The Brexit Debate and What it Means for Europe

In conversation with Michael Leigh, German Marshall Fund of the United States Senior Fellow, Sebastian Mallaby, CFR Paul A. Volcker Senior Fellow for International Economics, Adam Posen, President of the Peterson Institute for International Economics, and Constanze Stelzenmüller, Robert Bosch Senior Fellow, Center on the United States and Europe, Brookings Institution, discuss the political and economic implications of a vote in favor of Brexit. The speakers consider the potential immediate and long-term economic consequences, the immigration issues at the heart of the debate, the uncertain future of political leadership in the U.K., and how a Brexit would reshape the rest of Europe. 

LEIGH: Well, good morning, ladies and gentlemen, and welcome to this meeting, which the Council on Foreign Relations has organized in a very timely way, which will be focusing on developments in what in Brussels we have to refer to as the country that I know best, the United Kingdom, and its relations with the European Union in light of the upcoming referendum, in just eight days from now, on whether the United Kingdom will remain as a member of the European Union or whether it will leave.

Just let me take a couple of minutes to say what this means to me, both politically, but also personally when I think back on the last few decades. I joined the European institutions in Brussels in the late 1970s and had a brief pause from my academic career of some 34 years in the European institutions, during which I saw them transformed utterly from a rather inward-looking and totally Francophone club when I joined to a far more global, open, and transparent set of institutions when I left five years ago to—

STELZENMÜLLER: And Anglophone.

LEIGH: Sorry?

STELZENMÜLLER: And mostly Anglophone these days.

LEIGH: And predominantly Anglophone. I remember the key moment when this switch occurred, when a very senior French official had difficulties because he was presiding a meeting and in front of him, on the name plaque, there was “president” without an accent on the E. And this created a diplomatic incident, whereas two or three years later this was something that no one thought twice about. And certainly enlargement, that I was involved with for much of my career—seeing, first of all, Greece, Spain, and Portugal, after the overthrow of their dictatorships, join the EU; later on, Sweden, Finland, and Austria; and later still the countries of Central and Eastern Europe, Malta, and Cyprus—really transformed what had been a rather inward-looking club to an association of nations, of 28 nations, very highly integrated, and working across a range of political, functional, strategic, diplomatic issues to further the interests of the continent. And therefore, in personal terms, it was a great shock to me to see the gathering momentum in the United Kingdom over the last two or three years in favor of withdrawal from the European Union.

This began with a kind of movement within the Conservative Party, which was then upended by the creation or the further development of a new party, the United Kingdom Independence Party. And the response by the prime minister at the time, Cameron, to this was not to forcefully present the arguments why he considered that remaining in the European Union was in the interest of the United Kingdom—arguments that he’s putting forward today—but rather to throw, as they put it, red meat to the Euroskeptics by promising a referendum if he were elected prime minister in the last general election. And this was an important part of his platform that he thought would preempt, to some extent, the issue and put it on the back burner. But, in fact, it had exactly the contrary effect. And although he entered into negotiation with the authorities in the European Union, the different member states, in order to get a new deal for Britain that he said he would present to the electorate as the basis for the referendum—and he did obtain certain concessions, which were much less far-reaching than he’d originally demanded—but nonetheless, it’s really only in the last six weeks or so that he has begun to present in strong, positive terms the reason why he believes that EU membership is conducive to British security, stability, economic growth, jobs, and so on. And some of us rather wonder, if he felt that all along, why did he take the risk of offering a referendum?

As things stand today, the prospects for the referendum next week are, in a way, anybody’s guess. The polls have been up and down. Those of you who are following this know that in the last days it looks as though the leave campaign has a slight lead, varying lead according to which polls you look at. But we’ll come to that in a few moments. The only real judge will be the electorate next week, when they go into the ballot box. I thought until fairly recently that, despite all the arguments—the arguments on the leave side, which are very much based on emotion and concerns about immigration—sounds familiar?—and on the remain side, arguments predominantly based on the economy—I was reasonably confident, until a few days ago, that when British voters go into the ballot box, and in the privacy of that moment when they have to decide, having been presented with no clear vision of what life would be like outside the European Union, and having heard President Obama, President Xi of China, the leaders of industry, investors in the U.K., and others all saying that they were convinced it was in Britain’s interest to remain, and they would have to review their own policies, investment decisions, and so on if the U.K. left, I really was convinced that in the last resort this would lead voters to play it safe, and go for the status quo, and vote for remain. But in the last few days, this has been rather called into question, and the leave campaign has sought to preempt some of this by presenting its own sort of mini-vision of what would happen the day after and the months after and the years after, if the U.K. decides to leave.

So it really is a crucial moment for us, extremely timely, and we have a very, very distinguished and well-informed panel who will investigate some of these issues and give you their views before engaging in a discussion with you on some of the issues that are on your mind, including, I think very importantly here in Washington, what all this means for the United States, and indeed why Americans should care about the outcome of this situation.

So let me begin by turning to Sebastian Mallaby and asking whether the kind of predictions that have been made, that we’ve read about, issued by the Bank of England, by the Treasury in the U.K., by the OECD, the IMF, and others as to the economic impact of Britain leaving the European Union—Brexit, as it’s come to be known—are these convincing, in economic terms? Is the situation as dire as it’s presented? Might it be better, or perhaps even worse? How do you see these things, Sebastian?

MALLABY: Well, I think that, you know, there’s been, as you say, this series of blue-chip forecasts—the IMF, the OECD, the Bank of England, the Treasury, London School of Economics, and various others—and they are, without exception, projecting both a near-term economic shock on a longer-term growth cost. There’s one study out there, if you call it a study, which is produced by the leave camp, that pooh-poohs this and says Britain would do better in a leave scenario. That’s based on what I call the Cato Institute fallacy, to be a little bit rude about our friends around here. The Cato Institute fallacy is that if you leave, suddenly you will deregulate everything in sight in a way that you would never have done before, but suddenly you would kind of get out of bed in the morning and you would be shocked into this, you know, pattern of having unilateral removal of all trade tariffs, for example. So the vision presented to come up with this positive projection is completely politically implausible.

What I think is much more plausible is that the consensus projections of a shock at the beginning and then some growth loss down the road are, in fact, too optimistic. And I say that because uncertainty is very hard to model, and the amount of political uncertainty that we’re going to get from a leave is extreme.

So the first thing that would happen is that probably David Cameron, the prime minister, who says he would try to stay in office, would be forced out. Ken Clarke, the former finance minister and kind of Conservative grand figure, said he would last 30 seconds. That might be a little bit short, but I think he would be gone.

You’d then have a leadership contest in the Conservative Party, which involves a two-round stage where the parliamentary party choosing two candidates, putting it to the members. Those members vote by mail. That takes three months. So for three months, you have a leadership struggle going on.

In the meantime, you’ll have the question of Scotland’s future, because the Scots will have voted to stay in the European Union, and they may want to have another independence referendum so they can stay in the EU but be out of Britain. There will be pressure for that. Whether it happens or not I don’t know, but there will be a question.

Northern Ireland will be destabilized, because its prosperity and its peace process is based on a porous border with the south, and that porous border would be in doubt.

There would be all kinds of regulations in Britain that would have to be rewritten. Some of these are to do with the trade relationship with the most important trading partners, which would be totally up in the air. But there would also be domestic regulation which derives from EU law that would have to be redrafted.

So you have this massive array of uncertainty. And when you try to negotiate your way out of that uncertainty into some new regime, you’re depending on a talk with 27 other countries which, as we’ve seen on refugees or the euro crisis, are not super-fast about getting their act together. So the notion that you’re going to resolve this in less than two years seems pie in the sky.

The president of the European Commission recently said—European Council—recently said it could take seven years. That might be too pessimistic. But I think three to five years is a reasonable projection. The only precedent is Greenland leaving in 1985. Greenland had a grand total of, I think, 53,000 people at the time. It cared about one single issue, and that was fish. And it was dealing with a much more simple European Community when it left in ’85. Britain is the second-biggest economy. It’s going to be a long negotiation.

So I think the uncertainty is pervasive and prolonged, and so the economic cost could be higher than you can capture in forecasts.

LEIGH: Thank you.

Adam, how do you see the impact of the shock that this would be, as Sebastian says, both on the U.K. economy, its external balance that’s already rather fragile, and more generally on the economy of the eurozone?

POSEN: Yes, thank you, Michael. Thank you all for coming out.

I very much agree with Sebastian, which will probably not surprise you. But let me try to give a slightly different perspective on why he’s right and why it isn’t just a bunch of us CFR-types in conspiracy with everyone who loves the queen trying to preserve us from the Godless, the voters.

The first point to be recognized is this becomes a huge downturn in the attractiveness of investment in the U.K., and this comes from multiple sources. The first is the uncertainty that Sebastian articulated, which is absolutely right. We’re already seeing it in the data. We’re already seeing a full stop to housebuilding in the U.K. We’re already seeing a full stop to corporate investment in the U.K. We’re already seeing foreign investors of large multinationals saying I can’t go forward. And this uncertainty will only get worse.

We’re also seeing uncertainty because this is a regime shift. Now, the U.K. has prided itself for centuries now on not really having a written constitution, but this is effectively a change in constitution. This is—this is of that level of seriousness. And so the—and, as we know, for those of you who have seen the musical “Hamilton” as well as other versions of American history, constitutional shifts reflect the interests of who’s in power when you write the constitution. And if it is Boris Johnson, Michael Gove, Nigel Farage, and their ilk who are in power, writing the constitution, they are essentially writing a nativist, as Sebastian rightly says, fantasies of deregulation—and not all regulation’s bad, by the way—constitution that will be very harmful to economics.

The third point is the specific EU relationship. As Prime Minister Cameron said while I was at the Bank of England, you know, the total amount of trade that the U.K. had with the now-benighted BRICS was less than the total amount of trade they have with Ireland. So this additional fantasy that somehow the U.K. can completely reorient in the face of the history and geography—that it doesn’t matter, somehow, that they’re going to throw up at a minimum uncertainty, and almost certainly extra trade barriers with their huge market—for centuries is absurd.

So this is why, sort of going back to something Michael said, the campaign has become really about immigration versus economics—sort of status quo, are you shooting yourself in the foot or the head, versus do you care about people who don’t look like you, making sure they don’t come to your town. And sadly, that is very much what this is about.

Two other points, if I could. On the economic shock in the short term, there is a sense—and some people—and the Bank of England has been very careful not to say what they would do, understandably. There is a sense among some people that, oh, the Bank of England could ride to the rescue. And the currency may drop a lot, but that’s OK, it’ll be stimulative, and the Bank of England—well, maybe they can’t really cut rates, but they can print more money and it’ll be OK. I think this is a very bad bet. I think—there are very few examples in history we have of countries pulling themselves out of peaceful trade relations and integration with other countries. Very few usually when there’s been a revolution or a right-wing coup or something. You have to go to, like, Latin America and Mercosur and things like that. So the number of examples of this are very few, but the record is you get a currency crisis. You get a crash in the currency, and the central bank basically has to put up interest rates to keep inflation from going out of control, and to keep from a downward spiral in confidence, that no one’s minding the store.

And my bet is that the Bank of England might initially try to hold off or possibly try to do more stimulus, but in the end they would have no choice. It would be—going back to Michael and the point about a current account deficit, you’re re-running some of the bad 1970s. Now, obviously, you don’t have a fixed exchange-rate peg, so that buys you something. Obviously, the U.K. is a far more competitive place now than it was 40 years ago. Nonetheless, the odds are instead you get a capital flight and interest-rate hike in a recession.

The final point I raise is longer term. So, as Sebastian indicated, there is a longer-term growth effect here. And if this investment just fails for a few years, that already compounds the recession and the cost of the foregone investment we already had due to the crisis. That’s bad enough. But if you are fundamentally changing the U.K., the question becomes, what is your economic model going forward?

My concern is in part based on comments by the leadership of the pro-Brexit vote, is that they essentially double down on being a financial center; that they say we want to be the offshore financial center for Europe; oh, look, the Chinese are going to start trading renminbi denominated in London, it’s going to be great. Well, there are three major problems with this.

The first is that’s actually not done very well for the U.K. in recent years. As Mervyn King used to say, this has completely unbalanced the British economy. That’s why you have such wealth and such concentration in London, and such relative impoverishization of other industries in other regions of the U.K. It’s just a huge distortion. It tends to overvalue the currency. It tends to move things in the wrong way on the current account. It’s very bad.

Second, despite what Governor Carney said a couple years ago about being willing to have bank balance sheets at 900 percent of GDP, the fact is, as Iceland and Ireland Portugal have shown, it’s not a good idea to have banks that are many, many times larger than your GDP because you’re left holding the bag as taxpayers when something goes wrong. And so, if the U.K. goes down this avenue, they are just exposing themselves more and more to future risks.

The third reason why I’m concerned about this is because I think they’ll be desperate. If there is this kind of recession we’re talking about, even in the short term, if they do—after promising, oh, this is going to help the queue times at the NHS, but actually they end up having to cut further the NHS, they’re going to be desperate to do something. And the banks—the investment banks, the major commercial banks—are already talking about pulling out of London, and they’re going to lose some business to probably Dublin, not Frankfurt, because the euro area trading and stuff in the eurozone will want to take place inside Europe. So then, if you’re anti-regulator fantasists to begin with, you start going down the path of, oh, we can become an even more offshore center. We can become the Cayman Islands writ large, or Panama writ large. And this, frankly, is a way I think it also spills over to the rest of the world, is that the U.K. decides, hey, regulatory arbitrage. Letting AIG financial products run in London actually destroyed the U.S. financial system; didn’t hurt us, made us a lot of money. Let’s continue down this path. Let us be the race-to-the-bottom financial center. And I think that that’s where this is going because they’re not going to have any other option.

LEIGH: And, Constanze, cheer us all up.

STELZENMÜLLER: You want me for the cheerful note? I knew where this was going. (Laughter.)

LEIGH: Cheer us all up. I mean, the EU—

POSEN: Look how cheerful! (Laughter.)

LEIGH: Nice, smile early in the morning. It’s always helpful.

But the EU is facing any number of crises or disorders, as I call them, as they last for longer than a brief, acute crisis. Whether the lingering uncertainties related to the eurozone, eurozone governance, banking union, fiscal union, all in abeyance for the time being. The migration issue, which has become top of the agenda in Brussels. Lingering problems over sanctions, Ukraine, Russia, Putin’s efforts to divide Europe in various ways, and indeed to support some of the populists in Europe who are opposed to the European Union in different ways. Instability around the Mediterranean, North Africa, state failure in Libya. New waves of migration, possibly—

STELZENMÜLLER: Now, where’s the cheerful part? (Laughter.)

LEIGH: Very, very cheerful picture. And, I mean, how would Brexit affect the EU’s capacity to deal with these other challenges? And also, what would it mean to the internal balance of power, so to speak, within the EU? And would a certain country that you know well become more preponderant than it is today if Britain were to withdraw? In two-and-a-half minutes, please. (Laughter.)

STELZENMÜLLER: Thank you.

POSEN: I yield my time.

STELZENMÜLLER: So what Michael has done—has just done in a number of ways is raise the German question, just to make this very clear, since I am German. However, let me start with a personal note, if I may, just like you.

I am German, completely, but have the benefit of an English childhood, and of some childhood years in America. So I feel like an insider/outsider in this whole story. And I am old enough a German to remember vividly that while the loadstars of the early decades of the German postwar renewal were, of course, reconciliation with France and Poland, later on, and those were very, very important and still are, the countries that we wanted to be like were Great Britain and America.

Those were—that was what we wanted to become—liberal, outward looking, relaxed, normal was the word used then, countries that engage in Europe, that engage in the world. And that in general, you know, are seen as a force for good, both in their neighborhood, and on the continent, and in the world. And I think for a—for generations of post-war German politicians this was going to London, going to Washington, developing networks there, modeling themselves on the people that they met there. And that—and a very much smaller scale, included me—was the way to move our country towards a better place.

And of course, as you said, Germany these days suddenly finds itself in a position of what The Economist has called the reluctant hegemon in Europe. The hegemony part is only moderately persuasive, I think. The reluctance, yes, still there. That said, some of you will have noticed that Berlin is trying to be a bit more forward leaning of late, particularly since the three speeches in Munich. And I think seen from Berlin right now, what this looks like a really ghastly mid-life crisis divorce, where essentially your husband who you deeply love, and you’ve been with together, and you’ve got children, and you’re got a house, and you’ve got a car, and you’ve got history and stories is saying, you know what? I want to buy the Porsche. And I want to rip around with it. And you know what? If I drive it into the wall, that’s OK too, because I need to do this now.

And you’re saying, all right. You know, if you—darling, if you really need to do this, I think at some point you’re just going to have to go out and trash the car. But meanwhile, I’ve got stuff to do. You know, I think that’s the—(laughter)—you know, the children still need to finish school and university, you know? And the garden still needs to be taken care of. And there are larger issues here. So I mean, I’m caricaturing slightly for the purposes of making this clear. I think in Berlin there’s a sense that a great many concessions were made to London over time, in terms of loosening London’s commitment to Europe. And it’s got exemptions on many, many accounts.

And I think on that—on that point certainly, I think the relationship has reached the end of its tether. People who say now, oh, you know, Britain never got the concessions that it wanted, that is simply not true. But would Britain’s absence in Europe change things? Of course it would. I mean, not just because, as we all know, Britain had a very, very important role both internally and in the external relations of Europe as the anchor of the transatlantic relationship, as the guarantor and indeed the leader, together with France, in a more forward-leaning foreign security policy. And yes, of course, as a balancer between France and Germany and the Franco-German axis, which itself has become somewhat lopsided of late because of France’s going through a more inward-looking moment of its own.

And so there is a—look, I’m not going to—I’m not going to gild the lily here. I’m think people are terrified. I’m terrified. I think that this could—there’s two ways this could go. And these have been speculated upon, but as Sebastian said, it’s very hard to calculate uncertainty, not just on the economic front. In some ways it’s even more difficult in foreign security policy. There’s two models. One, we all rush towards deeper integration in one way or another. And certainly there are fields in which you would think that this would be an obvious thing to do with or without a Brexit. The euro zone being the most obvious case, and where you could say we are in fact at a halfway house which needs to be completed. But you could also say security and foreign policy and defense, indeed. You could say migration policy. And you could indeed, I think of late, you would add justice, and home affairs, and intelligence, and counterterrorism cooperation to that list. That’s one option.

Schäuble, my country’s finance minister, has recently said that he was absolutely opposed to this, which I have to say came as a surprise to me. I had always expected his house to be rather for that. Maybe it’s being technical here. I did hear a senior Southern European diplomat at a lunch here in Washington say recently that if Brexit happened, they would come to the June 28^th council meeting with a radical proposal for deeper integration, which I have to say I was surprised by because I’m not sure there are many takers for this currently in Paris and Berlin.

And so the other alternative is either, you know, chaos and muddling through or disintegration as populist movement and politicians in other European countries take a cue from Brexit and try to take off on their own. I think that would be disastrous for Europe, and I think it would be disastrous for the United States. That said, if it—if the United States is run by a President Trump, I’m not sure Washington will care.

LEIGH: (Laughs.) Thanks, Constanze. Picking up on the last comment you made, about the impact on other countries, I wanted to ask Sebastian about the risk of contagion to other EU countries if Britain were to leave. Would we then see similar demands arising in Denmark, in Poland, in France, in Italy? There have been signs of this. Do you see a domino effect?

MALLABY: I think that they said there’s two kinds of contagion that might take place. The one that’s most commonly cited is that there are populist movements, which are often anti-EU, across the European Union. And if you look at euro barometer polls, it’s very striking that the countries where people appear to be most anti-EU, first is Greece, for obvious reasons have to do with austerity, and second is France, not Britain. Britain is third. So the French voters appear to be more skeptical of the EU than the Brits. And of course, there are apparently plenty of people in France who are willing to vote for Marine Le Pen, who will probably be in the runoff in the presidential race next year.

So the French establishment sees all this and is obliged to take a pretty stiff line to, I think, to—this plays into the chaos and uncertainty point I was highlighting before. If Britain thinks it can easily negotiate a deal with the rest of Europe on the terms of its departure, it’s got another thing coming, because the French need—they don’t just want—they need to punish the U.K. to send a message to their own domestic populists who would like to follow Britain’s example. So that’s one type of contagion, is to the populace elsewhere.

But the other sort, it strikes me, is that other EU members that are no in the euro zone—Denmark, most obviously—are going to feel uncomfortable because they worry, understandably, that the integration that Constanze talks about, which is the logical—you know, we have a halfway house in terms of the euro. And we need to complete the building. And that means further integration of fiscal policy and so forth. If you’re not in the euro zone, that deeper integration is a threat. You feel like the insider club is going to make decisions that they impose on you. At least if its Britain and Denmark and a few others, there’s a bloc can that push back against that. I think if Britain leaves and the most insistent and weighty advocate of the don’t squash us non-euro brigade is gone, the rest of the non-euros become rather vulnerable.

POSEN: Can I piggyback on some more narrow economic transmission mechanisms? Because I think—I think Constanze’s dissolving marriage analogy is very apt, as well as very lively. Integration is a world we toss around a lot, but the degree of integration of the U.K. with the EU economy is very large. And so it is a lose-lose. I completely agree with Sebastian and Constanze that both the game theory logic and the actual statements in private and public of senior European officials is we cannot let this be easy for the U.K. There’s not going to be a nice divorce here. We need a settlement that is—that pays me alimony for all that I gave up all those years. (Laughter.)

And putting it very crudely, I mean, it’s—if you have 27 nations, think of it in congressional terms. Any deal is going to have to basically be approved by all 27. So each one is going to just simply take its own little veto point and say—if I’m Denmark, I want something on agriculture. If I’m Ireland, I want something on border control. If I’m Italy, I want something—god knows what—I want money. (Laughter.) But whatever it is, they’re each going to try to extract something, as well as having this desire to deter others. And that is logical, but it’s also harmful to Europe—it’s harmful to Europe itself. It may not feel it has a choice, and this may be where it comes out. But it’s harmful to European trade and European economies. It raises the level of uncertainty about investment and integration—excuse me—within Europe.

And then you start having to think through all the things that have to be untangled. So let me give you a couple examples. So we’ve mentioned Ireland. As Sebastian pointed out, as my colleague Jacob Kirkegaard at the Peterson Instituted was among the first to point out, you’re going to institute this border between Northern Ireland and Ireland, that reopens entirely the peace process, the questions, all that. But you also are doing huge damage to the Northern Ireland economy and some major disruption to the Irish economy. At the same time, you probably have a nontrivial number—because remember, Dublin’s kind of small—a nontrivial number of financial services and other industries who want to move their headquarters from London to Dublin because it’s English speaking, rule of law, short flight, they can even still live in London if they want, but do that. So Ireland gets completely whipsawed in different ways.

Spain. There are a million U.K., mostly retirees, living in Spain. They are not going to have access to the health care in Spain paid for anymore. What happens to them? Do they all move back to the U.K.? Which is an interesting form of not immigration, but which is going to do more to bankrupt the NHS than any sort of Polish plumber of working age. Do they dump their real estate on the market in Spain because they can’t live there and count on health care anymore? Or what happens to the Spanish real estate market, which has just recovered from all the turmoil?

Poland. Now, this gets more into the kinds of things Sebastian was talking about. You have a right-wing government that has been increasingly going right-wing. They took off on this overhyped anti-neoliberalism thing from the IMF and made a public statement, well, we’re basically recanting everything we’ve done for the last 30 years, even though that made us the best-performing economy in Eastern Europe. You start getting this momentum between Poland and Orban in Hungary of not just populism—which frankly is the more serious part, I agree—but of anti-liberal economic policies. And then, of course, in the financial markets you start pricing back in breakup risk in the euro area.

So it does come down to what Constanze mentioned. Can the EU turn this into some whole new integration project? And that has been the theory of functionalism that we’ve always had with the EU. There’s a crisis. We respond by doing more. I am very scared that this time, at least, it will be a long lag before that happens. And there’ll be a lot broken as a result.

LEIGH: I think you’re right.

Well, the time has come to open up to your questions and comments or remarks. We have about 20 minutes. Please introduce yourself very briefly. And if you wish to address your question to one of the panel, please indicate.

Yes, sir.

Q: Yes, Mike Elliott from the ONE Campaign, and before that many other affiliations, the Economist, as Sebastian.

Some time ago I wrote and presented the definitive BBC series on Britain and the U.K. called The Poison Chalice, which has just been reshown, I’m pleased to say, on BBC TV. And of course, I agree with everything that Constanze and Adam and Sebastian have said. But as I used to be a kind of full-time journalist rather than part-time one, let me play devil’s advocate for a second.

Would the panelists concede that, as President Tusk and Finance Minister Schäuble have both in the last week or so sort of hinted, that for 20 years the response in Brussels to every crisis that’s come along of more Europe has, if you like, exacerbated an existing suspicion in the U.K. and elsewhere that nothing that people say to stop more Europe is every listened to? We’ve had referendums in—I’ll lose count—France, Denmark, Ireland—which have essentially been kind of treated by the European establishment as an excuse to have another referendum until you get the right question. So is there any—is there any fault to be laid at the feet of the European institutions for not taking what are now called populist pressures seriously?

MALLABY: Yes.

LEIGH: Sebastian, go ahead.

MALLABY: Well, look, Michael, this is a very good question, as I would expect from you. And I think the answer is yes. I mean, in some ways Europe seems to me to be an experiment in different types of cross-border integration. We know that in a world with lots of trans-border threats, you need trans-border institutions. And we probably have, in aggregate in the world, too few not too many. So in general, you know, the Bretton Woods institutions, I think one could have more of them not less.

But in the case of Europe, it’s a case where sometimes the integration has been too ambitious and has overshot. I think that’s clearly the case with a single currency. And you know, a lot of the trouble that we see how and a lot of the arguments being wheeled out in Britain about why we should leave the club are precisely that this is a club of economic failure. Why do we want to be a member of that? And the economic failure is not because of the single market, which has been fantastic. The single market is an example of great integration. But the single currency is not. It’s the opposite. So I think that the problem I suspect if you brought the Euro elites into, you know, a padded room with no one listening to them and you said, how, was the euro a mistake? You know, they would probably say yes. But you can’t go back very easily, as we’ve seen with the Greek dilemma.

So one is stuck. The house is half-built. Do you fire the contractor when they’ve knocked all your walls down and say I don’t like you anymore? It’s quite difficult to do. So you—there is this sort of logic of moving forward, which both Adam and Constanze have referred to. But it’s not clear, at least in the single currency case, that that’s ultimately going to work.

 STELZENMÜLLER: Well, you know, Michael, as I was saying earlier, I think the EU and leading nations in Europe have already made an awful lot of concessions to Britain. And I think in retrospect, it seems to me that successive British governments have done a fair lot of moving of goal posts. And I think it’s—I think, you know, one is entitled to say that.

I also think that the leavers, it seems to me, recklessly disregard the positive side of European integration and the impact that that has had on them. The degree of peace, prosperity, and democratic transformation that was brought to Europe, and that it of course has a benefit to them. I mean, it’s—one of the mindboggling things to me, having not just grown up with British—you know, in sort of British surroundings, but sort of somewhat consciously sought out as I grew older and sort of as a journalist, you know, connections and networks to think—you know, how does one do these things? Looking at British civil servants and journalists and thinking this is what we ought to be doing.

How the imagination—the political imagination and breadth of vision of successive generations of British politicians and policymakers seem to have shrunk within my lifetime. And I can’t quite explain to you how that has happened, but frankly I don’t think Europe should take the blame because whenever I travel around Europe, and I do a great deal of that, particularly to the periphery, I see transformations which are miraculous and which are worth fighting for, and which I believe my generation of Germans is now trying very hard to fight for, but which we’re not going to be able to do on our own.

And I mean, case in point, Turkey. The leave campaign is now waging a vicious and completely disingenuous campaign based on the supposition that millions of Turks are standing at Calais just waiting to swim over, you know? It was the Brits who worked hardest. Who in fact—you know, were wielding a crowbar in order to get Turkey on a membership path, over the strong objections of many other Europeans. That is now completely forgotten. And you know, I could go on, but that just gives you one example. So I’m going to disagree slightly with Sebastian.

LEIGH: Perhaps we’ll give others an opportunity to pose their questions. Yes, please.

Q: Thank you. Doug Rediker, International Capital Strategies.

So the discussion so far has been all premised on the idea that the Brexit vote takes place for the leave campaign to win. I’d just like to ask the panelists, what happens if the remain campaign wins? Is it business as usual the next morning? What is the lasting damage? Or what is the lasting consequence of a successful remain campaign, both within the U.K. political system, and then more broadly across Europe?

LEIGH: Sebastian.

MALLABY: So I think one thing that’s happened during this campaign is that Prime Minister Cameron began by saying he didn’t want to have blue-on-blue attacks. He would be restrained in what he said about Boris Johnson and Michael Grove. He now calls them liars pretty much straight out. So the degree of vitriolic poison within the governing party, at a time when the opposition is run by a far-left guy with no governing potential, means that there is a political vacuum in Britain which would be damaging, even if we vote to remain.

It’s also the case that Cameron has promised that he will step down by 2020, which in effect means he has to go in 2019 so that his successor has a chance before the 2020 election to get into the office and get ready. So there’ll be a three-year run between this referendum and a leadership transition. And so therefore, we’re already in it. And it’s very likely that the majority of the Conservative Party rank and file will have voted clearly for leaving the EU, even if the country has voted to remain.

So therefore, the next leader in the Conservative Party, reflecting the views of his party, is likely to be a leaver, probably Boris Johnson, who has demonstrated a capacity for making stuff up to an amazing degree. And so I don’t think this issue goes away. In the course of becoming leader of the Conservative Party, the next person will probably say things in the campaign which, although not quite promising a second referendum, will kind of harrumph that, you know, of course we know we should have left.

So I think this British question, a bit like the Scottish question after the referendum in 2014 where the vote was to remain the U.K., but immediately the Scottish nationalist party did even better in the Scottish elections and in terms of Westminster representation. I think the same thing happens here. The Conservative Party continues on its anti-EU trajectory. Even if we remain, that’s bad for the sense of stability in the relationship.

I signed a petition actually just yesterday precisely about this point, which is, you know, if we do vote to remain, for goodness sake, let’s not go back to the old British way of carping and, you know, pointing the finger and scoring cheap points at the expense of Brussels. Let’s not leave, but let’s lead. Let’s get engaged and try to build, you know, a constructive agenda of EU cooperation on stuff that matters for our kids.

But I’m afraid—you know, it’s a good petition, but I see the political—

POSEN: Can I—sorry. Let me be more boring and more optimistic, with one exception. The historical record, including the Scotland vote, the Parti Québécois vote, house votes on the Front National in France, in general is you do go back to business as usual. I think you get a brief run-up in sterling and in stocks in the U.K., and whatever. Nothing material of long-lasting significance. I think the status quo bias is at least as strong for businesses as it is for voters. There will be a sigh of relief. I don’t gainsay anything Sebastian says about internal British politics.

Where I want to pick up on Constanze, and then she can correct me, is I think that the real fraying is U.K.—intra-U.K.-EU that maybe there’s not this trust. Maybe there’s a sigh of relief. Maybe it’s an agreement to live separately but not fight in front of the kids. (Laughter.) But essentially, there ain’t going to be that many more special deals for the U.K. I mean, there may be a little bit of—if the U.K. aligns itself with Denmark and Poland and creates a euro out bloc, maybe something, but there’s just not going to be much there.

The final thing I would say is I think the biggest positive upside is I’ve been very worried, obviously, about the Trump scenario. Both Donald and I will be in London the day after the vote. I assume he will get more press coverage than I do. (Laughter.) He has a better tan. But you know, I am very afraid that a Brexit vote essentially legitimatizes nativist, populist movements. So if you go back to history and you look at Mussolini roughly 1929, there were a lot of people—including in the U.K., including in Germany, including in the U.S. who said the classic, you know, he makes the trains run on time.

It was legitimating for Hitler and the Nazis in the ‘30s that, oh, yeah, these people say that out of office and they’re terrible, but in the end they come and nothing horrible happens. And so to me, the big effect—a big effect, I shouldn’t say the—a big effect of a remain vote is we can continue to say these are people outside the spectrum. And that applies to Trump.

STELZENMÜLLER: I’d like to jump in here, because I think I’m going to be more pessimistic. A, you know how it is with a near divorce? You’ve just taken a long, hard look at your husband and said, shit, you know, this isn’t the guy I married. And you know, you may still live in the same house, but it’s a good bet that you’re going to have separate beds. And I think the most disturbing thing about the referendum campaign in Britain and, indeed, the American election campaign, has been the figures, the ideas, and political positions that have suddenly been aired in public. And there, I would say there is a real difference between populism in Great Britain—you had asked us this before—and in America and in my own country.

We, of course, have the alternative for Germany, which is a nasty lot of people who are flirting with the extreme rights in overt ways. But our parties are sort of congregating in the middle. They’re all jammed in the middle. And extreme positions don’t really have much of a—of attraction. One of the great unhappinesses of the left party in Germany has been that it really has gotten very little traction about all that’s going on. And in fact, left party politicians have been looking at Bernie Sanders wistfully saying: You know, we never thought it could happen in America.

And whereas here, you have Jeremy Corbyn, as you said, who has sidekicks like Seumas Milne, you know, who are the epitome of gold-spoon, you know, British upper-middle class educations and upbringings. And who, from what I can see of his previous writings—this is the public affairs man of Corbyn who used to be a leader writer for The Guardian. If you read his stuff, it’s pretty much mainline Trotskyism, which I find astonishing. I mean, you couldn’t do this kind of thing in Germany. People would laugh in his face. And what I find astonishing is that people like Sanders, and Corbyn, and Milne, and Trump, can even get so far in countries which used to be sane. I mean, that’s what I’d like to see somebody explain to me.

LEIGH: Constanze, looking at the watch, I think what we’ll do is take a series of questions or comments, and then I’ll ask you response to any of them that you might wish to in the final remarks.

Yes, please. There on the end.

Q: Hi. Adina Renee Adler with Alcoa. We’re a company that has 1,800 employees at 14 locations around the U.K., which doesn’t sound like a lot of employees but it’s a high-value, highly automated industry that supplies to the automotive and the aerospace sectors. And of course, it was this model that was built on developed on U.K. being a part of the EU.

But you know, a lot of the arguments for the leave campaign, of course, is that those that support remain are of the elite and the industries and, you know, those that may not understand what’s going on at the micro level. So can I take you guys back to the micro level, maybe the children in your ongoing divorce scenario, because those 1,800 employees are also voters. And so our CEO, like many CEOs, has sent letters to the employees saying, hey, look, as a company, we support remain because that’s the foundation of our business model. But it is ultimately your vote.

So, you know, I don’t know if it’s putting yourself in the shoes of a politician—I mean, how do you bring those arguments back into the micro level, you know, in support of remain? You know, if it’s an optimistic scenario or if it’s a pessimistic scenario, but how do you tell people at the local level—like, what’s really driving those that are supporting leave? And you talk about immigration, but, like, how do you come back and say, OK, we get that here’s what the—

LEIGH: Can I ask you to keep—I’m sorry—

Q: --the basic impact is? I just—I need reality rather than just sort of high level.

LEIGH: Thanks very much. So the base, and what is the impact of that. Yes, please.

Q: Thank you. Sonia Schott with Diario las Americas.

I would like to know what are the implications in terms of security—world security if the Brexit happens? Thank you.

LEIGH: Any last comments or questions? There.

Q: What will Mr. Putin say the day after the vote?

LEIGH: OK. Thank you very much for those comments and questions. Let’s just do a final round. And please respond to these questions and, indeed, any other points that you would like to in the final wrap-up remarks. Constanze.

STELZENMÜLLER: I mean, the Kremlin and a lot of a Russian politicians have already made it very clear where their sympathies lie. I think you can go on Russian Twitter feeds—English-language Twitter feeds anytime and see that. Which, you know, I’d be quite—that would give me pause for thought if I were British, frankly. As for security, I think that Britain would find itself diminished rather than strengthened by Brexit. One of the—I’ve watched quite closely successive British strategic defense reviews. And the reality is that it’s been about a decade since Britain was able to afford and deploy full-spectrum forces in the world way that the nation-state used to think, you know, it was—that this due to itself. That’s just no longer possible.

And in fact, I think British policymakers have glossed over the degree to which they are deeply integrated with Europe on this level as well. And one of the ways in which that has manifested itself is that increasingly British security has done what IBM did a generation ago, it’s gone out of hardware and into software. In other words, it’s emphasized the intelligence relationship and it’s deemphasized the hardware relationship. So Britain leaving, I wonder why Britain and NATO should defend a Europe that it considers feckless in the context of the European Union. I don’t get why Britain would want to defend a Europe against a Russian threat if the Kremlin is espousing Brexit. These are things that worry me deeply. And I’ll leave the Alcoa question to my colleagues.

LEIGH: And the question about the micro impact? The EU is very often seen as a top-down project, but what would people at the factory floor level or those at the more popular level, what would be the effect for them?

POSEN: It’s unfortunate our colleague from Alcoa chose to phrase it as I don’t need high level I need micro because that means one of two things: It means either that—and this may be the reality—one needs a set of attractive lies to appeal to people who are nativist and who are making their decision on completely bogus basis, or it means that Alcoa and other business leaders are not being frank enough. Because the reality is—I can’t obviously speak for your company—but the auto industry will essentially shut down in the U.K. if it’s not an export model to Europe—if they’re not part of the single market, if they’re not part of the same regulations. It’s always been a lot cheaper to move to Eastern Europe, to move to Southern Europe. High value added, you know, it’s not that hard to find high value added skilled workers of manufacturers throughout Europe.

So it’s hard. And then if we talk about a pound that declines by, say, I don’t know, 10, 20 percent, a Britain that imports vast quantities of food, clothing, entertainment, everything except fuel, that’s a huge hit to the people’s standard of living. NHS, as people have pointed out who have done the real numbers, the migrants, because they’re younger and hardworking are essentially net payers into NHS. And as I mentioned, there is more than a million—because it’s not just Spain—closer to 2 million older Brits living in Europe whose healthcare needs are being taken care of by European health systems. And they are going to have to come home or the U.K. is going to have to start paying those foreign health systems for the cost. I mean, it’s a huge material hit to the average working people.

I know you didn’t mean it that way, but I’m just—I’m just—it is ultimately the same question as with Trump, as with Marine Le Pen. The InFacts campaign that Sebastian, I think, has been part of; my friend Jonathan Portes, who’s been out there doing this—I mean, at some point, whether it’s journalists or politicians or us in the supposed elites—there is a problem when you say these are the facts, and the people who stand up and lie can’t be contradicted in an effective way. So the stuff they say about migration, for example, and I’ll end here—and, again, I know you know this, but I don’t know this isn’t micro.

You’re living in the middle of England. And you say, I really am sick of having a Polish deli in this town and a group of people who don’t look like me and speak and I think it’s bad. Fine. So you pass this law. You put up more immigration barriers. What’s going to happen is you then still are going to have huge pressures for illegal immigration, because the French are just going to stop policing the border at Calais. The Irish are going to be not very happy, and the Danes, and all the people coastal to the U.K. You have all the non-EU migration that’s been coming for decades, and is much bigger than the intra-EU migration, because the intra-EU migration people go home. During the recession, a lot of the Poles went home to Poland.

It’s just not going to work. The only way it works is if you do truly get intrusive in draconian ways in the U.K. and change huge numbers of laws. I mean, again, it’s like the reduction ad absurdum of Trump’s wall. You know, you can literally deport millions of people. You can literally build walls. But it destroys your society. And so in the end, I don’t view that as high level. I view that as very real. And it is, of course, and I completely sympathize with you, and I feel unable to sleep at night whether it’s here or in Brexit, that things that are commonsense realities somehow cannot be communicated. And maybe it’s because people of us, like at CFR are inherently bad messengers. But somebody has to be able to say the other stuff is a lie.

LEIGH: Hmm. Sebastian, briefly.

MALLABY: Well, just briefly. So, I mean, I want to reiterate what Adam just said. It does annoy me deeply when Michael Grove, one of the principal leave campaigners says, quote: The country is fed up with experts. I mean, what do we prefer, non-experts? We prefer people who don’t know what they’re talking about to people who do? I mean, at a certain point a lie is a lie and something which is wrong is wrong.

And we shouldn’t say, oh, but people don’t want to hear that. No, we need to find a way of actually communicating the truth, because the truth matters. And I mean, I’m drive to this, and this organization I’m part of, InFacts.org, it’s about the facts for being in. And there are so many untruths on the other side. When they go around in their campaign bus, which has on the side that we contribute 350 million pounds a week to Brussels, when the real number isn’t 350 million, and they know it, and the national statistician has said it twice. And everybody said it’s wrong.

And so they interviewed the guys on the bus and they say: How do you feel about going around in bus which says something which is not true on the side? And the answer is: I’m delirious. That’s Boris Johnson. He’s a classicist, very educated. So he chooses words carefully. Delirious can mean very happy or it can mean I’m sort of, you know, so tired I’m hallucinating. And he knows that double entendre. And he’s basically saying: To heck with the facts. I don’t think we should give into that.

But let me just leave you with one last thought. So I think it’s true that when you communicate with people just hard facts, you know, I believe they’re important, I don’t think we should give up on them. But you might need something else. And I think the something else is best epitomized by the video that went viral recently where the former Prime Minister Gordon Brown is walking around the rooms of Coventry Cathedral, symbol of the destruction wrought by the division of Europe in the Second World War, and he appeals to people. He looks in the camera and he says: We have now a Europe which is not about armaments, it’s about arguments. We have left the blood and the division behind. Do you want to change that?

And I think there is something big about history and overcoming the terrible history of Europe, where very century people destroyed cities and killed each other. And I think that, at an emotional level, is what you need to counter the leave campaign stuff about sovereignty and take control, which is ultimately facile and ahistorical.

LEIGH: And to leave you with another slightly positive thought, if despite expectations there were to be, in response to your question, a decent majority in favor of remain, then one of the things that would happen would be the implementation of the concessions that Cameron won, of which is more emphasis on competitiveness, better regulation, getting rid of unnecessary red tape, and so on. So it’s just conceivable that the U.K. might then engage a little more on a positive agenda, and might be a little bit less cautious also on the diplomatic and security front when it comes to things like the Normandy formula and so on, from which they’ve been studiously absent for some years.

I’d like to thank our three panelists very much. Thank you for being here. (Applause.)

(END)