The Brexit vote took Europe by surprise, and nobody knows where it is all going - least of all the British who voted - but there are some signs that some form of compromise will be done to maintain trading links between Europe and its second biggest economy, said international lawyer and former US Trade negotiator Justin Hughes.
Speaking to a sold out Los Angeles World Affairs Council Global Café breakfast on Thursday, June 30th, Hughes said that there are multiple ways to understand the meaning of the vote - and compared it to literary criticism. "You can read into it what you want. You can read this as a vote about immigration...the ugly head of racism rearing itself...a vote against bureaucracy... or a vote against globalization."
Hughes, who lectures on international trade at Loyola Law School, said that now the games begin. "What you're seeing and reading about now is the dance - private and public in which European leaders are saying no we won't begin negotiating with you until you invoke article 50 which actually sets the clock," he said. Article 50 is the means by which any EU country can leave the Union - once invoked by a member state, it requires that country to be ready to leave within two years. The British, however, understandably want to start negotiating quietly before they invoke Article 50. "Those of you in Hollywood know how important it is to invoke a clock in your drama," said Hughes.
On how this plays out in the UK, Hughes said, "I think what is shocking for them and difficult for them to deal with is that the 'Leave/Remain' vote did not break down on party lines." British domestic politics is in a state of freefall. Already the leader of the Conservative Party, David Cameron, has announced he will step down, and the leader of the opposition Labor Party, Jeremy Corbyn, lost a vote of confidence among his parliamentarians this week. Long term, Hughes said this could threaten the existing party system in the UK.
When asked about the angry rhetoric from some EU leaders, Hughes pointed to the role of Angela Merkel, the German Chancellor. "Not only is Angela Merkel the only voice of reason we've heard so far, she's the only voice that counts."
He said Merkel's voice has been extremely important. "She has said let's be calm, let's do this reasonably," said Hughes, "but at the same time she has said to the UK, you don't get the European Union al la carte."
But Hughes said trade between the UK and Germany - important as it is - is not the only key issue at stake. "There are somewhere between 2.2 - 3 million non-British citizens who work in the UK. President Hollande cannot afford for the French people to move back to France because there are no jobs there." Hughes said the fact that so many EU citizens have come to the UK to work because they cannot get jobs at home gives the British some powerful leverage when they are negotiating the terms of their exit from the EU.
On the possibility of the UK walking this back, Hughes said cautiously, "never say never" - but he thinks it unlikely. "Some have called for another vote - and some say it's not a referendum, it's a never-end-um." But getting to a second vote would be hazardous. "I think it would be political suicide," he said adding that he thinks that would "trigger a greater political crisis in the UK." What could happen, according to Hughes, would be to effectively walk it back by negotiating a broad deal with Europe that benefited both sides - "some new hybrid relationship which has never existed before." He said this might suit the British because all along they never really wanted to be a full member of the EU, and never gave up their currency for the euro. A two-tiered EU with the British and some Scandinavian countries on the top tier and the bottom tier occupied by the core of Europe might work out for all concerned. "Basically the EU is a Franco-German pact - that is why it was founded and that is what it remains."
On the role of the US, Hughes said "one of the things I was most distraught about was how much international leaders were intervening." He said everyone from President Obama, to Chinese President Xi Jinping, to Japanese Prime Minister Abe, to the Secretary General of NATO tried to tell the Brisiths how to vote. And he added that President Obama's comments that if they left, the British would "go to the back of the queue" in trade negotiations was unhelpful. Hughes was also disappointed in claims that security issues were brought into the discussion. "NATO exists completely independently of the EU," Hughes argued. "Internationally, this might increase our cooperation," he said.
Hughes said if the UK ends up leaving the EU, Britain might end up doing trade deals with the 'JUSCANZ' - prounounced "juice-cans" - an acronym made up of Japan, US, Canada, Australia and New Zealand, who are generally more interested in global trade pacts than the restrictive EU.
In discussion with Justin Hughes
Talking about the economic impact on the market, City National Bank Senior Vice President David Atkinson said, "These are financial markets at their worst." He said in the space of 8 hours, the British Pound Sterling (GBP) dropped 11% - "the largest it has ever in its history." He said this was because all the polls showed the vote would be 80% remain until 2pm our time when the polls closed. "It really wasn't until the first few votes were counted that it was apparent that this was totally wrong," he said adding that there are a lot of new words out there including "Breality" and "Brecovery." Looking forward he believes things will stabilize. "I don't think it's going to tip to a global recession. This is much more of a political crisis right now," he said adding that there is now little chance of the Federal Reserve raising interest rates any time soon - with some even suggesting the Fed may cut rates again, an outcome he thought unlikely. On trade, Atkinson said Britain is in a "tough spot" because of their large trade deficit. "This is a really inconvenient time to have that. The only ways to really finance a trade deficit are either by a sharp drop in currency... or by attracting a lot of incoming foreign investment." And at the moment no foreign corporations are rushing to invest anew in the UK.
On what happens next, Hughes said that at least the Brexit vote should sound a wake-up call to the bureaucrats in Brussels and politicians across Europe, who he says have been completely insensitive to the growing dissatisfaction with them among large sections of the population in Britain and other European countries. "In that sense, the Brexit vote might be helpful. Because if the British had voted by 50.2% to remain, the bureaucrats in Brussels would have yawned and said 'look, there is nothing to worry about,' - when in reality half the population was against the EU." He said the best scenario would be for another couple of countries to vote on leaving - maybe the Netherlands and Sweden, and for them to vote to stay in but only by small majorities - "scary votes". That might spur a real move towards self-reflection and reform in the sclerotic European Union. "I'm hopeful but I realize that may be my optimism. Bureaucracy dies hard."