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Brexit: A game of Chicken?

Brexit: A game of Chicken?
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  BREXIT - A GAME OF CHICKEN?   ÔIf the UK puts as much effort into reforming the EU as it would have to in order to make a success of Brexit, the UK and the EU would both be better off.Õ 1 The Conservative Party won the British elections in May 2015. With the promises of a referendum, comes a possible Brexit. However, is it likely that there is going to be a Brexit? Can this ongoing game between Britain and the EU be analyzed as a typical Game of Chicken? What would happen if there was effectively a Brexit? To be able to answer these questions I will briefly analyze the historical background of Britain in the EU context, make a correlation between the Brexit developments and the Game of Chicken and explore the possible consequences of a Brexit,  both from a British and a EU perspective. A Brief Historical Background: The UK in the EU Context The History of the UK in the EU has always been an unstable one. Britain decided to stay out in the 1950s, during the first attempt to create a European Coal and Steal Community. It was only in 1963 that Britain applied to join the EEC, this time with resistance from the French President who saw ÔBritain as hostile to European integration.Õ  2  In 1973, Britain finally joins the EEC and in 1975, they have a referendum over the membership of the nation. Since then, Britain got access to many opt-outs: Ôit is not in the euro or the Schenghen passport-free travel zone, and it has a special budget rebate. ! ... " it also opted out of many justice and home-affairs policies. Õ  3   What can one, as a result, conclude from History? That Britain has mainly been a not-very-reliable partner, that slows down the European Integration process by attempting to achieve sovereignty in the fields it has interests on and that lives on a constant Ôbluffing-basisÕ position to achieve desirable outcomes at a national level. Of course, Britain can be seen as an important trade  partner and a stable country in economic terms, however, the different ideologies in terms of  political and economic governance, and the constant rejection towards cooperative behavior, makes the Ôwhere-to-meetÕ cooperative behavior difficult to achieve. 1 1   Lord   Leach of Fairford, Open Europe Chairman. 2015. 2   WATT, N. 2013. 3   EMERSON, M. 2015.  Developments towards a Brexit: The Game of Chicken As I see it, the Game of Chicken, extracted from the Game Theory, can be an excellent tool to analyze the situation of Brexit and the EU. ÔThis game ! ... "  builds on a story of two cars, travelling in opposite directions,  speeding down the middle of the road toward one another. Inside each car sits a driver who wants to impress his respective passenger that he is a tough person ! ... " . The best way to do so is to continue driving straight down the middle of the road - even when the car coming in the opposite direction comes dangerously close. Yet, if at least one driver does not swerve, the outcome will be disastrous and both cars will crash, killing everyone. To avoid this unfortunate outcome, at least one driver will have to yield and  swerve, but both would like the other one to be the ÔChickenÕ who swerves.Õ  4 How can one apply this theory to the Brexit case? Let us assume that one car is the UK and the second car is the EU. Britain is driving mainly with the objective of regaining sovereignty on issues such as migration policies and, also global competitiveness of British businesses. The EU is driving with the objective of strengthening the union with supranationalistic and common policies in view. The worse outcome will be a crash, which in this case can be considered to be a Brexit. At the end of the day, both parties wish that the other one will compromise to avoid a Brexit, but at the moment, both cars are still driving towards a crash, since no one wants to swerve first. Even though, in this scenario, only a one-time game is considered, as previously verified in the ÔBrief Historical BackgroundÕ, Britain has been playing this game repeatedly and has always managed that the EU swerved first, avoiding a crash. In this context the UK is part of the distributive conflicts, in the sense that it is concerned with the way policies and politics are being shared within the EU system, and has an incentive to Ôfree-rideÕ, since it envisages to achieve only the benefits coming from the European Union, without having to ÔpayÕ for further integration and to compromise. As explored in the Parliament Magazine, CameronÕs objective was not to crash but to impress the Ôrespective passengerÕ by swerving later, however, the pressure of the national domestic politics might have made Britain in a possible position to collide: ÔThe pre-election promise ! David Cameron "  made in order to attract voters who were vulnerable to more radical right-wing anti-EU elements apparently was effective Ð he won an overall majority ! ... "  It was perhaps too effective. Had he not secured a majority it is conceivable he wouldn't have had to go through with the referendum.Õ 5 2 4   AGGARWAL, V. and DUPONT, C. 2011. 5   WALSH, J. 2015.  In this particular case, there is still the Ôrespective passengerÕ driving with Britain that still has a  possibility of persuading the driver to swerve, in the referendum and avoid a crash. However, it might also influence the driver to drive faster and worsen the situation. One other possible outcome could be that: Ô  If ! David Cameron "  changes position too often, then his reliability as a partner is undermined and Germany could decide that it is simply not worth negotiating and play a Ôlong game' of leaving things late. Õ 6 Brexit: Possible Consequences for the UK What happens to the UK if, in fact, there is a crash and a Brexit happens? To be able to analyze in a more clear way the repercussions of a Brexit, I would like to emphasize three points in which the Britain would be likely to be more affected:1.Broad Economic perspective and trade;2.Social indicators;3.Status in Europe and Global Positioning.In a Brexit outcome, the (1) broad economic perspective and trade would be very dependent on the type of deal Britain would get with the EU. In case the UK would exit and still manage to obtain a Free Trade Agreement with the EU, it could signify that the country would have an estimated loss of 2.2% GDP, however, if it does not reach a FTA it can have losses of 6.3% to 9.5% of GDP.  Nevertheless, Eurosceptics argue that the Ô  freedom from the rules and costs that, come with the EU membership would make Britain more prosperousÕ and add that  Ôif a FTA is agreed upon Britain can have a 1.6% gain in GDP by 2030Õ  . 7  It would also mean that the UK could lose access to a market of 500 millions of people and face tariffs and regulatory barriers to trade. Besides, British access to international trade would be compromised, since Britain would have problems in exercising its influence in global markets. A possibility for Britain choose towards a more protectionist approach instead of liberalization, could also represent a potential outcome. In this case this could have Ônegative consequences for poverty alleviation and development prospects.Õ  8 In relation to the (2) Social indicators, it would mean that the free movement of people could be rejected, even though there is a possibility that the country would have a similar status to Norway in this matter; an effective cut in migration could signify a loss in the public finances for Britain and 3 6   Sputnik International. 2015. 7   ALLEN, K., OLTERMANN, P., BORGER, J. AND NESLEN, A. 2015. 8   AGGARWAL, V. and DUPONT, C. 2011.  also a denial of EU institutions and standards within the social security sector, such as the  Ôfour weeks paid holiday a year, 26 weeks of maternity leave, and protections from redundancy.Õ  9 Lastly, within the (3) Status in Europe and Global Positioning, it is clear, that the UK would have a weaker position when trying to negotiate bilateral deals with the EU; it would have problems in exercising its influence alone in the global markets and its influence and status would lessen, rather than increasing, since it could be considered as a ÔuntrustworthyÕ economic partner. A possibility of  political controversy within the UK could also be on the cards, since some members like Scotland could rebel towards a Brexit. Brexit: Possible Consequences for the EU What happens to the EU if, as a matter of fact, there is a crash and a Brexit happens? As examined in the case of Britain, I would like to apply the same methodology to analyze the possible outcomes from a EU perspective, in case of a Brexit.Starting with (1) broad economic perspective and trade; a Brexit would signify economic losses for all the Member States involved, however the UK would be, by far, the most affected. According to the article ÔBrexit would hit UK economy hardest, German think tank warnsÕ: ÔGermany can expect GDP loses of between 0.1% and 0.3% but Ireland, Luxembourg and Belgium would suffer the most from a UK exit.Õ  10   Another important factor would be that all Member States would have to contribute more to the EU budget, which in the case of Germany it would denote an extra  ! 2.5  billion a year. Within the international trade perspective, this could mean losses, since some partners are connected to the EU through the UKÕs net of trade. Politically, it could also mean opening a  precedent and possible follow-ups could be expressed as a consequence. In fact, this could bring a  bigger ÔdesunionÕ of the Union and even increase Euroscepticism among EU citizens. In the aspects of decision-making, it could be positive, since the EU would have one member less that is always highly eurosceptical and declines most of the EUÕs proposals. It could too mean more common approaches and a deepening of the Union with more supranationalistic features.In terms of (2) Social indicators, this would convey a difference in patterns of migration, where EU rich countries would have easier access to the UK than other EU countries. Also, culturally it could mean a loss of interest in the English language and culture, since the young generation could 4 9   BORYSIEWICZ, S. L. 2015. 10   BRIGGS, M. 2015.   be ÔpreventedÕ of living and studying in this country. This would, however, have more negative consequences for Britain than for the EU itself.Lastly, within the (3) Status of Europe and Global Positioning, the EU would lose an important economic partner in the world wide markets context of global economy. It could be faced with a loss of ÔpowerÕ within international politics and would be affected in terms of global trade  partnerships.However, according to the data collected, it seems rather clear to deduce that a Brexit would be clearly more costly for Britain at most levels, than for the EU. Conclusion: I would like to conclude this essay, by pointing that one cannot be sure of how future developments will occur. However, as demonstrated by the brief historical background of the UK in the EU and the developments of the UK correlated with the Game of Chicken, a Brexit will  possibly not happen. A crash could occur, but it would be too costly both for the UK and for the EU at all levels, especially in the long-run, as demonstrated in the ÔBrexit: Possible Consequences for the UK and EU.Õ In the case there will be, nevertheless, a crash and no swerve, the main conclusion is that the UK would suffer more serious and permanent injuries than the EU. 5
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