The polls were wrong, the vote went sideways, and everyone was surprised. The United Kingdom chose, a bit unexpectedly, to leave the European Union. Prophecies of doom followed, and are still being repeated.
Unsurprisingly, doom has not descended on Britain, in the short term. In fact, the British economy is doing fine. This is unsurprising since no actual changes to laws or tariffs have yet taken place, and the Bank of England acted with alacrity to manage the fall in the pound sterling. As investors hurried to move their assets into currencies perceived as safer (like the Euro or dollar) they made the pound “cheaper,” by accepting less-favorable trades into those currencies. This makes imports rather more expensive for UK residents, but also made UK exports (including tourism) cheaper for others abroad. Nissan is moving ahead with plans to produce new models of its SUVs in England. The Bank has worked to keep interest rates low even as prices - notably for imported goods - begin to rise, which at least staves off a contraction of local investment activity. While a weak pound will pinch British buyers in the future, things are fine for now.
There may be hiccups to come: Theresa May’s mandate to pursue Article 50 separation from the EU will need to pass before Parliament. This is because it is Parliament that sets the laws, not the stated intentions of the Prime Minister who scheduled the referendum, nor his successor, who intends to carry out the mandate of the referendum. (May attempted to argue otherwise, that her government could begin to leave the EU because of Britain’s idea of royal prerogative, but the UK High Court did not agree; some wags have pointed out one recourse would be to appeal to the EU Court of Justice.) Though it seems likely her efforts will carry the Commons, some spectators expect more trouble from the House of Lords.
She will seek not only to leave the EU, but to cut a good trade deal for the future, rather than facing the EU’s default external tariff schedule. In that, she will face indignant partners in the EU, but I find it hard to believe that they will choose to punish the UK by hurting themselves. If, after all, an animating purpose of the EU is prosperity through unrestricted trade, it will be hard to spurn easy trade with a major economy out of spite. Ireland, for one, has no interest in keeping its neighbor island out in the cold; its economy has thrived by integrating with the British, and any separation forced by Article 50 and the following haggling will be painful. Though the increasing power of small interests in the EU recently threatened the Union’s ability to make trade deals, the many parties - Ireland is only one - who stand to gain from a judicious new deal with the UK can presumably put the brakes on a more spiteful settlement coming out of Brussels. Article 50 of the Lisbon Treaty directs that the Commission will, with the consent of the European Parliament, negotiate to disentangle the customs and immigration apparatus of the EU and a departing member. Though the UK will have entire control over its immigration laws, one can be sure that it will need to come to an understanding with the Commission on that front, as it will soon need to with India.
The eventual exit of the UK from the EU will not be without pain, and it will reduce the prosperity of the UK in years to come. Certainly, one cannot think with complaisance of the individuals whose lives and homes may be disrupted; it is worth remembering that we do not know much of what Theresa May’s successors at the Home Office will and will not do. I am hopeful for a humane adjustment. But the exit is not likely to be the economic disaster for the UK, or for its partners, that some have projected. The same logic that made outsiders (like me) root for “Remain” is likely to constrain the Commission to treat their new outside partner favorably.