By Paul Wiseman, AP
WASHINGTON — Britain’s decision to bolt the European Union means economic pain for the United Kingdom above all. But it also threatens the economic alliances that helped drive decades of prosperity in the West after World War II.
And it could imperil an already wobbly global economy.
The Brexit vote “is just one chapter in a much bigger global story” in which Europe, the United States and other Western nations cooperate less, endure economic gloom and see their role in the world diminish, Megan Greene, chief economist with Manulife Asset Management, wrote in a research note Monday.
Greene and other analysts warn that the messy aftermath to the Brexit vote may splinter the EU, which has promoted postwar cooperation and the free flow of trade, job opportunities and immigration across Europe.
Already, there have been calls for a referendum on EU membership in France and the Netherlands. Discontent with the EU is also running high in Italy, Sweden and Hungary.
Britain is facing breakup pressures of its own. Voters in Scotland and Northern Ireland, both part of the UK, overwhelmingly favored staying in the EU. Nationalist leaders in both countries have vowed to leave the kingdom if necessary to stay in the EU. Many voters in Scotland and Northern Ireland valued the economic benefits of EU membership. In Northern Ireland, some also feared that the loss of EU membership would mean the re-establishment of security checkpoints at the border with neighboring Ireland.
The EU and other postwar institutions were meant to promote a European identity that would replace the toxic nationalism that led to war in 1914 and 1939. And through the mid-2000s, they appeared to succeed, said Carmen Reinhart, an economist at Harvard’s Kennedy School of Government. Barriers to trade and immigration inside Europe were torn down. Nineteen countries adopted a common currency, the euro.
Then came the 2008 global financial crisis, which revealed that countries like Greece on the European periphery had borrowed recklessly. Creditor countries, led by Germany, took a harsh stance in dealing with what they saw as profligate neighbors. Old frictions re-emerged.
The EU’s fumbling response to the debt showdown — and to a refugee crisis involving migrants from Syria and elsewhere — undermined confidence in Europe’s institutions. That loss of faith came just as millions of British and European workers were left behind in the lackluster recovery from the financial crisis. Average pay in the UK remains 7 percent below 2008 levels when adjusted for inflation, according to Dartmouth College economist David Blanchflower.
Cornell University sociologist Mabel Berezin, who has studied European politics, sees Brexit as “is the harbinger of more dissolution to come. Europe as we have known it is on its way out.”
Most immediately, tremors from the Brexit vote are destined to diminish economic growth in the region and well beyond.
The global economy has little room for error. Even before the Brexit vote, the global economy was forecast by the World Bank to grow a lackluster 2.4 percent this year. It was the latest in a series of downgrades by institutions that monitor the international economy.
“It’s a dangerous time because you’re already flying low to the ground,” Reinhart says. “It doesn’t take a major catastrophic shock to put you in a really bad place.”