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Brexit’s Impact on the World Economy

Author(s): Anatole Kaletsky
The febrile behavior of financial markets ahead of the UK’s "Brexit" referendum on June 23 shows that the outcome will influence economic and political conditions around the world far more profoundly than Britain’s share of global GDP might suggest. In fact, for three reasons, a Brexit vote could catalyze another global crisis.

From Project Syndicate:

The febrile behavior of financial markets ahead of the United Kingdom’s referendum on June 23 on whether to remain in the European Union shows that the outcome will influence economic and political conditions around the world far more profoundly than Britain’s roughly 2.4% share of global GDP might suggest. There are three reasons for this outsize impact.

First, the “Brexit” referendum is part of a global phenomenon: populist revolts against established political parties, predominantly by older, poorer, or less-educated voters angry enough to tear down existing institutions and defy “establishment” politicians and economic experts. Indeed, the demographic profile of potential Brexit voters is strikingly similar to that of American supporters of Donald Trump and French adherents of the National Front.

Mark Leonard, Director of the European Council on Foreign Relations, examines how Kofi Annan, George Soros, Peter Sutherland, and others are thinking about a challenge that is only getting bigger.

Opinion polls indicate that British voters back the “Leave”campaign by a wide margin, 65% to 35%, if they did not complete high school, are over 60, or have “D, E” blue-collar occupations. By contrast, university graduates, voters under 40, and members of the “A, B” professional classes plan to vote “Remain” by similar margins of 60% to 40% and higher.

In Britain, the United States, and Germany, the populist rebellions are not only fueled by similar perceived grievances and nationalist sentiments, but also are occurring in similar economic conditions. All three countries have returned to more or less full employment, with unemployment rates of around 5%. But many of the jobs created pay low wages, and immigrants have recently displaced bankers as scapegoats for all social ills.

The degree of mistrust of business leaders, mainstream politicians, and expert economists is evident in the extent to which voters are ignoring their warnings not to endanger the gradual restoration of prosperity by upending the status quo. In Britain, after three months of debate about Brexit, only 37% of voters agree that Britain would be worse off economically if it left the EU – down from 38% a year ago.

In other words, all the voluminous reports – by the International Monetary Fund, the OECD, the World Bank, and the British government and the Bank of England – unanimously warning of significant losses from Brexit have been disregarded. Rather than trying to rebut the experts’ warnings with detailed analyses, Boris Johnson, the leader of the Leave campaign, hasresponded with bluster and rhetoric identical to Trump’s anti-politics: “Who is remotely apprehensive about leaving? Oh believe me, it will be fine.” In other words, the so-called experts were wrong in the past, and they are wrong now.

This kind of frontal attack on political elites has been surprisingly successful in Britain, judging by the latest Brexit polling. But only after the votes are counted will we know whether opinions expressed to pollsters predicted actual voting behavior.

This is the second reason why the Brexit result will echo around the world. The referendum will be the first big test of whether it is the experts and markets, or the opinion polls, that have been closer to the truth about the strength of the populist upsurge.

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