Brexit Media Call Transcript

Media Call: Brexit

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Speakers discussed the results of the United Kingdom’s referendum on withdrawing from the European Union, including the political and economic consequences and what this will mean for the UK and Europe as a whole. 

Speakers

Richard N. Haass

President of the Council on Foreign Relations

Sebastian Mallaby

Paul A. Volcker Senior Fellow for International Economics, Council on Foreign Relations

SCHMEMANN: Thank you. And thank you, everyone, for joining us this morning.

We are here to discuss Brexit. We all woke up this morning to the stunning news of Great Britain’s vote to leave the European Union. I’m Anya Schmemann, Washington director of communications for the Council on Foreign Relations. And I’m very pleased to be joined today by the president of the Council on Foreign Relations, Richard Haass, and Sebastian Mallaby, who’s the Paul Volcker senior fellow for international economics at the Council on Foreign Relations.

Sebastian, if we could start with you, what are we to make of this vote today?

MALLABY: Well, I mean, the first thing to emphasize is how little this was anticipated, particularly by financial markets. All through this campaign, which has gone on since February, whilst opinion polls were fairly close, the prediction markets, the betting markets, veered from thinking either that Brexit was very unlikely to thinking it was just about unthinkable. And so the shock when the opposite result transpired this morning was especially acute because it was so little anticipated at NATO.

Last night, when people were going to bed in Europe, they were observing that Nigel Farage, the UKIP leader, had pretty much made a concession speech. The sterling was strengthening in markets. And then it turned right around, of course, when the results came out and fell about 10 percent. To put that in perspective, that is a fall more than twice as acute as the famous Black Wednesday in 1992 when the sterling crashed out of the European exchange-rate mechanism. So this is a very, very big move in the currency in a few hours.

Thinking about what it means for the U.K. economy and then, by extension, other economies going forward, I think what we have to understand is the uncertainty engendered by this vote is not only going to be prolonged. It’s going to be deep. And what I mean by that is that this doesn’t get results politically any time soon. I think Richard will speak more about the politics.

But from the market’s perspective, the fact that David Cameron has said he’s going as prime minister but he hasn’t—but he’s not going to do that until the fall when a new successor has been chosen, the fact that the negotiating position of whatever turns out to be the new government is unknown, and so on down the list, there’s just a whole series of political complications.

That means that, from an economic perspective, the uncertainty will last for a very long time. And when I say it’s deep uncertainty as well as being prolonged, what I mean is that U.K. exports to the European Union account for fully 13 percent of U.K. GDP, or, to put it another way, something like 44 percent of U.K. exports. So this is a very big potential very likely hit to U.K. economic performance. If you think about those exports being constrained by, let’s say, a quarter, that would be three percentage points of GDP, and there’d be a multiplier on that right there.

So it’s a prolonged uncertainty, a deep uncertainty. And Britain has a peculiar economic vulnerability in the face of this kind of shock because, of all the rich economies in the world right now, it runs the biggest current-account deficit, which is to say it depends on foreign capital inflows to finance its imports to a greater extent than any other rich economy. And that—the composition of those inward flows has been heavily skewed towards foreign direct investment in the past.

So the good news about the U.K. was that, although it depended on the kindness of strangers, as the governor of the Bank of England, Mark Carney, liked to say, those strangers were being kind in a kind of—in a sort of durable fashion. They were putting real factories and other real investments into the ground, which are obviously stickier.

The problem is that that kind of long-duration investment is precisely the sort that you’re not going to make when you have uncertainty clouding the future. And so I think you’re going to see a sort of—almost a freeze, certainly a drying up of foreign direct investment, which therefore will put very strong downward pressure on the currency.

The wealth effects will feed through via real-estate markets and other asset markets, which will therefore put a crimp on consumption. And it—I think it’s difficult. There were debates before the Brexit vote about whether this would be a very bad shock for the U.K. or an extremely very bad shock for the U.K. economy. And I always felt that because uncertainty is precisely the kind of thing which is the hardest for economists to model, they were more likely to underestimate the severity of the hit than to overestimate it, because when psychology kicks in and markets overshoot, that’s obviously when you get more trouble.

So I think things to watch economically and markets-wise in the next day or two include the reaction of central banks, which will no doubt try to stabilize the banking system and prevent any shock of that kind, but probably won’t be able to do a whole lot about currency levels.

The Swiss central bank has intervened this morning to prevent excessive appreciation of the Swiss franc. I further afield—let’s say, for example, Japan, where Abenomics was already in trouble—you’re now going to have a stronger yen, which will make it even harder for Japan to escape its deflationary slump. And so I think, you know, a weak Japan because of a stronger yen then seeps through into other markets.

And so I think central banks will do their best to react, and we’ll see how that plays out in the next few days.

SCHMEMANN: Thank you, Sebastian.

Richard Haass, the shock waves from this referendum are now being felt around the world. What might the repercussions be for Europe and the United States?

HAASS: Well, Sebastian laid out the economic consequences and implications. And all I would say is, as severe as they are likely to be, I actually do not believe they will be as consequential in the end as the political and strategic effects of Brexit, which I—and I do believe those effects will be deep and enduring.

I would say the biggest loser would be—will be the U.K. itself. Actually, at the risk of sounding melodramatic, I do believe that this is the beginning of the end of the United Kingdom. To me it’s a question of when and not if. Scotland has a second referendum, and this time it will almost certainly pass, based on the argument that it is more important to be in Europe than in the U.K.

I also worry that pressure will grow for a border poll in Northern Ireland, essentially a referendum on whether it should unify with Ireland. And I believe the politics surrounding that will deepen the divisions in Northern Ireland, and the consequences of that could again be—could be more than serious. Indeed, the stability that has been so carefully cultivated in Northern Ireland over the last two decades, I believe, could be jeopardized.

The U.K. itself will be not just ultimately, you know, facing separatism, but the vote reveals a significantly seriously divided country, both geographically but also generationally and politically. The country will be poorer, as Sebastian said, a lot less resources to devote to defense. It’ll be distracted. And all of this will diminish its role in Europe and the world.

Turning to Europe, this seems to me to add significantly to the centrifugal forces in Europe. There’ll be a knock-on effect, you know, whether it’s Netherlands or Spain or France, but there’ll be referenda ultimately in other countries. And it means that the real debate in Europe won’t be between the status quo on something more integrated but rather the status quo on something quite significantly less. It could lead Germany in some ways more alone and exposed, so the tensions between Germany and the rest of Europe could well grow because without Britain there, the disparity between German strength and everybody else becomes that much more marked. And I think, again, it reduces the ability of the—of the EU to play a meaningful role in the world. They—it’s going to lose its second-largest economy and its most capable military.

And more broadly, if you take a step back, if you look at this vote, it doesn’t come in isolation. It comes amidst, as Sebastian said, a period of prolonged low economic growth, Russian aggression in Crimea and Ukraine more broadly, the massive influx of refugees from the—from the Middle East. So there’s a—this will add to a serious loss of momentum in Europe and will make it that much more difficult for European institutions and governments to act in concert.

Lastly, it’s bad for the United States. The U.K. has been one of this country’s most important partners. And again, it will be less willing and able to play that role. And the net result will be the special relationship will be that much less special. The United States will have no alternative but to increasingly turn to and rely on other countries.

So this is essentially a cloud without a silver lining when it comes to the U.K. itself, be it economically or politically, when it comes to Europe or when it comes to the—to the United States. This is—on balance, this will diminish order within Europe and, arguably, beyond.

SCHMEMANN: Thank you, Richard Haass.

We have very many late joiners to our call. So just as a reminder to those who have joined us, this is a Council on Foreign Relations on-the-record conference call. We’re discussing Brexit with Richard Haass, president of the Council on Foreign Relations, and Sebastian Mallaby, senior fellow for international economics at the Council on Foreign Relations. You can find articles by Richard and Sebastian on our website in addition to many additional resources at www.CFR.org.

Sebastian, just quickly, you are in Europe right now. Can you tell us a little bit about the mood there? And what are you hearing from people around you?

MALLABY: Well, I happen to be actually today at a conference in Italy on the future of Europe. You might say, poor me. In some sense, the external environment is so beautiful that you can’t believe that the politics has gotten so bad.

You know, I think amongst the people I was talking to yesterday evening, there was this sort of confident sense that the remain side would win, and that emphasizes the shock of the fact that we have the opposite outcome.

I think, you know, the questions people are asking for sort of the future are, how does Europe get out of the bind where on the one hand, the demonstrated appetite for further integration is approximating zero, but on the other hand, the ability to undo the euro, the single currency, is also approximating zero? And Greece has walked up to the brink twice or so in the last five years about leaving the single currency, and it has decided not to do it because once you’ve denominated every single contract in your own economy in the euro, exiting is completely traumatic. So you can’t go back, but you can’t go forwards because forwards means fiscal coordination on taxes and spending, transfers from successful countries like Germany to weaker economies like Greece. And neither the German public nor any other public is up for that kind of dissolution of sovereignty right now in Europe. So you have—so that’s one discussion.

And then, of course, there’s this question of the extent to which other populist parties that Richard alluded to will call for copycat referendums and whether they’ll have any traction. By my count, so far we’ve had such calls in the Netherlands this morning, in Sweden, in France. And all three have populist groups that have been—that have explicitly said that they think there should be a referendum on a similar lines for their countries. And we have, of course, the Spanish election coming up this Sunday in which the nontraditional neo-Marxist left is expected to get up to a quarter of the popular vote.

And I think what this points to is that, you know, the traditional patent of European politics, which was a division between kind of conservative Christian-democratic type of party on the one hand and a social-democratic party on the other hand kind of more broadly in the same sort of postwar consensus, that has really broken down. And you’ve got populists of both the left and the right eating away substantially at the very making, the natural government, in a way, in Europe, some kind of coalition, some kind of grand coalition of the center. And that’s what you’ve got right now in Germany. That’s, in a way, the logic of next year’s French presidential election, where in order to beat the populist Marine Le Pen, there will have to be, you know, a pooling of votes in the two main parties.

And so I think, you know, what this all adds up to is, A, a bind where in some sense, you can’t get out of European integration but nor can you go forward with it; B, a sense of political breakdown where the traditional parties are under attack from both left and right. And so—and there’s a lot of—there’s a lot of despondency about Europe, a sense that money will flee to the United States. This will push up the dollar, decelerate the U.S. economy. The Fed will have to respond with maybe cuts and more QE. But that game has played itself out, and there is declining faith in those extraordinary monetary instruments. So this really has I think knock-on effects globally.

SCHMEMANN: Thank you, Sebastian Mallaby.

Richard Haass, just before we open up to questions from our participants, Sebastian mentioned European politics. But of course, we have a campaign taking place in the United States today. What might this U.K. referendum mean for U.S. politics?

HAASS: Well, what I think the Brexit vote signals is the intensity, both the breadth and depth, of unhappiness with the status quo, with traditional institutions, and probably more broadly a continuing disquiet—there’s probably a better word, but we’ll use “disquiet” for a second—with the real and perceived consequences of globalization.

So in Britain, you had a vote that was pushed back against the government, against the EU bureaucracy that’s often seen as remote and inefficient and too interested in regulating and not enough in listening. And this vote became something of an opportunity to vent. I actually think some of the people—I don’t know what percentage—went to the polls less to set in motion some of the trends, perhaps, that Sebastian and I have been describing but more to send a message, both to Downing Street, more broadly to Parliament, but also to Brussels. And my sense is the—my prediction is the British voter got more than he or she necessarily wanted or predicted.

I think for the United States what this shows is the potential breadth and depth of disaffection against Washington. And we’ve seen it. We’ve seen a lot of this in the strength of the Sanders and Trump campaigns. We’re seeing opposition to quote-unquote traditional politicians. We’re seeing rejection of what had been decades of bipartisan support for free trade. We’re seeing, again, a streak of anti-establishmentism in our politics. So I think what this does is show that what is happening in the United States is by no means unique. I think Mr. Trump will probably take some satisfaction from today’s vote, not simply because he favored Brexit, but because the forces, the political and social and economic forces that put Brexit over the top, that put leave over the top, he will see as forces that are very close to his and Bernie Sanders’ base.

And I would think that Hillary Clinton’s campaign this is something of a warning not to underestimate the disaffection, not to underestimate also the political and economic nationalism, because the issues motivating Brexit were not just economic but they were also linked to society and they were also linked to immigration, and the real and perceive—or, more specifically, the perceived threats or dangers that stem from immigration. And the challenge for the Clinton campaign is going to be how to—how to deal effectively with those kind of populist and nationalist concerns. And I think that the next four and a half months in the United States are going, to some extent, be informed by the perceived lessons and the perceived messages coming out of the Brexit vote.

SCHMEMANN: Thank you, Richard Haass and Sebastian Mallaby. We will turn it to questions from our participants now. We do have almost 300 people on the line, so I will ask that people keep their questions pretty short so that we can get to as many as possible.

Operator, we’re ready to take questions.

OPERATOR: At this time we’ll open the floor for questions.

(Gives queuing instructions.)

Thank you. Our first question will come from Tara McKelvey from BBC.

Q: Thanks very much for this. If you could tell me more for what this means for the U.S. that would be really helpful. I know you both discussed it, but just anything more about that would be helpful.

HAASS: I’m not sure if that was directed at me since I have the American accent.

Q: No, both. Either and both, please.

HAASS: (Laughs.) Well, again, I’d say a few things about what I think it means for us. One, again, is not to underestimate the populist sentiment, not to underestimate the degree of alienation a lot of citizens feel from their institutions and their elected politicians. Not to underestimate the anxiety that is associated with globalization, with technological change, with the reality or potential for job loss. So I see—I see all this in place in the Brexit vote. I thought it was quite telling in particular that the demographics of the vote, that it had far more support amongst people who are older as opposed to younger. And these are people who are not—you know, who are coming up against retirement, in some cases, without the necessary cushion. And these are people who are late in their career. And the idea or, I’ll say, of serious reeducation or training at that point seems quite far off. So to me, it’s not surprising that younger people felt more comfortable with remain.

I’d also add one other thing, at the risk of being controversial. But I do believe that the Brexit vote raises and puts front and center the entire question of the role of referenda in democratic societies. And if you go back to the founding of the United States and you read the Federalist Papers, there was a lot of conversation about, if you will, direct democracy versus representative democracy. And the bias of the founders was towards representative democracy—hence the Senate, hence also the electoral college and so forth. And what I believe Brexit shows, to some extent, is the danger of deciding truly consequential, even historic issues through referenda.

And it’s one of the lessons that I hope is taken—it may not be—but it’s one of the lessons that I hope that is taken, that this ought not to be the way here in the United States that we take really big decisions. But I also understand that in saying that, that puts greater pressure on our existing representative institutions, above all our Congress, to act in a much more bipartisan, effective way. And the danger is if we continue the sort of gridlock we’ve seen in the last couple of days—be I the Supreme Court unable to act on immigration issues or the Congress unable to act on gun control issues—then I think it will simply increase popular frustration and people will look for alternatives to the traditional political process. Referenda are one such alternative. And what Brexit should do is warn us about the potential risks of going down that path.

Q: Can I ask something? Can I say something?

MALLABY: Can I underscore Richard’s point?

Q: Oh, sorry. Mmm hmm.

MALLABY: It’s striking to me that in Britain, whilst a majority voted for Brexit, something between two-thirds and three-quarters of the members of the House of Commons are against Brexit. So the dichotomy between representative democracy and direct democracy is stark.

On the U.S. position—and this is something where I’m raising an issue and maybe Richard would comment further—but it does strike me that one of the fallouts from this vote is that it’s hard to believe that Britain, which has just voted not to be in a political and international coalition with countries like Poland would necessarily come to Poland’s defense as part of its NATO membership if Poland were to be militarily threatened. I think the credibility of NATO cohesion has just taken a hit.

And therefore, it would be great for West European security, or for West and Central European security if the U.S. were to respond to this by stepping forward and reinvigorating a commitment to NATO, both through words and maybe through some type of action. I recognize that’s difficult politically given the climate with the election coming up in the U.S., but I think that is something that—you know, the credibility of NATO is somewhat at stake here.

HAASS: Well, I would just say that we’d already begun doing that. The United States and NATO had already, in some ways, begun to re-NATO-ize parts of Europe, building up in particular ground forces in areas not that far from Russia. And that was already underway. And I would hope that that would continue. This vote, in some ways, ought to reinforce the wisdom of going down that path. And one other thing that I think, coming back to the U.S., I should have added, is that this also underscores the need for government to do more for those who are the losers, if you will, from globalization or from technological innovation. And this puts a real premium on various forms of education and retraining. So workers whose jobs are eliminated, either because of foreign competition or because of technology, can get retrained, retooled so they have a real opportunity to reenter the workforce.

Q: Thank you.

SCHMEMANN: Operator, next question.

OPERATOR: Thank you. Our next question will come from Peter Coy from Bloomberg Businessweek magazine.

Q: Hi. Sebastian, quick question for you. You said that the European Union is stuck. It can’t go forward, can’t go backward. It would agree that it certainly can’t go forward toward greater integration, especially after the Brexit vote. So if the status quo can’t hold, doesn’t that leave going backward as the only possibility, however unlikely?

MALLABY: You know, I get the logic, but Greece has run that experiment. And even under extreme pressure, as you well know, because I know you follow these things, Greece, you know, it decided not to. It decided that the pain of leaving was so enormous that it would prefer to stay in. So I don’t think it points clearly in either direction. I think both paths are blocked. And so Europe itself is in—is in a quandary. And you know, you can think of the EU as three simultaneous experiments. There’s the single market, which is a great success. There is the free movement of people, which is successful in terms of freedom and prosperity, but politically difficult. And then there is the euro experiment, which is a disaster, but getting out of it.

I think what one can say, at a minimum though, is that the current policy that new countries that accede to the EU are expected to work toward joining the euro, this is self-evidently a bad idea. I mean, they should, frankly, be given the option, and possibly the encouragement not to join the single currency. So that is a reform that Europe could do, or a rethinking, which maybe the Brexit shock might encourage.

Q: OK. Thank you.

OPERATOR: Thank you. And our next question comes from David Smith with The Guardian.

Q: Hello. I just wonder if I could ask you about President Obama’s comment in April that, if Brexit goes ahead, Britain will be at the back of the queue for trade. Do you think that will indeed be the case?

HAASS: (Laughs.) Well, I’ll start. This is Richard Haass. Right now the trade queue is not exactly walking through the door, given that TPP is stalled and TTIP seems a long ways off. And if we’re right in interpreting the Brexit vote, it’s hard to see how the political environment in the United States becomes more conducive to trade or to passing free-trade agreements any time soon.

But putting that apart, one of the stark realities—and Sebastian will correct me if I’m wrong—is that if we do get to TTIP at some point, then we are going to go ahead with that, and Britain will be outside that. And the question then is what has to happen bilaterally? And that just, I would think, complicates it. At a minimum, it would delay the British entry into something comparable or parallel, but it might also preclude it in some areas because, again, this is going to be a U.S.-EU negotiation.

So I’ve not looked in detail at what sort of special wraparound or workaround arrangements could be made. But it’s hard to see how this could be anything but something of an obstacle to the inclusion of the U.K., or what remains of it, in any sort of transatlantic trade arrangement.

MALLABY: I would say that a lot hinges on the nature of the deal that the U.K. eventually works out with the single market. And, you know, this is just one illustration about how the future has been rendered entirely hard to predict. We don’t know whether the U.K. will try to get a Norway-type deal or some other variant, some other normal. And until we know that, how can the negotiators of TTIP figure out what the technical workaround would be to get Britain kind of joined into a bilateral deal between the EU and the U.S.? And I’m sure that the U.S. might be politically open to including Britain, but how you do it is impossible to say when you don’t even know what the trading relationship is between Britain and Europe.

SCHMEMANN: Next question, please.

OPERATOR: Thank you. Our next question will come from Antonio Rodriguez from AFP.

Q: Hi. Could you tell me the consequences for the emerging countries of the Brexit?

MALLABY: Well, I’d say that we’ve seen that emerging economies are very vulnerable to shocks that are driven by central banks in rich economies. Any time central banks—you know, if you have a reaction, for example, that the dollar is stronger and, depending on what the Chinese central bank does, whether it follows the dollar a little bit or tries to stop that by switching to managing its currency against the Euro or some basket of currencies, countries that depend on China and Chinese demand for commodities, whether you’re talking about Brazil or Indonesia or whatever, the exposure via China in emerging markets is very, very strong.

So I think that’s one transmission belt to watch. What happens to Renminbi? If the Renminbi falls against the dollar, that’s good news for emerging markets because it means that the Chinese economy is protected a little bit from the contractionary effect of following the dollar up.

Q: Thank you.

SCHMEMANN: Richard, do you have anything to add, or next question?

HAASS: Let’s get some more questions in.

OPERATOR: Thank you. Our next question will come from Ellyn Ferguson with CQ Roll Call.

Q: The question has been answered. Thank you.

OPERATOR: All right. Our next question will come from Mercedes Gallego with El Correo.

Q: Hello. You said that actually the issue weren’t countries about leaving important decisions in the hands of the people through referendums. But I was wondering if you were actually encouraged, because we’re hearing Scotland saying that they’re going to push for a referendum. I’m thinking about Catalonia in Spain, that might be less wary of leaving the European Union now that it’s weaker. What is your opinion on this? Thank you.

HAASS: Well, my concern is these are some of the things that are likely to happen, that if or possibly when, say, Scotland (does ?) a second referendum and it were to pass this time, I think it would encourage what you might call centrifugal tendencies elsewhere within the EU; the idea that in other countries you may have breakaway movements or regional movements that want to become separate states. That wouldn’t surprise me. That’s been going on for some time, including in Spain. And you could also have countries wanting to either leave the EU or renegotiate their terms.

I think one of the challenges for the EU is going to be how to contend with providing, if you will, a third alternative between a fully integrated relationship, no relationship, and then something in between. And up to now, the EU has been somewhat reluctant to do that. And I think that issue has—is on the table.

More broadly on referendum—and I know I get criticized—it’s not antidemocratic, but there’s—to be questioning of referenda. There’s just different forms of democracy. And we have congresses and parliaments and the rest, which is the basis of representative democracy. And rather than having major policy questions put up for votes, certain states in the United States, such as California, tend to decide more issues than many through referenda. And I would simply say it’s had uneven effects over the years.

But as a national mechanism for deciding complicated, contentious policy issues, I for one think the dangers of either stark outcomes, like this one, or too many people voting to send messages rather than based upon the merits is all too real of a danger. So at the risk of being called an elitist or someone or worse, I would simply say that I do not believe that for modern societies, particularly of such large scale, I don’t believe that referenda offer a constructive path towards tackling some of the big, complicated decisions of this era.

Q: I’m sorry, if I can add a question, is that OK? I would like to know how responsible do you think that the European Union is about this outcome, given how tightly and undemocratic it has behaved in certain issues, like the troika deciding issues on Greece and the reputation it has built up?

SCHMEMANN: Thank you.

Sebastian, a quick response.

MALLABY: You know, I think it’s—any cooperation across borders is going to look less democratic than politics would in a country, because it is more remote from the single voter. I think the EU, despite all it’s criticized, is actually a pretty—you know, in some ways a pretty decent attempt at combining and pooling sovereignty in order to tackle transnational threats.

And, you know, it’s really—if you talk about the troika, in some sense that could be viewed as very democratic, because that is—you know, that is representative leaders who have been elected from the creditor countries, you know, working with the technocrats who are responsive to the shareholders of those organizations.

It’s not direct democracy. It’s not one country, one vote, like the U.N. General Assembly. But I don’t think the U.N. General Assembly is a model for how you govern the world. So I’m less critical than you are about the way the EU manages its affairs.

SCHMEMANN: Thank you. Next question?

OPERATOR: Thank you. Our next question will come from Michael Perrson with de Volkskrant.

Q: Hi. A question, I guess, to both of you. Do you think that with Britain falling away out of the EU that the U.S. will look for another bridgehead in Europe to actually counter the growing force now of Germany and France? Do you think that they will look for another country that may convey their interest?

HAASS: I would say the short answer is no because I don’t believe the United States sees the dynamic of Europe in the way you describe. The United States will maintain close relations with Germany, close relations with France. (Audio break)—close relations with any other number of countries.

It’s extremely noisy, by the way. It’s very hard for me to talk. I hear someone—there’s noise coming—

Q: It’s more quiet here.

HAASS: So we’re not looking to balance within Europe in the way your question suggests. There’s also no limit on the number of countries the United States can have good relations with. So in recent years, you’ve seen, for example, better relations or more developed relations, say, with some of the former Warsaw Pact countries, including Syria and Poland.

So what I think will happen is the United States will maintain good relations with most European countries. Some will be more developed or intimate or have more dimensions to them than others, but it’s not a competition and it’s not somehow a balancing act within NATO or within the EU. It’s just not the way the United States approaches its relations with European countries.

MALLABY: Just to rephrase it a little bit differently, if I may. For example, in some of the issues regarding privacy and data transfer, we’ve seen the British taking a more lenient position as opposed to France and Germany, for example.

So in that respect, the U.K. has been a partner to sort of produce compromises in Brussels that maybe are not going to be produced without the U.K., compromises that I think that the U.S. will value a lot because it’s more close to their position.

HAASS: I think you raise a fair point. And that, to me, was one of the reasons it was in the interest of not just the U.K., but of the United States for Great Britain to remain within the EU because it was, on many issues, a voice that paralleled or came close to paralleling the views and interests of the United States.

So people such of myself as somewhat concerned that without the U.K. sitting at the table in Brussels, some of the debates could come out differently because, again, Britain brought to the table a country that, among other things, had a major intelligence capability, had worldwide interests and a worldwide presence, so as a result was often more willing than not to argue for positions that were close to those of the United States.

The U.K. and the United States also have a history of collaboration that the United States has not had with other countries. And that will be very hard to either, you know, that will be very hard to replicate.

Q: Thank you.

SCHMEMANN: Next question, please.

OPERATOR: Thank you. Our next question will come from Pamela Dawkins from Voice of America.

Q: Thank you so much. This is a follow-up question for Richard.

You’ve hit on this a little bit, but in your opening statement you said Brexit is a cloud without a silver lining. Can you elaborate more on why you believe Brexit will be a setback for the U.S. in terms of U.S. foreign policy and a foreign relations standpoint, and then specifically talk about what will be the implications for the United States in the short term and the long term?

HAASS: Well, the reason I believe it’s a setback for U.S. interests in the world has to do with the U.K. itself. This has been one of this country’s most important partners in Europe, in the Middle East, around the world, dealing with various regional as well as global issues. And the weight and strength of the U.K. will simply be less as a result.

It will be distracted by coming to terms now with the consequences of its decision. And if I’m right, it will also be distracted by separatist movements within the U.K. that could well prevail, beginning with Scotland.

And then secondly as we were just discussing, you will have less of a U.K. voice, less U.K. influence in Brussels, and in Europe more broadly. And it will also set in motion trends within Europe that are more likely to promote instability or uncertainty than otherwise.

And I would simply say one of the great accomplishments of the last three quarters of a century, about 70 years or so, has been the stability and prosperity of Europe. Or to put it another way, twice in the 20th century Europe was the central venue of global conflict on a scale the world had never seen. And one of the great and creative and visionary pieces of statecraft of the 20th century or any other century was the building of modern Europe, beginning with the coal and steel community and, beyond that, building the European community and the European Union.

And don’t get me wrong, I’m not suggesting that we’re about to return to a situation of conflict or anything like that in Europe. But I do worry that this vote will subtract from or tear from the fabric of the prosperity and stability that I believe too many people take for granted in Europe.

And I’ve never been a subscriber to the theory of the end of history. And when I look at the rise of various populist and nationalist movements around the world, it’s a reminder that the kinds of gains that have been made over the last 60, 70 years are not necessarily permanent.

So again, I’m not predicting disaster around the corner, but I do fear and I do feel that this vote will set in motion trends that have the potential to make Europe’s future, say, over the next five or six decades a less stable and less prosperous one than we’ve seen over the last five or six decades.

SCHMEMANN: Next question, please.

OPERATOR: Thank you. Our next question will come from Namrata Brar with NDTV.

Q: Hello, thank you. My question is, how prepared are central bankers and global governments to deal with this crisis considering that the polls got it completely wrong and the markets are clearly showing their reaction? How prepared are the central banking forces across the world, and what kind of firepower will they or can they deploy at this point in time?

And what is still your best-case scenario and worst-case scenario, because the range of opinion varies from as much as two years of uncertainty and possible European recession to possibly seven to 10 years?

And I know Sebastian was just talking about five to six decades in terms of an overall perspective. But if you could give me a timeline between your best-case scenario and worst-case scenario with the repercussions, please. Thank you.

SCHMEMANN: Sebastian, why don’t you—

MALLABY: I hope I didn’t say five to six, five to six decades would exaggerate the depth of my pessimism.

I think that on your second question, you know, the renegotiation is going to be, you know, substantially more than the two years provided for in the Article 50 procedure of how you leave the EU if you start the clock from now, because I think before Britain even invokes Article 50 there may be a bit of a lag. And it may well be that it takes longer than the two years to negotiate it.

And then thirdly, when you get beyond the renegotiation, you’re going to face the need to renegotiate new trade agreements to replace the old ones from which you’ve just extricated yourself by leaving the EU.

So I think when you add together that preamble time, the negotiation for exit and then the renegotiation of new deals, you know, I can easily imagine five to six years. Maybe it’ll be a bit faster, but that’s my assumption.

Now, you also asked about central banks and whether they’re prepared. This I can, you know, assure you from direct knowledge that, you know, the Bank of England was not sitting around idly in the last four months. It was actively scenario-planning and getting ready for this and talking to the European central bank about how they would collaborate together in the event of this kind of thing.

I mean, central banks are good at scenario-planning, and this is a scenario that they knew was there.

OPERATOR: Thank you. Our next question will come from Jonathan Broder with Newsweek.

Q: Yes. I was wondering if we could talk about an issue that you guys raised earlier, and that is the impact of Britain’s exit from the EU, which is an economic union—the impact of that exit on NATO, which is a military, you know, alliance. The fact that Britain exits from the EU, I would presume, doesn’t affect its obligations and its membership in NATO. So I was wondering if you could talk about that a little bit. And then secondly, how do you think this will affect Russia’s dealings with Europe, and on issues like, for example, sanctions?

HAASS: Well, as you correctly say, there’s nothing in the vote that in any way affects the relationship between Britain and NATO, the obligations of Britain to NATO, or NATO members to Britain. Where I do think it could have some impact, though, is, first, if it’s—if the U.K. economy suffers as a result of this, which I think is likely, it suggests there will be fewer resources available to spend on defense. Second of all, if this leads to all sorts of separatist movements within the U.K., as I think is quite possible, it will clearly distract and divide the country even more. Take, for example, the question of Scotland, whether it will go off on its own as an independent country would raise fundamental issues, for example, about the ability of the use of ports for our nuclear—for submarines carrying nuclear weapons. So I think it raises lots of defense-related issues.

And then, secondly, where it could have another impact is not on NATO in the formal sense, but in the political sense that this does encourage centrifugal or separatist tendencies—be it in Spain or elsewhere, or if it encourages more populist departures from the center. Sebastian, for example, correctly described the traditional pattern of European politics, which tend to be the Christian democrats—the Christian democratic parties and social democratic parties. But now we’re seeing more radical or extreme parties on both left and right. If this reinforces that trend, it eats away at it. It erodes the basic political foundations that are at the core of NATO. And it suggests that a lot of NATO countries in the near, not-too-distant future, be facing major internal political debates, not unlike those we are likely to see in Britain, which could prove to be quite distracting, if not debilitating.

So I, for one, don’t see—I don’t see good coming from this. And while, again, it doesn’t have a technical or direct link to NATO, it could have all sorts of actual or indirect implications for NATO. And returning—coming to your second question, if you’re sitting in Moscow, one would have to think that steps like this would be welcomed, only because it would suggest a certain weakening, a lack of cohesion, a lack of focus on the part of countries that make up NATO, that make up the EU. It may be harder to get consensus about how—among other things, about how to deal with Russian and certain challenges that Russia poses. And also, historically Britain has been one of the more robust or stalwart countries when it came to dealing with Russia. And at the risk of repeating myself, to the extent that this ends up distracting or weakening Britain, I expect from the vantage point of Moscow, that wouldn’t be the worst thing in the world.

OPERATOR: Thank you. Our next question will come from Bill Faries with Bloomberg News.

Q: Hey. Thank you all. You just answered my question, so I’ll let someone else go.

OPERATOR: Thank you. Our next question will come from Steve Tananbaum with GoldenTree.

Q: Hi. It’s Joe Naggar with GoldenTree here.

Thank you, Sebastian and Richard, we really appreciate it. Very simple question for you. You know, what’s your perspective on the euro zone staying together? You made a comment about referendum, but what’s your opinion about the referendum actually resulting in a euro zone breakup, let’s say, over the next one or two years?

MALLABY: You know, I would ascribe low odds to an actual breakup, just because I think we’ve been to the brink already two or three times. People have seen this movie. And both the participants, the protagonists, in terms of the governments and the central banks, you know, have kind of settled in their minds that breakup is awful to contemplate and they’re going to do everything to resist it. And then, you know, by the same token, market participants have seen that happen. And then, you know, by the same token, market participants have seen that happen, and they’re thus less likely to push things to the edge.

I mean, having said all that, I mean, clearly, you know, this is a provisional judgment. If Brexit’s results is indeed followed by bad results politically elsewhere—let’s say the Spanish left does better than expected even in next summer’s election, let’s say that the polls in France showing Marine Le Pen, you know, surging and, you know, we already know that Pew surveys of opinions across Europe shows that the French are actually more hostile to the EU, at least in one survey, than the British are. So if you saw political knock-on effects, then I think the perceived risk in peripheral bombs in Europe does go up to the point where it becomes troubling.

I think what you’ve seen so far, when I checked the markets a few hours ago, was that, lo and behold, yes, money had gone from Italy to Germany. German yields were—bond yields were down and Italian bond yields were up, suggesting that the perceived risk of Italian bet had just gone up, because the sense that the glue holding together Europe had just been weakened. So there is already some of what you’re talking about in the market pricing, but I think whether it gets back to the levels it was at, say, 2012, 2013, where it really feels like an existential threat to the cohesion of the euro zone, I think it’s going to take a couple more political shocks to get there, given the credibility that’s been built up around the euro staying together.

SCHMEMANN: Well, thank you. We have reached the end of our hour. I do want to remind everyone that this was an on-the-record discussion. We will post a transcript of this discussion on our website at www.CFR.org. And again, you can find additional writings by our speakers there, in addition to many other resources on this issue.

I do want to ask our speakers just to close us out. This has been a pretty dark and somewhat depressing conversation. And since it is a warm, summer Friday, I wonder if we can find any silver linings in any of this, or is the outlook really all gloomy? Sebastian, let’s just start with you for a final word, and then Richard to wrap us up.

MALLABY: Gosh, I talked myself into a negative frenzy, and so I’ll try to—(inaudible). I mean, you know, the optimistic case is that, you know, democracies are resilient, life goes on. Britain will, no doubt, have a less-prosperous economy that it would have done. But if people can negotiate a new trade settlement, which even if it takes a while, you know, looking out beyond the horizon, once the uncertainty is resolved, Britain will return to a decent growth path and, you know, it will begin to do well again. We are fortunate in Western Europe and the United States that we have at least some cushion of prosperity. It’s not like the crisis in Indonesia in 1997, where, you know, people literally don’t have enough to eat when you have an economic shock. So we have more buffers in that sense.

SCHMEMANN: Thank you, Sebastian.

Richard, last word?

HAASS: Yes. Three very quick points. One piece of, you know, potential, I suppose you could call it, you know, positive effect would be if policymakers and officials, be it in the EU or the U.S. government or elsewhere, take this as something of a wake-up call and understand the price they pay if they continue to alienate voters and citizens. That sooner or later, as Mr. Churchill put it, they will get the order of the boot.

Secondly, I do think there are certain things that could be done. And this gets into the area, in particular, of helping workers prepare for the inevitability of multiple jobs in the course of their career. And I really do think that if societies take to heart the need for lifelong learning, mid-career training, and educational opportunities, it could have a desirable effect.

But I don’t want to sugarcoat this. I do think this was a consequential event. And I do think it is likely to mark the beginning of the dissolution of one the principal countries in the world. I do think it represents the high-water mark of the European project. And at the risk of being self-referential, you know, I have a book coming out in a few months called “A World in Disarray.” And the events of the last 24 hours will only add to the disarray in the world. So we would be unwise to underestimate the consequences of what has happened. And the real challenge for people in official positions is now going to be to cope with a decision that is going to have ripple effects that I believe went far beyond what those who went into their respective voting booths intended.

SCHMEMANN: OK. Thank you, Richard Haass. Thank you, Sebastian Mallaby. And thank you to all our participants. This concludes our call today.