Britain’s vote to leave the European Union is a watershed in world history. The economic effects for the UK and Europe are grave, but will wash away in time.
Much more alarming is the threat to the unity and coherence of liberal internationalism, at a time when two autocracies, Russia and China, are eager to eat into the West’s power.
At a moment of vital strategic choice, all rational considerations and advice were overpowered in too many voters’ minds by unwarranted resentment of immigration and a basic feeling of not wanting to be ruled by others — however unrealistic that hope of untrammelled freedom is.
The Leave campaign maintained that Britain was paying £350m a week to Brussels — a complete falsehood — and was believed. Mountains of evidence about the benefits to the UK from EU membership were not.
The danger for other countries is very real. Donald Trump is rampant in the running for US president, with a similar disregard for the truth.
In Europe, the EU — by its nature complex, hard to understand and an easy target for abuse — is under threat from Eurosceptic parties in almost every country.
The UK exercising its democratic right to leave has broken a taboo — the EU’s purpose and very existence has been questioned in the most public and painful way possible.
Even before the result, the UK’s referendum shone an uncomfortable spotlight on the deep divisions in Europe over the construct of the union. The Leave result gives anti-EU campaigners in other countries an easy propaganda victory, and it will accelerate their momentum.
Britain will bear, and deserves, the blame for destabilising Europe.
Of that blame, a share belongs to banks, investment firms and their lawyers for their cowardice in not speaking out during the referendum campaign. When they could have informed the public, they kept silent because of absurdly over-cautious interpretation of electoral law and the post-crisis culture of keeping a low profile.
Their penalty is that the City of London’s status as one of the world’s two top financial capitals — arguably the most important international capital markets centre in the world — is now in doubt. Its power will not disappear immediately, but the chance of it remaining on top in 20 years’ time is much diminished.
But the biggest problem, even for capital markets, is not the initial shock or what Brexit does to London. It is what it does to Europe.
There needs to be faith in European unity — without it, the region and its capital market will go backwards. Just remember what happened to markets during the Greek crisis when Europe was having its first existential crisis.
The disbelief among capital markets participants on Friday will clear quite quickly and be replaced by anxious depression, coupled with a workmanlike approach to business. The financial wheels will continue to turn and capital raising will resume once new risk pricing has established itself. The dollar market will no doubt take the lead.
But that will not mean things are back to normal. There is a new normal. It is one in which electorates, even in the most stable countries, can overturn what appears to be economic good sense and even strategic self-interest, when led by opportunistic politicians and an unscrupulous mass media.