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Economy

Brexit could undermine the global liberal order

Britain's narrow vote to leave the European Union does not mean the eclipse of the United Kingdom as a great power. It remains the world's fifth-largest economy, a permanent member of the United Nations Security Council, and one of the few military powers with the capacity to mount global expeditionary missions.

The risks come more from the second-order impacts of "Brexit": the splintering of the EU single market, the diminishment of the EU's soft and hard power resources, the potential for populist politics to infect and cripple other core EU member states, and the possible breakup not only of the European Union but of the U.K. itself. Ironically, political risk at the core of the world's largest common market could become the principal driver of instability in a world already buffeted by protectionist politics in the U.S., terrorism in the Middle East, and Russian and Chinese revanchism.

Asia-Pacific powers will want to strengthen their relations with Germany as the dominant voice in a post-Brexit EU, as well as with the U.K. as it returns to a more traditional role as an offshore balancing power that will focus more on its relations with the U.S. and Asia. The U.S., Europe and the U.K. will need to come up with a new compact to restore the strategic unity of the West as Chinese and Russian leaders look to take advantage of its fragmentation.

Although some leaders within the EU have quietly celebrated Britain's promised departure as a way to deepen the continent's political integration along federalist lines, the British may be less the outlier among Europeans than its avant-garde. According to the Pew Research Center, more than 60% in France hold a negative view of the EU, with a French referendum possibly producing a result similar to Britain's. Even Germans are evenly split over whether the EU has been a good thing for their country. Voters in the Netherlands and elsewhere are clamoring to have their own referendum on EU membership.

European leaders are arguing among themselves about whether the U.K. must leave immediately, even though the choice of when to invoke Article 50 to begin proceedings to exit the EU lies with London, not Brussels, and the British are in no rush given the complex negotiations ahead. Poland, the Czech Republic, and other Central European nations are now bitterly criticizing the EU's leadership, particularly European Commission President Jean-Claude Junker, for failing to offer sensible concessions to London that could have tilted the British vote in favor of the Remain camp.

In short, rather than unifying the rump EU, the cack-handed way in which some European leaders undercut British Prime Minister David Cameron's campaign to remain in the union, along with popular pressures growing on the continent, are producing a Europe-wide crisis. How can any European leader celebrate the departure of the union's most capable military power, accounting for a quarter of its defense capability, and its most vigorous economy, which constitutes close to 20% of European gross domestic product?

Tellingly, German Chancellor Angela Merkel is among those who genuinely regret the prospect of Brexit. London was an ally for Berlin in defending the liberal economic principles behind the European single market against the protectionist instincts of France, Italy and other southern European nations whose economies are less competitive globally.

Germany's central role

Moreover, part of Europe's disarray in the wake of the Brexit vote stems from fears in some quarters over Germany's political and economic domination of a union that it has been reluctant to lead. For U.S. leaders, the opposite reality holds: Berlin has emerged as Washington's go-to partner on the continent in diplomatic affairs, and U.S. officials would welcome a stronger role for Germany in guiding EU integration and global engagement. France, Poland, and other EU members can be useful military and diplomatic partners, but only Germany has the weight to make the EU an effective global political and economic player in a world where the center of power is gravitating toward Asia.

As the U.K. separates from the EU, the U.S. must now pursue a multipronged transatlantic strategy after years of dealing with Europe as a consolidated bloc. This means the U.S. focus in engaging its Atlantic alliance will no longer center on the EU headquarters in Brussels, but will also include the North Atlantic Treaty Organization, Berlin, London, Paris, Warsaw and Ankara.

Unlike the "one-stop shopping" when the EU was the central player, each of these actors now requires separate handling because of the variance of perspectives within Europe on issues ranging from Russian revisionism, the future of the Transatlantic Trade and Investment Partnership, and the crises in the Middle East.

Asian powers will need to follow suit by diversifying their ties with Europe. Some already have, though with less benign intentions: Beijing has pursued a divide-and-conquer strategy within the EU, forming the 16+1 grouping of Central and Eastern European nations for annual meetings with China's leaders; punishing European countries that prioritize human rights by denying them commercial contracts at the expense of other EU member states; and using institutions like the Asian Infrastructure Investment Bank to create wedges within the transatlantic alliance.

Other Asian players could make the best of Brexit by enhancing UK ties. Some Indian officials believe they could strike a bilateral free trade agreement with the U.K. that would end nearly a decade of torturous negotiations with the Brussels bureaucracy over an EU-India FTA. Japan recently has invested in a strategic defense relationship with the U.K. and France, something Tokyo could seek to expand in light of Europe's disunity.

The choices for the U.K. are starker. To punch its weight as an independent nation that no longer bundles its power with that of the larger European Union, it may need to revert to being a more traditional great power - ramping up defense spending, doubling down on leadership within NATO, revitalizing a deteriorating "special relationship" with Washington, projecting military power into Asia and other strategic theaters beyond Europe to increase its diplomatic leverage, concluding free-trade pacts with Asia-Pacific powers, and forming new diplomatic alliances in Asia and beyond to offset Britain's alienation from traditional European partners.

But Brexit voters did not vote for these initiatives. They were led to believe that withdrawing from the EU would free up more money for the National Health Service and other domestic priorities, even as it would limit the free movement of people that has helped make the U.K. the EU's most dynamic economy -- and cosmopolitan London the world's financial capital.

A faltering Britain

In fact, Brexit will require London to replace generous EU subsidies for British farmers, infrastructure and other sectors, even as the cost of losing access to Europe's single market will handicap London's central role in global finance and permanently reduce the country's growth trajectory. Moreover, Britain's departure from the EU raises the prospect of another Scottish independence referendum -- and perhaps even the unification of the Republic of Ireland with Northern Ireland -- that could lead to the disintegration of the U.K.

A rump England would not be a leading European great power and could not afford the costs of either domestic or foreign policy renewal. The strategic blow to the U.S., which would lose its closest and most capable ally, would be considerable, increasing the odds that the liberal world order would further erode as its guardians fall by the wayside. Both Europe and Asia would become even more susceptible to authoritarian revisionism as democratic alliances weaken or break down.

It is hard to believe that Brexit voters understood the strategic or economic implications of the forces they unleashed. Hostile external powers such as Russia, and populist insurgents in countries like France and Italy who want to torpedo the EU project, stand ready to take full advantage of European disunity.

Daniel Twining is a director at the German Marshall Fund of the United States.

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