To what extent will Italian banks and Brexit push EU?
by Ahmet Akyıldız
Jan 24, 2020 - 1:19 am GMT+3
by Ahmet Akyıldız
Jan 24, 2020 1:19 am
The Conservative Party led by Boris Johnson won a historic victory following the elections in England held on Dec. 12. The pro-Brexit Tories' opponent Labour Party suffered a heavy defeat by receiving only 32% of the votes. Like we mentioned in previous op-eds, we clearly saw the rise of pro-separatist right ideology in the U.K.
British newspapers note that following the elections, Boris Johnson has obtained full authority to leave the European Union on Jan. 31. Another crucial matter that came up after the election results is that the parties seeking full independence in Scotland and Ireland also strengthened themselves. We need to note that this situation, which puts the British economy in significant jeopardy, may result in a considerable global risk in the medium and long terms. The British government, which managed to carry on with the situation somehow, will need to act more carefully and with restraint.
While observing that the election results were welcomed with joy in the EU, a lack of statement on how the balance would be facilitated has negative connotations for the markets. While senior European politicians expressed that they welcomed the exit polls in Britain for putting an end to the uncertainty on Brexit, they highlighted that the possibility of the election results being approved by the House of Commons has been increasing and that there is a stronger government they can negotiate with now.
While the gray areas are diminishing in the political aspect of the issue, we need to mention that things are not going that well in the economy. Guardian columnist Polly Toynbee recently highlighted that the country, which has been undergoing a process of decay and economic slowdown for the past 10 years, has received a huge blow, embarrassing them on the global stage.
It is a known fact that the number of people living in poverty in the world's fifth-largest economy has been rising on an annual basis as a result of Britain's austerity policies in the past eight years.
Around 15 of the 67 million people who live in Britain are below the poverty line. Experts predict this figure will reach around 17 million people over the next two years as a result of the increased loss of labor force and agree that the situation is bleak.
The number of children living in poverty is expected to reach 4.3 million by the end of 2020, meaning that at least nine out of 30 students in a British classroom will be undernourished. According to a report by Philip Alston, the U.N. Special Rapporteur on extreme poverty and human rights, British state policy has been pushing more people below the poverty line. He noted that the government's policies on taxes and social aid made the most destitute pay the highest bill.
Hard times ahead
When we examine research by state institutions and the private sector, we come to the conclusion that tough times lie ahead for the U.K. The country, which has been experiencing problems regarding income inequality for years, will be put under a new bout of pressure with additional unemployment, which will create further problems in the financial markets.
We will all wait and see how Britain will fight the shrinking of its services industry and finance sector, which will leave a negative impact on domestic consumption.
Britons between the ages of 18-35 will strive to work in European countries given these conditions, although it is quite difficult to forecast how Europe will receive them.
We can assume that there would be resistance in Belgium and France in light of the youth unemployment rates in these countries, which may mean they could start imposing quotas.
It is evident that the bloc, which is experiencing dark days due to the financial crisis in Italy, will not want to be bothered by the flock of unemployed people in Britain.
As a matter of fact, when we look at statements made by heads of state, we realize that rhetoric close to far-right doctrines is on the rise: The only point both the fascist and liberal parties agree on is that they want foreigners to leave the European continent as soon as possible.
For European countries, which exploited and colonized Eastern European, Asian and African countries to bring about a period of prosperity through the use of cheap labor, developing economies are nothing but a plague that needs to be avoided.
The leading Italian rightwing populist party Five Star and the far-right Lega Nord party's positive disintegration in the eyes of voters raises a serious question. Addressing the domino effect, we could see how the yellow vests in France, the Dutch separatist movement in Belgium and the rising fascist pro-Nazis in Germany threaten the future of the EU.
It is exceptionally difficult to predict how much the economic crises in Italy and Spain would spread to continental Europe, but the domestic income inequality issues of member-states are something that is addressed in the European Parliament.
While France and Germany share 60% of the income pie, it is highly unlikely these two countries will be subjected to systematic risks. The real issue involves the risks in countries like the Netherlands, Belgium, Italy and Portugal, whose private-sector debts are intertwined. Uneven economic distribution and lack of productivity in labor performance are some of the problems clearly seen in countries like Belgium and Italy, whose societies are divided along northern-southern lines.
EU's pre-2008 influence
The European Union represented the structure that dominated financial markets with its capital and technological prowess prior to 2008. Nobody knew the disaster was this serious when the company debts intoxicated with Keynesian policies, stocks and funds were being sold.
When European countries declared that they would undertake the liability of all debt like the U.S., a standard private sector crisis ironically turned into a public debt crisis. A trilateral consortium consisting of auditors from the EU Commission, the European Central Bank and the International Monetary Fund took tougher precautions.
While the private sector's debt was paid, countries became indebted and the people started paying through sickening taxes. Today many ask why people are taking to the streets, and I have tried to explain the main reasons behind it in this piece. Ordinary citizens paid for the mistakes of certain people. The question of who will pay for the mistakes of Brexit and Italy is crystal clear: the citizens of the European Union.
* Ph.D. researcher in Private Company Economic Research Department MENA at Swiss Business School
About the author
Ph.D. researcher in the Private Company Economic Research Department MENA at Swiss Business School