Is “Brexit” The Beginning of the End For European Union?

ORECASTS & TRENDS E-LETTER
by Gary D. Halbert

July 5, 2016

IN THIS ISSUE:

1. United Kingdom to Leave European Union in Surprise Vote

2. How Could the Polls Have Gotten Brexit So Wrong?

3. Is “Brexit” the Beginning of the End For European Union?

4. Will Brexit Actually Happen? Maybe, Maybe Not

Overview

Just about everywhere I go lately people ask me what I think about “BREXIT” and the ramifications it will have for Great Britain, Europe and even the United States. My standard answer since the vote on June 23 is that I don’t think about it much.

The reason is that, other than the vote itself wherein the “Leave” crowd won 52%-48% over the “Remain” crowd, nothing else has happened to make Brexit the law of the land, and may not happen for months to come. British Prime Minister David Cameron resigned the day after the vote didn’t go his way, but offered to stay on until October if need be to find a replacement.

In order to officially initiate its withdrawal from the European Union, Britain must invoke “Article 50” of the 2007 Lisbon Treaty with the EU, and it now looks likely that such a notification won’t happen until after the new Prime Minister is in office. And then withdrawal from the EU is a two-year process after that.

I last wrote about Brexit on Thursday, June 23, the day of the referendum, in my Blog. At that time, I noted that some of the final polls showed a slim lead for the Leave crowd. I also noted that the Leave crowd in Britain is part of a “global anti-establishment movement” that is growing around the world – which has brought us the likes of Donald Trump and Bernie Sanders.

While the Brexit outcome roiled the global equity markets for the first couple of days following the vote, some of those losses have been recovered. Frankly, I expect Brexit will fall out of the headlines soon, if it hasn’t already, and the media attention for the rest of this month will be on the GOP convention on July 18-21 and the Democratic convention on July 25-28.

Nevertheless, I will give you my thoughts and those from others I read on Brexit as we go along today. Just keep in mind that we don’t have any idea when Brexit will happen, under what terms it will happen or even if it will happen at all.

United Kingdom to Leave European Union in Surprise Vote

The United Kingdom/European Union Membership Referendum was held on Thursday, June 23, and a majority of the media, government leaders in the UK, the EU and elsewhere and most oddsmakers around the world believed that Britons would vote to remain in the EU.

This referendum had been years in the making. In June 2012, with his approval ratings in the dumps, Prime Minister Cameron himself floated the idea of a national referendum on Britain’s relationship with the EU. It was a political gamble that ultimately backfired on him.

In the weeks ahead of the referendum, the mainstream media around the world admitted that the vote was going to be close, which was obvious from dozens of independent polls. Yet there was a strong undercurrent within the media that the vote would ultimately go for Remain.

The mainstream media and the “Establishment” leadership in Britain assumed that many citizens who said they would vote for Leave in polls would not actually do so when it came time to cast their votes. Well, that assumption was dead wrong.

Polls leading up to the referendum had swung back and forth between the Remain crowd and the Leave crowd. Yet as I reported in my Blog on June 23, most of the polls I followed showed a slight lead for the Leave crowd. As it turned out, Leave won by a comfortable margin of 52% to 48% over the Remain movement.

Flag

The London Times post-election analysis (and this is key) found that the UK upper classes voted  57% for Remain; the upper middle class was fairly divided (roughly 50-50); and everyone below them voted roughly two-thirds for Leave. It doesn’t get much plainer than that.

For reasons I don’t understand, the world seemed stunned by the outcome. The Brexit vote reflected what many are calling “The Great Rebellion.” The elites in the UK were outraged at the results. Working-class Brits who voted for Leave were demonized by the Establishment.

The British media claimed that most of the Leave crowd had no idea what Brexit really meant.

The media claimed that the victory for Leave most certainly assured that an economic recession would unfold in both the UK and the EU. Few solid reasons why were offered – merely that the uncertainties of Brexit would cause citizens to pull back on spending. Likewise, there were claims that foreign investors would yank their money out of Britain and Europe.

Immediately, there were (and still are) calls for a second referendum. Never mind that Prime Minister Cameron had repeatedly assured the public that the result would be final regardless of the outcome. His announcement of resignation on June 24 underscored the finality of the result.

How Could the Polls Have Gotten Brexit So Wrong?

Ahead of the Brexit referendum on June 23, polls across the UK found that a large majority of young people aged 18-30 favored the Remain position. Yet among pensioners aged 60 and older, almost 60% preferred the Leave position.

When all of the more than 33 million ballots were counted on Friday morning, the position favored by most pensioners won out by a margin of around 1.3 million votes. The result was a 52% to 48% decision to withdraw from the EU.

One reason why the media was so confident that Remain would prevail was due to the belief in “status-quo reversion” — the idea that undecided voters will be more likely to choose the status-quo option (in this case, Remain) than the alternative.

This tendency is well supported in British general elections, but as numerous pollsters found in the aftermath, the status-quo effect was much smaller in the referendum than had been expected. Some concluded that there was no status-quo reversion in the Brexit election.

Oxford University professor and professional pollster Steve Fisher explained that the lack of status-quo effect was at least in part because the Leave campaign was successful in creating the idea that a vote for Remain was not a vote for the status-quo, but rather a vote for ever more European integration and regulations.

He added that given the types of areas that voted for Leave, and given the available polling evidence, it seems likely that a majority of Britons voted to trade the economic benefits of being in the EU for restrictions on people from Europe coming to live and work in Britain. The areas which voted Leave were older, whiter and less likely to have a university education.
Nigel Farage, leader of the UK Independence Party which pushed for “Leave”

Upon closer examination, the polling “miss” on Brexit was even greater than the final outcome of 52% to 48%. As late as 6:00 p.m. Eastern in the United States, less than five hours before the results became clear, betting markets gave Remain an 88% chance to win the referendum.

No wonder that

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