Believe it or not, Brexit is not the EU’s biggest potential problem

Brexit may seem like a catastrophe for the EU, but compared to some of Europe's other problems, it’s nothing, says John Stepek.


Anti-EU politicians, such as Front National's Marine Le Pen, are growing more popular in France

Everyone's trying to work out what'll happen next in the Brexit story.

Blood-curdling tales abound of the terrifying vengeance that Europe will now inflict on us for daring to reject it. If Brexit has a soundtrack, then the Human League's Don't you want me, baby? is about where we are now.

But while I realise that this is difficult for some people to get their heads around, nothing in this negotiation is set in stone. That's the nature of negotiations.

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The idea that the EU simply gets to set the terms here with no compromises is nave or even wishful thinking on the part of those who want to see Brexit fail badly.

Because the EU has a whole heap of other problems just waiting around the corner, and trying to batter the UK into submission while tempting, perhaps is probably not going to help matters much

France doesn't like the EU any more than we do

Yet when it comes to the EU, the French are almost as ambivalent about it as we are. As Philippe Le Corre noted in the Financial Times the other day, there's a good chance that France "will follow the UK and become a gravedigger of the European project".

Opinion polls show that 61% of French people "hold unfavourable views of the EU". Two-thirds feel that "the EU has failed them economically". By contrast to the UK, it's the young who have been among the hardest hit, with massively high unemployment. "It is likely that they would vote for "Frexit" in a referendum", says Le Corre.

Given that, it's no surprise that anti-EU politicians most notably, Marine Le Pen of the Front National are growing more popular in France. But it's not just the far right. The far left Front de Gauche (the clue's in the name, I guess) has said that Brexit is "first and foremost the failure of the German government, of capitalism, and of successive subservient French governments".

With a presidential election coming next May, Europe and the country's relationship with the EU is bound to be a major issue.

Of course, France's drastic unemployment levels are probably more to do with the country's restrictive labour policies as they are the fault of the euro. But without the release valve of a flexible currency all of these underlying structural flaws become more apparent.

In an ideal world, that's not necessarily a bad thing one argument for having "hard" money is that it forces structural adjustments that should eventually make an economy more productive. But out there in the real world, those structural adjustments fall prey to special interest groups and politics.

That in turn makes it very hard for a politician to balance national and supranational interests. Eventually the choice between the two becomes too stark, and when that happens, it's the supranational interests that will lose every time.

That's before we even start talking about the Italians, who apparently are on the verge of telling the EU where to stick its rules on bank bailouts.

Brexit is an opportunity to create a better EU

A pragmatic EU (and I firmly believe that there are plenty of pragmatists in the EU it's hard to become a top politician if you lack that quality) would figure out a way to use this opportunity.

Yes, you can stick two fingers up to the impudent, unhelpful Brits. But what are you going to do when the Italians who share your core currency decide that they want to leave? What'll you do when the French one half of the Franco-German heart of the EU decide that they've had enough?

I'd take this chance to work on a plan that keeps them all sweet, to create a more forgiving EU that genuinely works together to create a harmonious relationship between the states.

The sort of EU that would give Greece free rein to leave the euro but offer debt forgiveness and massive financial support for the new drachma. The sort of EU that feels secure enough in its existence that it doesn't feel it has to steamroll over any and all objections from the citizens of Europe. The sort of EU that sees the voters as its primary concern, rather than an inconvenience.

The sort of EU that any country would want to be part of, in other words.

Can they get to that point? It seems a tall order. But we've got more than two years to make a few steps in that direction. And between now and then, France, Italy and all the other potential rebels in the EU are not just going to sit and behave until Britain has been dealt with.

We'll of course be continuing to report on all this in MoneyWeek every week. If you're not already a subscriber, sign up now.

John Stepek

John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.