Brexit and Britain’s Must-Learn Lesson against Neoliberalism

Are you a liberal? Then you are probably devastated by the mind-blowing outcome of the Brexit vote as it appears to be a sweeping defeat to the inclusive values of liberalism. And if you add to your liberal ideology a ‘Muslim’ faith, then you would need to cover your devastation with some apathy when some of your Muslim acquaintances cast their cynical glances at you, repeating their prone to self-destructive thoughts about how Islam is despised and antagonised in the West. Your situation would be even worse if you live in the Middle East’s geopolitical tragedy, where nationalism and political Islam are the two most dominant ideologies! And finally, if you are a finance professional, your frustration would be aggravated by the turmoil in global markets since the ‘Leave Camp’ declared victory. Now, I hope you figure out that I am at least equally disappointed and frustrated as I fall into all four categories: a liberal, Muslim, finance professional from the Middle East!

But wait, you cannot just sit back and simply dub 51.9% of Britain’s voters as bigots, individualistic or racists! That would be far more awful and shameless than the politicians who deliberately played on the anti-immigrant fears in the UK and their counterparts who fueled the rise in xenophobia in the West!

I can see some post-defeat disorientation in the reaction of the ‘Remain Camp’. But instead of accusing more than half of the UK voters of being radical extremists, I think it is in the interest of all parties in the UK and the EU to try to understand the message that the people have clearly conveyed during the referendum; both the winners and losers need to learn the referendum’s hard lesson.

Indeed, this shocking result is a major global event! But it has little to do with the so called clash of ideologies! Rather, it is a punitive vote against the political and economic elite in the UK and a revolt against the EU’s incompetency in addressing the structural socioeconomic issues within its member states. In the end, the Brits, like other people, are frustrated by anemic economic growth and frightened by the escalation in terrorism worldwide.

Do not blame the voters, your politicians and economic “elite” are the ones to be blamed

The failure of the post-2008 economic order to address people’s economic demands has gradually paved the way for the far right parties to advance in the Western Europe political arena. In parallel, the outbreak of the Middle East’s geopolitical crisis, with all that it left behind from true humanitarian tragedies in Syria, Iraq, and Yemen to the rise of radical terrorist groups along the southern borders of Europe, has led to a rebirth of nationalism across the European continent. The strong showing of the National Front in France, the People’s party in Denmark, the Northern League in Italy, the Freedom Party in Austria, and of course, the Golden Dawn in Greece, are just recent examples to the paradigm shift in the political arena in Europe, and why would the Brits be an exception?!

Listen to the people, enough of the experts!

The ‘Vote Leave’ camp smartly played on the notion of UK sovereignty and national dignity, particularly with the EU leadership’s long struggle to stimulate economic growth with no meaningful impact. The ‘Vote Remain’ camp, on the other hand, did very little to persuade people why they should put up with the EU’s regulatory constraints and somewhat diverse policies towards immigration and socioeconomic issues within the union, especially when growth is flattening anyway?! Once again, politicians have put on their ‘expert hats’ when promoting their pro-EU views before the referendum; pointing out what people should do and warning about the negative consequences if people voted otherwise. The people’s response was harsh, but very telling! They voted against the rule of experts who have made very little impact to their socioeconomic needs and whose policies have resulted in rising inequality over the past decade.

Global markets’ behavior last week supported the case against neoliberalism

It was striking to see how global markets were completely detached from voters’ real preference; pricing in a ‘remain scenario’ with very little probability of Brexit! This was clearly seen in the global assets trend, options prices and equities, forex market (look at the GBP performance the week before the referendum) and commodities! Why did global markets not assign any meaningful probability to the scenario where the UK would vote to leave the union? Perhaps, it was the experts’ views that the UK is much better in the EU than out; as they were probably using a pure cost/benefit analysis which people do not really care about anymore.

 My two cents:

• The result was disappointing, indeed! Markets’ reaction was nervous, but investors are yet to price in the worst-case scenario, which is arguably understandable! It is too early to predict what will happen next, but the long term consequences would be too far from those simple calculations of the UK trade deficit with the EU. If the UK is the problem, there is still a bunch of different models whereby the UK can trade with the EU (European Economic Agreement, as in the case of Norway? A bilateral bunch of agreements across the board...etc.). But the problem here is that the Brexit has put the break up risk of the EU back on the table! That’s difficult to price and hedge against!
• It is fair to expect some Brexit contagion (in France, Italy, Netherlands, Ireland…etc); hence, in my view Brussels should urgently take new drastic measures to fend off the rising tone of the separatists! The question is whether or not the EU leadership will be able to successfully reach out to the people and adopt new policies to address their demands…I know some of this may sound populist! But think about the very limited options the union is left with
• A new economic and financial order is slowly in the making, and in parallel, market volatility will rise significantly, although plenty of quality assets will still be available for opportunistic investors
• Welcome Donald Trump?