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USJI Voice Vol.18

European Governance after the “Brexit” Shock: from the Japanese perspective

August 22,2016
Dr. Koji Fukuda
Waseda University

Introduction

The withdrawal of the United Kingdom from the European Union (EU) was a great shock to not only EU member states, but also to Japan and the rest of the world. It is feared that this will encourage Euroscepticism in other EU member states and cause an EU withdrawal “domino effect.”

At the present time, the EU faces diverse and grave risks, such as the Euro crisis, the immigration and refugee crises and the threat of terrorism. “Brexit (Britain + Exit),” which is a further severe blow on top of these problems, has raised the fundamental concern of whether the EU can continue to be the core of risk governance that will secure the solidarity of Europe in the future. How should these crises be tackled and by whom? This paper examines the realities of European integration that “Brexit” has brought to the fore and the background and implications of various fundamental structural risks in a world that has become increasingly globalized. In addition, this paper proposes to Japan, and the rest of the world, future measures in response to this state of affairs.

  1. The History of European Integration and the U.K.

Why is European integration, which had been advanced based on lofty ideals, such as freedom, human rights, tolerance and democracy, following World War II, now being brought to a standstill? What is it about the “free movement of people, goods, capital and services within a single market, across national borders,” the most distinguishing feature of the EU, that has led to the expansion of economic disparity and risks related to security and order?

The concept of European integration originated with the peaceful objective of creating a “no-war community” to permanently remove the threat of war in Europe. In previous centuries France and Germany have repeatedly gone to war with each other over the underground resources of coal and steel in the Alsace-Lorraine region along their shared border. As a result of the lessons learned from fighting two world wars, in 1952, at the time of the establishment of the European Coal and Steel Community (ECSC), France appealed to West Germany, Italy and the Benelux countries of Belgium, the Netherlands and Luxembourg to form a six-nation international organization to jointly manage coal, iron and steel resources. Furthermore, in 1958, the European Economic Community (EEC) and the European Atomic Energy Community (EAEC) were established. These three consortia from the basis of the current EU.

In 1960, as a counter response to the establishment of the EEC, the U.K. set up the European Free Trade Association (EFTA), a seven-nation organization with the U.K. at its core. However, the EEC completed a customs union in 1968, and achieved markedly higher economic growth than the EFTA. Consequently, the U.K. realized the economic merits of the EEC, and in 1961, applied for membership. Then French President Charles de Gaulle considered U.K. membership of the EEC to be a “Trojan Horse” that would be used by the U.S. to manipulate the EEC from the shadows. Therefore, the U.K. was refused membership even after subsequent applications in 1963 and 1967. At long last, in 1969, after the resignation of de Gaulle, new French President Georges Pompidou agreed to open negotiations for EEC membership with the U.K. the following year. Accordingly, in 1973, under the administration of then British Prime Minister Edward Heath, U.K. membership of the EEC (and ECSC and EAEC) became a reality.

 

  1. The U.K. Referendum on Remaining in the EEC and EU and the Outcome

In June 1975, then British Prime Minister Harold Wilson of the Labour Party introduced a referendum on remaining in the EEC, as an attempt to strengthen his party base. In this 1975 referendum campaign, support for remaining was virtually the same in financial circles and the media. The result was 67.2% for remaining in the EEC with a voter turnout rate of 64.5%. As Wilson intended, the vote confirmed that the U.K. would remain in the EEC.

However, in the lead-up to recent referendum on the U.K. remaining in the EU on June 23rd, 2016, various politicians such as Mr. Nigel Farage, the leader of the U.K. Independence Party (UKIP) and the former Conservative mayor of London, Boris Johnson advocated withdrawal from the EU, and the circumstances differed greatly from the time of the previous referendum. In January 2013, then British Prime Minister David Cameron, pressed by Euroscepticism within the Conservative Party, announced that a referendum on remaining in the EU would be held by 2017. This was put forth as a pledge in the campaign for the 2015 general election, which the Conservatives won. In the U.K., which is governed by “the principle of the sovereignty of the Parliament,” a referendum is not something that is mandated by law in accordance with the constitution; furthermore, the outcome of a referendum is not legally binding. However, politically, it would be difficult to ignore the result. If the referendum’s outcome had been as intended by the prime minister, who wished to remain in the EU, then it would have become a means to firm up his position within the party, backed by the support of the people. However, as it was not the prime minister had to resign and there remains the political risk of the result leading to the break-up of the Conservative Party.

Previously, Mr. Cameron had sent a letter to European Council President Donald Tusk on the subject of “a new settlement for the U.K. within the EU” (dated November 10, 2015). It presented the U.K.’s reform demands to the EU, covering four areas: (1) economic governance, (2) competitiveness, (3) sovereignty and (4) social benefits and free movement concerning immigration. In response to this, Mr. Tusk’s reply (February 2, 2016) included concessions that partly went along with the U.K. demands for the most part. Based on this, Cameron decided to hold the referendum. The points at issue were the “problem of immigration” and the U.K.’s “recovery of national sovereignty.” Public opinion was split between those who wished to withdraw from the EU and those who wished to remain, and the support for these two respective sides remained more or less even until the day before the vote.

The outcome of the referendum was 51.9% to leave, and 48.1% to remain with a voter turnout rate of 72.2%. The U.K. had thereby elected to withdraw from the EU.

Those favoring leaving the EU asserted that withdrawal would mean that the influx of immigrants could be curbed and that since the U.K. would no longer have the financial burden of contributing to the EU, this money could be redirected to covering the cost of the National Health Service (NHS). Meanwhile, those favoring remaining in the EU stressed the economic benefits obtained from zero tariff access to the EU internal market, numbering 500 million people in size. Most remain supporters were highly educated with bachelor’s or higher degrees, and they took into account the economic and trade benefits that the U.K. obtained from the EU. In addition, many young people who wished to gain access to employment opportunities in countries on the European continent took the stance of supporting European integration.

On the other hand, many who supported withdrawal from the EU were not as well educated and had lower incomes. These were often people who were dissatisfied with their employment situation, felt alienated and believed they received almost no benefit from the EU. As the trans-border movement of low-skilled workers leads to lower wages or unemployment among the poorest in the societies of the receiving countries (“race to the bottom”), some socially and economically marginalized people sympathized with the views of far-right parties, increased their animosity toward immigrants and refugees, whom they considered as threats to their livelihood, and supported xenophobic nationalism. This division between remain supporters and leave supporters brought to the surface social fissures such as the generational divide between young people and the elderly, the social class divide between the rich and the poor, the regional divide between city dwellers and residents of outlying regions and the antipathy of the low educated citizenry toward rule by the highly educated elite. However, the problems that emerged as a result of Brexit are shared areas of concern for many European countries, the U.S. and other G7 countries.

  1. The Response to Globalization and the Future of EU Internal Market under Neoliberalism

The “free movement of people, goods, capital and services,” is often regarded as a “social experiment” that historically anticipated globalization. However, in the latter half of the 1980s, the EU changed its direction towards internal market integration under neoliberalism and a way from strengthening “Social Europe”. The flames of the bankruptcy of Lehman Brothers, known as the Lehman Shock, in 2008, in the U.S., leapt over to Europe and this, together with the Greek debt debacle since 2009, has led to a Euro crisis. The Eurozone thus fell into a state of chaos due to the double effect of a crisis in the financial sector and a crisis in public finances. Thereafter, the EU established the 2012 European Stability Mechanism (ESM) and the European Central Bank (ECB) created a system to directly monitor banks in the Eurozone. Furthermore, mechanisms were constructed for Euro system reform and “economic governance” to prevent crises in public finances in advance. Although the troika provided assistance for public finances to countries facing a debt crisis, while in exchange imposing rigorous austerity measures and structural reforms, these instruments were not as effective as expected. In the countries known as PIIGS (Portugal, Italy, Ireland, Greece and Spain), rises in the unemployment rate and the weakening of social protection systems have brought about political instability. Consequently, support among the public for political parties advocating populistic positions encouraging Euroscepticism, and promoting an anti-EU ideology or withdrawal from the EU, has been growing in the group of six original member states.

Since these crises began, disparities between regions within member states have been growing and there have arisen structural changes that further accentuate the differences between industries, companies, wages and assets. The North‐South divide, the disparity in income levels between developed and developing countries, has grown worse in the case of Germany, the wealthiest member state, and the PIIGS countries subjected to rigorous austerity measures. The U.K. won multiple exemptions (opt-out) and has maintained a unique position, despite not participating in either the Euro common currency or the Schengen Zone, which started in 1995 and concerned the free movement of persons, thus creating further disparity. Compared with other EU member states, the effects of the Euro crisis and the immigration and refugee crisis should have been limited in the U.K.. However, social divisions and labor market divisions have arisen as well as, in the other countries of Europe. The fissures have become sharply apparent in societies with growing economic disparity that creates poverty, social exclusion, and winners and losers. For the majority of people, who believe they have not shared in the benefits of globalization, there is dissatisfaction and disillusionment with the current system of government; and this is a trend that is erupting in Japan, the U.S. and Europe alike. There is a mood of antipathy and a feeling of despair regarding Europe as a result of the acts of terrorism that took place in Paris and Brussels in 2015-2016 and the repeated incidents of indiscriminate mass killings. In Japan as well, there has been a series of indiscriminate murders and acts of food-related terrorism perpetrated by people in a state of unstable employment, either by being made redundant or being in irregular employment. The withdrawal of the U.K. from the EU and the frequent occurrence of terrorism around the world raise following questions regarding social problems. The burden of the risks of modern society tends to be forced upon the weak in society. The problems brought to the fore by Brexit rise from the same source as the “Donald Trump phenomenon” in the current U.S. presidential election campaign. Candidate Trump has gathered popular support by advocating an extreme form of putting one’s country first that includes an anti-immigrant stance. This can all be seen as a rejection of the existing establishment, the excessive market fundamentalism and the stockholder supremacy doctrine that have resulted in the expansion of neoliberalism.

 

Conclusion

More than 1000 Japanese companies have set up U.K. operations, giving Japan a beachhead in Europe, and many of them have urged the U.K. to review future European strategy. However, any hasty actions should be avoided until the standing position of the U.K. can be determined. It is possible that there will be a second referendum after the next general election and, if the new Prime Minister, Theresa May, does not achieve a majority in favor of withdrawal in parliamentary vote, she could decide to suspend the withdrawal negotiations.

Anti-Cameron feelings were a factor in the referendum result and these sentiments deepened after his name was linked to the “Panama Papers” scandal in April 2016. This led some people to vote to leave the EU as a protest against the then Prime Minister, a prominent supporter of the “remain” position, rather than due to any serious dissatisfaction with the EU itself. Voters may have been motivated to vote “leave” by a wide range of issues such as the EU crises, tax avoidance, the fear of terrorism, increasing immigration levels and the conflict between globalism and nationalism. Therefore, those who are in a position of being able to participate in government and political decision-making must realize that the building of a system that can fairly distribute benefits to all stakeholders and the execution of the appropriate distribution policies will ultimately become the foundation of a sustainable democratic society and ensure their own self-interest over the long term. This means that it is important to not only consider the interests of wealthy corporations and the capitalist elite, but also those of society as a whole including the most vulnerable. Accordingly, the creation of effective international systems, (such as international regulation of tax havens and taxation of international financial transactions, global progressive taxation on the wealthy’s financial assets, the imposition of global corporate tax rates and should the setting up of a global social security system) should be treated as an essential medium to long term policy objective. Measures to correct disparities, such as those recommended by Dr. Anthony B. Atkinson (Inequality: What Can Be Done?,2015) and Dr. Thomas Piketty (Capital in the Twenty-First Century,2013), are required. A meeting of the OECD tax committee was held on 30 June-1July,2016 in Kyoto, in order to prevent malicious tax avoidance, such as that carried out by disreputable, companies and anti-social forces, including international crime syndicates and terrorist groups, using the Tax Havens. As a result of the committee meeting, 46 countries and regions including OECD and G20 members who had already committed will be joined by 35 new countries and regions such as Republic of Singapore, Hong Kong, and Uruguay, have agreed on the all of whom having necessity for international cooperation on financial regulations. In order to achieve sustainable economic development and to build a democratic and stable social order, people around the world should fill the gap between awareness and reality, disperse risk through global social solidarity and select a path toward securing shared benefits.

 

Author’s Biography:

Koji FUKUDA:

Professor, School of Political Science & Economics, Waseda University

Ph.D. in Political Science

Director, Institute for EU Studies, Waseda University Organization for Regional and Inter-regional Studies

President of the Board of Directors, European Union Studies Association-Japan

Vice-president of the Board of Directors, Japan Association of Global Governance

 

Koji Fukuda, author and editor (2016), Solidarity and Risk Governance in the EU (Seibundo);

Koji Fukuda, author and editor (2016), European Integration Studies: European Governance After ‘Brexit’ (Seibundo);

Koji Fukuda, author and editor (2012), New Aspects of International Public Administration: Issues and Perspectives (New Edition,2nd ed., Yuhikaku);

Koji Fukuda, author and editor (2011), Multi-level Governance in the European Union after the Global Financial Crisis (Waseda University Press);

Koji Fukuda, author and editor (2010), Constructing a European Public Sphere and International Cooperation in the EU (Seibundo);

Koji Fukuda (2016), “Growth, Employment and Social Security Governance in the EU and Japan,” Policy Change under New Democratic Capitalism (Routledge, forthcoming);

Koji Fukuda (2014), “Accountability and the Governance of Food Safety Policy,” The European Union and Japan (P.Bacon, H.Mayer, H.Nakamura eds., Ashgate);

Koji Fukuda (2013), “The global economic crisis and the future of labor market policy regimes: implications for economic governance in the European Union and Japan,” Economic Crises and Policy Regime (H. Magara ed., E & E);

Koji Fukuda, Hroya Akiba. eds, (2003), European Governance After Nice, (Routledge Curzon)

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