Paul Krugman: Brexit: The Morning After

“Worry about Britain”:

Brexit: The Morning After, by Paul Krugman, NYTimes: Well, that was pretty awesome – and I mean that in the worst way. …

That said, I’m finding myself less horrified by Brexit than one might have expected – in fact, less than I myself expected. The economic consequences will be bad, but not, I’d argue, as bad as many are claiming. The political consequences might be much more dire; but many of the bad things I fear would probably have happened even if Remain had won.

Start with the economics. Yes, Brexit will make Britain poorer. It’s hard to put a number on the trade effects…, but it will be substantial. …

But right now all the talk is about financial repercussions – plunging markets, recession in Britain and maybe around the world, and so on. I still don’t see it. …

A bigger issue might be fears of very bad political consequences, both in Europe and within the UK. Which brings me to the politics.

It seems clear that the European project – the whole effort to promote peace and growing political union through economic integration – is in deep, deep trouble. Brexit is probably just the beginning, as populist/separatist/xenophobic movements gain influence across the continent. Add to this the underlying weakness of the European economy,… a prime candidate for “secular stagnation”… Lots of people are now very pessimistic about Europe’s future, and I share their worries.

But those worries wouldn’t have gone away even if Remain had won. The big mistakes were the adoption of the euro without careful thought about how a single currency would work without a unified government; the disastrous framing of the euro crisis as a morality play brought on by irresponsible southerners; the establishment of free labor mobility among culturally diverse countries with very different income levels… Brexit is mainly a symptom of those problems, and the loss of official credibility that came with them. …

Where I think there has been real additional damage done, damage that wouldn’t have happened but for Cameron’s policy malfeasance, is within the UK itself…, it looks all too likely that the vote will both empower the worst elements in British political life and lead to the breakup of the UK itself. Prime Minister Boris looks a lot more likely than President Donald; but he may find himself Prime Minister of England – full stop.

So calm down about the short-run macroeconomics; grieve for Europe, but you should have been doing that already; worry about Britain.