Ivar Veskioja: Keep calm and carry on: Brexit and common sense

The best advice for both the United Kingdom that has decided to leave the European Union, and to the rest of Europe, is to “keep calm and carry on”, Ivar Veskioja, a partner at 1Office Group, writes.

“Keep calm and carry on” was the message on a poster made by the British Information Ministry during the Second World War in fear of a German invasion; a poster that was never distributed. This is the best advice for what to do in the United Kingdom as well as in continental Europe now after the Brexit vote.

A combination of all bad circumstances

In hindsight we could say that all bad circumstances coincided. The weakness of the opposition – the historically pro-European Union Labour Party – in supporting the “yes” campaign due to its leader, Jeremy Corbyn’s half-heartedness; prime minister David Cameron and his government’s modest “yes” campaign; the fact that 64% of 18-24-year-olds did not vote, the absence of an e-voting opportunity, the government rejecting the right of 16-17-year-olds to vote, etc. Mainly, however, it is a question of the situation of the European Union as a whole. The convenient bombing of Libya and Syria that is associated with the flood of refugees may have been the beating of a butterfly’s wings that destabilised Cameron and the entire Europe. Immigration and the eurozone crisis are elements of one larger mosaic. The success of populists and extremists in Europe is related to the end of the journey that has been beautiful so far. A naive hope of a welfare federation with perpetual economic growth is stuck in the standstill of the economy and the unsustainability of the costs of the pensions system and health care.

Is it common sense?

It may seem incomprehensible in Estonia, how anyone could want to leave a union that has brought us relative prosperity and open borders. The behaviour of the English politicians and the 17 million voters can conditionally be described as a “fair-weather friend”. Due to the deterioration of circumstances it is no longer reasonable to continue the game with Europe on the basis of the old agreement. The faith in the Queen and the British pound is incomparably greater on the island than in Jean-Claude Juncker, the president of the European Commission. In balance, of course, the topics that are a lot more important for the voters are related to the failure of national politics, regional disparity and backwardness have only worsened in this century.

Internal tensions strengthened in the United Kingdom

Besides the people of Scotland and Northern Ireland, the Welsh have also started to talk about their own country. The manifestations of xenophobia in areas inhabited by Eastern Europeans are embarrassing for the educated Briton. According to lawyers, the discretion for initiating Article 50 of the Lisbon Treaty is in the hands of the House of Commons. The current Conservative Home Secretary Theresa May could in October become the new prime minister that can put the issue of withdrawal to a vote in the parliament.

The financial sector and the real economy

The financial markets, which reacted strongly to the results of the vote, are always more volatile than the real economy. The banking sector of the United Kingdom was already weak. Loss-making high-street banks received another hit. Cameron in fact was the person that saved them from the EU’s financial services tax earlier with his veto. To summarise the problems of banks, their enormous network of branches and obsolete IT systems have made them an easy catch for fin-tech companies.

Banks leaving London for continental Europe are not the problem for those having voted “leave” – only a narrow circle of London’s residents enjoyed the flow of money related to the status as a financial capital. Nothing will probably change for at least two years, but at one point sailing in Europe with an FCA (the Financial Conduct Authority, a financial regulatory body in the UK) licence may end for Estonian fin-tech companies together with the membership. Then an additional licence must be obtained in the European Union. For example, Estonian-founded, London-based, fin-tech startups TransferWise and Monese have an FCA licence. Both are companies with an international ambition and it is likely the respective preparations are already underway. The investors’ money must also move from London to Berlin to follow the offices of fin-tech companies that are currently clearly gathered in London.

The market with 65 million consumers will remain in the European Economic Community

As long as the union of England, Wales, Scotland and Northern Ireland stays together, it is still Europe’s third largest market by the number of consumers, which Estonian ambitious businesses cannot ignore. By the size of the economy, it is the world’s fifth and Europe’s second country after Germany. Similarly to exporting goods and services to Norway, the Estonian companies will continue to sell their services to the private and business clients of the British Isles. Eurozone export goods are, however, currently more expensive due to the reduction in the exchange rate. In case of contracts concluded in pounds, the Estonian exporters are paying the exchange rate risk realisation price. As a positive, it may be concluded that British exporters are more competitive due to the depreciation of the pound and it is cheaper for Estonian companies to enter the market.

Let the politicians argue, business will always find a way

These are the words used by a rational British entrepreneur to describe continuing to do business with Estonians. Any open-minded entrepreneur with an international reach in the United Kingdom would probably also respond in the same way. Entrepreneurs clearly supported staying in the European Union according to joint statements as well as a Gallup of business organisations.

In summary, it was a world-class circus where the spokesman of the “leave” supporters camp, Boris Johnson, who used plenty of demagogy tricks, has already not to run for prime minister. Unfortunately, both mainstream parties lost even more of their credibility with this political circus. The voters could no longer distinguish expert opinions and demagogy in the media war. The image of several politicians became ridiculous due to irrational claims used in the course of the campaign. The lack of trustworthy politicians is not just an Estonian problem.

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The opinions in this article are those of the author.

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About the author: Ivar Veskioja

Ivar Veskioja is a partner at 1Office and the director of the company's UK branch. He contributes to the British-Estonian Chamber of Commerce and also advocates the Estonian e-residency programme.