservatives formed a majority government after the scheduled general election of May 2015, a renegotiation of the terms of UK membership of the European Union would take place followed by an in/out referendum by the end of 2017. The May 2015 general election returned the Conservative Party to power with a majority for the first time since April 1992. Cameron now had to make good on his promise.

Renegotiation of a not so impressive nature

Cameron secured next to nothing with his renegotiation. He went into the negotiations looking to curb freedom of movement, access to benefits, and protection from further 'euro zone' integration. What he got was no concessions on freedom of movement, an emergency break on access to benefits that appeared so complicated that many felt that the The Court of Justice of the European Union, or the European Parliament, could block it in any event, and some loosely defined 'protections' for countries outside the 'euro zone'. In summary critics of Cameron were not impressed. Yet, he went into the referendum campaign with all the polls, and most experts predicting that the 'remain' argument would win, and win comfortably. Apart from a 'blip' in early June 2016 the polls consistently favoured 'remain' and on referendum night itself, 23 June 2016, early predictions suggested 'remain' had won by as much as ten percent. On the morning of 24 June 2016 'leave' had won by four percentage points. The United Kingdom was now heading for BREXIT. So why were the pundits wrong and why does the political career of David Cameron now lie in ruins.

Not all 'experts' predicted a win for 'remain'

Denis Macshane, a former Member of Parliament, and Minister for Europe in the Labour government, wrote a book entitled 'BREXIT How Britain Will Leave Europe'. Published in 2015 Macshane argues that 'different tributaries, political, economic, much of the press, cultural, identity, and historical' will come together in 'one power confluence' that will lead to the UK leaving the European Union. Macshane also argues that a growing dissatisfaction with political elites merged with the question of Europe. Crucially Macshane suggested that in order to win the referendum Cameron would need to secure a major concession from the European Union, which would involve some control of entry of EU citizens who seek to live and work in the UK. Macshane was most accurate with his assessment of the arguments. And it is worth noting that Macshane is a well known supporter of the European Union. Simon Tilford of the Centre for European Reform in a web pamphlet entitled 'Britain, immigration and Brexit' (published in December 2015/January 2016) was categorical; namely, if the UK voted to leave the EU it would be because of hostility to immigration. So here were two experts who, it turned out, called it absolutely right.

Sovereignty influential, but immigration determined the result

Judicial Cat argues that the pundits got it wrong because they could not see outside of London. Within England & Wales only London (by region) voted to remain part of the European Union. London is not representative of England & Wales. Those voting in the provinces were fed up of uncontrolled migration, their fears that wages were being driven down, and access to public services curtailed. There was a residual discontent that so called 'elites' were not taking such concerns seriously, or were simply dismissive of concerns relating to migration as 'racist'. Arguably there was a desire to teach such 'elites' a lesson and, to this end, the electorate engaged with the catchy phrase employed by the official leave campaign, 'Vote Leave and take back control'. Concerns about national sovereignty were influential but ultimately the 'voter in the street' was less concerned about academic arguments concerning European institutions rather than the very visible presence of perceived uncontrolled migration affecting their everyday lives. Experts such as Macshane and Tilford saw what was coming. Exit the M25 area and the reality was that the electorate was overwhelmingly hostile to the European Union. Scotland and Northern Ireland were special cases in terms of access to European funding (Scotland and Northern Ireland) and the special relationship between Northern Ireland and the Republic of Ireland. The electorate wanted to see an improvement to their own lives and felt the only way to achieve this was to seek a referendum result, which arguably would enable the UK to take control of who had the right to live and work in this country.

Conclusion

This blog has argued that the hypothetical of GREXIT became the reality of BREXIT because so called elites disregarded the concerns of their own citizens. In the case of Greece the clear decision of the electorate to renounce austerity was disregarded in favour of continuing the 'euro zone' and increasing integration further. Governments were replaced and decisions of elections ignored. In the United Kingdom the concerns of the electorate outside London were ignored, ridiculed, and dismissed as 'racist'. In Greece the 'elites' succeeded and got their way. The United Kingdom asserted its sovereignty and the electorate sent a very clear message to the European Union that the electorate could be ignored no more. That is why, four years after Judicial Cat predicted GREXIT, instead we have the reality of BREXIT.  

 

The future of the Euro: - it could all be down to a football match!

Greece to return to the Polls on 17 June: - the day after Greece v Russia in Euro 2012

So it's official, Greece will return to the Polls on 17 June in an attempt to get around the impasse created by the inconclusive general election of 6 May. According to the Sky News Economics Editor, Ed Conway, the latest opinion polls put the "far left" anti-bailout party Syriza at 20.3% ahead of current leader New Democracy (a mainstream party) at 14.2%. If the polls are borne out next month then Greece will be irrevocably on a collision course with the Chancellor (who must be obeyed) of Germany, Angela Merkel. Most commentators then predict that bail out funds will cease and Greece will finally ditch the Euro.

It could all come down to a football match

Greece are scheduled to play Russia in the European Championship finals group stage in Warsaw the night before on 16 June. This fact would not have escaped the attentions of those who are responsible for the scheduling of the election. Apparently the poll could have been held on 10 June. This is a serious point. It is well known that a "feel good" factor benefits incumbents going into elections. Conversely incumbents can expect to reap the wrath of the electorate if sudden "bad news" is received in the immediate period before the election. In the case of Greece consider the "mainstream" parties of Pasok and New Democracy to be the incumbents for the purpose of the forthcoming repeat election.

Two examples: - United Kingdom General Election of 1970 and Spanish General Election of 2004

There are two major examples of "events" perhaps influencing the outcome of elections in modern times. In both examples the incumbent governments (Labour in the case of the UK and the People's Party in Spain). where unexpectedly "kicked out" of office. Of course the events I am about to describe are of a different magnitude in each example. In the UK a football match was influential; however, in Spain it was the deadly terrorist attacks in Madrid on 11 March 2004 and the handling of the aftermath by the incumbent government, which turned the election on it's head.

England played West Germany on 14 June 1970 in the Quarter Final of the World Cup in Mexico. England, of course, where defending champions having beat their opponents but four years earlier in the final on home soil. Expectations were high. The "small matter" of a general election was scheduled for 18 June 1970. The incumbent Labour Party, led by Harold Wilson, was expected to "romp home". England lost the game 3-2 after extra time. Four days later, Mr Wilson suddenly needed a removal van!. Labour found themselves out of power and Edward Heath and the Conservative opposition were in Downing Street with a healthy working majority. None of the polls had predicted this!. It was argued that the "feel good" factor had been damaged by England's loss a few days earlier.

The Spanish example is, of course, somewhat different, people were killed. The lesson though is similar. An incumbent government expecting re-election was out of office as a direct result of an event just a few days earlier. In this example the event had a direct impact on the election. The England game may have been influential in 1970 (maybe even very influential) but it can't in anyway be argued that the football match in Mexico had a direct impact in the manner of the Madrid bombings of 2004.

So what's all this got to do with Greece?

Quite simply Judicial Cat suggests closely following the result of the Greece v Russia football match on 16 June. Should Greece win (and win well) expect a result more favourable to the "mainstream" parties Pasok and New Democracy. Those parties may still not do well enough but things will be close. Should Russia win the night before then your blogger expects a clear reaction the next day. Things are bad in Greece, we all know that. Losing on the football pitch will just reinforce in the minds of the Greek electorate that their nation continues on a "downward spiral". In such an event expect the equivalent of an electoral "blood bath". 

It really will be "all over" and Greece will be heading for the Grexit!

Grexit: - what a Euro mess!

It really is now time for Greece to be "set free" from the Euro

A health warning, Judicial Cat is not an economist. Indeed your blogger's only formal economics "training" took place over 20 years ago as part of a first year undergraduate course. That being said your blogger distinctly recalls some of the more obvious arguments against joining the Euro; when back in 1991 it was still some years away, but even then anyone with "sense" could predict the sort of events we witness today. The sovereign debt crisis may not have been predicted; however, what happens when their is a major disparity between the economies of say a northern European nation such as Germany, and a southern European nation such as Greece certainly where!

Billions just "thrown away"

For the past two years the EU and the IMF have literally thrown billions at attempting to solve the problem in Greece. Yet it remains unresolved. Every few months the political "elite" of Europe announce the latest "idea", which will finally solve the debt crisis. A few weeks later a new crisis then erupts ........ rinse and repeat. Whilst the continent's politicians refuse to face reality the majority of the citizens of Greece live in abject poverty. It can be argued the system in that country has a lot to answer for, and yes it does, but any student of history can see the reality in Greece is now becoming comparable with the days of the Weimar Republic in Germany during the inter war period. The only thing missing in Greece is hyper inflation.

Austerity, the elastic won't stretch anymore

It is ok for Frau Merkel to sit in her Chancellery in Berlin going on and on about austerity like some old "broken record"; however, it is not Germany facing the serious prospect of a breakdown in the social order of it's nation. Already there are reports of soup kitchens in Athens, children being passed to orphanages, as well as suicides. Let's not forget that Greece is a country, which was in the grip of a military dictatorship as recently as 1974. The recent inconclusive elections were conclusive in one respect; namely, the rejection by Greek voters of the mainstream parties of Pasok and New Democracy. So called "fringe" parties where the real "winners" in the election. When Greece returns to the polls (and they will very soon) expect the "fringe" parties to become the mainstream. Those parties, with their mandates, are not going to continue to take lectures from Chancellor Merkel. So either the eurozone and the IMF "back down" and continue to bail out Greece despite that country not following the terms of the bail out, or the money tap is finally turned off and Greece defaults and is forced out of the Euro.

With no mandate from the people to continue the austerity course imposed on Greece then it is obvious that something has to change. The only realistic option is for Greece to leave the Euro.

It might be painful but ultimately it will prove fruitful

Leaving the Euro will be chaotic, it will send "shivers" through every country on the continent. There will be bank runs, exchange controls, border closings and a few unpleasant things besides. That being said Greece will have a new currency and once again be in complete control of their own economy. They will be able to conduct their affairs for the benefit of the Greek people and once again become a fully sovereign state. A new Drachma will float on the markets and Greek exports will become competitive. Indeed the tourism industry will receive a boost from the favourable rate of any new Drachma to say the remaining Euro, the Dollar, or Sterling. A path would have been taken, which will ultimately lead to Greece restoring some national pride and some hope. What happens with the threat of contagion is for the remaining eurozone nations to worry about. The single currency was always a plainly daft idea without full fiscal and political union first. Like artificially created nations, this artificially created currency is facing the same fate; i.e. oblivion.

Remember "Black" Wednesday?

16 September 1992 is described as "Black Wednesday" in the UK. On that date the nation was forced out of the Exchange Rate Mechanism (ERM), the forerunner of the Euro. Despite the gloomy predictions the UK economy recovered and provided years of growth. All this as soon as Sterling was allowed to "float" and not be artificially locked into a "false" exchange rate with the then Deutsch Mark.

Ultimately Greece will leave the Euro so why not get it over with now and stop the further wasting of billions of euros of citizens' money and the breakdown of the social fabric in Greece.