On June 23 the UK voted to leave the EU. This is the second time since the establishment of the eurozone in 1999 — when the UK decided to defer joining the euro, and then subsequently never joined — that the UK has said “no” to Europe’s project of economic integration.
Prior to the referendum, the leader of every country with an interest in the EU — including US President Barack Obama, British Prime Minister David Cameron and German Chancellor Angela Merkel — teamed up with the great and the good from the worlds of finance and academia to issue a collective warning to the UK: “Vote to remain or suffer the consequences.”
The “Remain” camp were convinced that the UK would inflict upon itself immeasurable economic and political damage. Despite this, the collective wisdom of the UK public came to the right decision to withdraw from the EU, just as it made the correct decision in 1999 not to join the eurozone.
It is now evident that the UK’s refusal to join the eurozone did not leave the UK marginalized and isolated. Nearly two decades later, the British economy surpassed the eurozone and avoided joining the struggling economies of Europe, known as the “PIIGS” (Portugal, Italy, Ireland, Greece and Spain).
The PIIGS are countries on the periphery of the EU, separated by the Rhine, Elbe and Seine rivers from central Europe. During the EU’s economic integration, capital and skilled labor moved from peripheral areas to central European economies, which caused peripheral countries to become marginalized.
The European financial crisis, triggered by the PIIGS, is the result of many different factors, but the process of marginalization after joining the EU was the main cause.
The UK made a sensible decision to stay out of the eurozone. It seems that the UK very early on sensed that the benefactors of the eurozone project would be Germany, France and the other central economies of Europe.
Markets often react illogically. To the lamentation of the big corporations who benefit from the protectionist EU system, on the day of the result of the referendum Europe’s main stock market, the German DAX, fell 6.82 percent to 699.87 points. The French stock exchange also fell by 8.04 percent and in the US the Dow Jones fell by a less drastic 3.38 percent.
Britain’s FTSE 100 declined by only 3.15 percent: The greatest losses were evidently sustained by Germany, France and other central EU economies, as well as those countries on the periphery.
The Japanese stock market also reacted abnormally. Despite no direct link between Japan’s economy and Britain’s exit from the EU, the Nikkei fell 7.92 percent, or 1,286 points.
Additionally, the Japanese yen bucked the trend of other Asian currencies — which all fell following news of the referendum result — by increasing 1.29 percent, and in doing so made Japan the biggest Brexit casualty. This demonstrates the muddleheadedness of Japanese policymakers: they have yet to learn from the two “lost decades” of economic stagnation. Japan’s future appears bleak.
In the long term, the pound’s sharp depreciation by 6.33 percent might help British manufacturers to adapt to the country’s exit from the EU over the next two years.
In 1980 the pound fell from ￡2.5 to ￡1.1 against the US dollar, which established a foundation for Britain’s subsequent miraculous economic recovery over the next decade.
At present, the biggest problem for the British government is how to keep Scotland and Northern Ireland in the UK and maintain the scale and integrity of the country’s population, territory and economy in order to contend with the pull from the EU’s economic block.
As long as the UK continues to exist, in another three or four years it is certain to be both politically and economically stronger than when it was a member of the EU and the UK’s wise decision to leave the EU will be vindicated.
Earlier this year, in their collective wisdom, Taiwanese made a similarly wise decision at the presidential and legislative elections, voicing a resounding “no” to the so-called “1992 consensus” and the nation’s gradual drift toward a single Chinese market.
Taiwanese voted in the Democratic Progressive Party, hoping to block China from further infiltrating the economy. This was a wise and farsighted decision.
If the government listens to the public will and remains cool-headed and resolute in the face of China’s strategy of unification through economic dependence, then in three to four years’ time the nation will be richly rewarded for its efforts.
The road ahead might be tough, yet the higher Taiwan sets its sights now, the greater the reward it can look forward to in the years to come.
Huang Tien-lin is a former advisory member of the National Security Council and a former Presidential Office adviser.
Translated by Edward Jones
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