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|2016 Special Issue|
Nikkei Business - November 5, 2015
From my perspective, one of the most important events of next year will be an event that we do not even yet know for sure whether it will take place in 2016, or be delayed till 2017. It is also an event that will be far away from Japan, although it will affect many big Japanese businesses. The event to which I am referring is Britain’s referendum on whether to leave the European Union.
Is that question of Britain’s EU membership truly important, on a global scale, or for a country on the other side of the world such as Japan? Some readers might doubt it. But I believe that it is.
A British vote to leave the EU risks destabilizing, or even destroying, the institutions that have helped to make the 28 member countries of the EU the world’s largest economy, when they are counted together. Such a piece of arithmetic, adding 28 countries together, is meaningful because the EU is the world’s largest trading block and forms the world’s largest market that is unified by common rules. That is why so many Japanese companies have built factories in Britain, because they are then able to export their goods throughout the EU under the same set of regulations.
Europe in recent years has also, however, been a large contributor to the world’s disappointing economic performance, thanks to the euro-zone sovereign debt crisis. If Europe would have expanded its economy at the same rate as did the United States, the world would have been a lot wealthier, including all countries that trade extensively with Europe, which includes both Japan and China.
Now, even as the European economy has been staging a modest recovery, helped by cheaper oil prices, the continent has become beset by the biggest wave of migration by refugees and other would-be immigrants that has been seen since 1945.
Fortunately, more than a million of them have been taken in during 2015 by the continent’s strongest economy, Germany. But there are millions more hoping to come to Europe. And in every EU country, including Germany, this rapid immigration of people from Syria, Afghanistan, Pakistan, Eritrea and many other African and Middle Eastern countries is causing a big political controversy.
In Germany, the speed and size of the migrant flows will weaken the government of Chancellor Angela Merkel during 2016, and will likely lead to the rise of new, right-wing, nationalist parties in that country. In France, the migration issue will further strengthen support for the nationalist, right-wing, anti-EU party led by Marine Le Pen, the Front National, raising her chances during France’s presidential elections in May 2017.
Britain, meanwhile, is not receiving many of the migrants from Syria or elsewhere in the Middle East. But the migrant crisis in Europe, which next year, like this year, will be on British TV screens on a daily basis, is helping to discredit the European Union further for many British voters. If the EU institutions cannot solve a collective continental problem such as migration, British voters will ask, what is the point of it?
So the migrant crisis, which will certainly continue to grow during 2016, will make it harder for Britain’s prime minister, David Cameron, to win his planned referendum on EU membership.
He called that referendum as a response to political pressure from within his own Conservative party, and as a response to the rise in opinion polls of the anti-EU United Kingdom Independence Party, which is an old party that has gained new strength during recent years. His proposition is that he will first negotiate a set of reforms both of Britain’s relationship with the EU and of the EU institutions themselves, and then recommend voters to vote to stay in the European Union on those new terms.
The problem is that the migrant crisis will make it harder for his negotiation with the other 27 EU countries to succeed, especially if it makes Chancellor Merkel weaker in Germany.
If Britain does vote to leave, whether in 2016 or 2017, there will be no immediate consequences for the economy of the EU. But there would be consequences for politics in the EU and in each of the EU countries. Nationalist anti-EU forces such as France’s Front National will gain strength. More parties will lobby against immigration and against the EU. And, as the confidence of businesses in the future of the EU (and of Britain) becomes damaged, so economic growth will again eventually be weakened.
Many people will say that America’s presidential election will be a more important political event than Britain’s vote on the EU. But US elections are like theatrical performances. After the drama has finished, everyone goes home and nothing much changes.
In the case of the British vote, when it is finished, a lot could change. And the world’s biggest economy, the European Union, could emerge both changed and damaged.