“Reports that say that something hasn't happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don't know we don't know. And if one looks throughout the history of our country and other free countries, it is the latter category that tend to be the difficult ones.”

– Donald Rumsfeld, Secretary of Defense, 2002

“Germany's Angela Merkel exudes an atmosphere of elderly exhaustion and pooped-out pessimism. Britain's David Cameron, though by nature exuberant, feels he has to look and sound glum. And France's leader, François Hollande, seems determined to drive every successful businessman out of the country.”

– Paul Johnson

“I stay in France. Better to be the queen of a village than a servant in a kingdom.”

– Emmanuelle Béart


I am sure your inbox and the magazines you peruse and the TV programs you watch have been saturated with commentary on Brexit, much of its speculative nonsense. What I find the most annoying are people who feel that the British have made a huge mistake and that they are going to have to go through a period of unmitigated pain as punishment for their not appreciating the wisdom of their elders. They express an almost joyful glee in that prospect – especially if they don’t live in the United Kingdom.

As Donald Rumsfeld more or less said, there are things we know and things we don’t know and things that we can’t even imagine. Brexit falls into all of those categories. So before we start speculating ourselves, let’s take a trip down Reality Lane in Europe. Then, after we have, I will offer a few of my own … speculations. What may surprise people is that I see a trend developing (admittedly it’s still nascent) that could actually mean that Brexit helps the European Union to come together in a more realistic and workable manner. Whatever – it won’t be smooth sailing.

Before we turn to Brexit, we need to look back in time. Just 102 years ago, on June 28, 1914, Gavrilo Princip assassinated Archduke Ferdinand of the Austro-Hungarian Empire. We now mark that date as the beginning of World War I.

Europe was relatively peaceful in 1914. The bond markets certainly weren’t predicting trouble, as they were stable across the board. And even when it developed that countries were actually going to war, young British soldiers were very worried that by the time they were trained and got to the front, the war would be over.

At the time, World War I didn’t have a number. It was simply the Great War, which quickly developed into the most horrendous war Europe had ever seen – and Europe had seen plenty of wars over the centuries. Some called it the War to End All Wars – but it didn’t do that. An even greater war was in store for Europe two decades later.

I review this history for a couple of reasons. One is to point out how fast the world can change. By 1916 the Great War was a full-blown horror show.

The other reason is to point out what happened after 1945. The Continent was in shambles, millions were dead, and no one wanted to fight ever again. The agreements that would evolve into today’s European Union were designed, in part, to prevent another and potentially even more disastrous European war. The thinking was that nations bound together economically would have less incentive to destroy each other.

No one alive today saw the blood spilled at the Battle of the Somme in 1916. If we had, we would gladly do whatever is necessary to prevent another such massacre. We should recognize that, however badly the EU experiment may have gone off track, the EU grew out of noble and necessary motives. Europe must preserve positive intentions, before all else, as it reconfigures for a different kind of world.

The United Kingdom’s vote to exit the EU was in no way a vote for war, but it still represents a major change afoot in the European political and economic order. Yet the reality is that change was already underway in countries all across Europe. Europe is a minefield of potential change, and the United Kingdom was just the first mine to go off.

In the pages that follow, we’ll tiptoe into that minefield and think about how Europe might get through it. The good news: I think there are several feasible paths to the other side.

Furthermore, the European leaders who will decide which way to turn aren’t stupid. Nobody wants to step on a mine. But in the process of getting through, they will sometimes be one small step away from going boom. Inches (or centimeters, if you prefer) matter when the slightest misstep can kill you.

The Minefield

Europe was already well into the minefield before the Brexit vote. The UK’s decision may have made a bad situation more volatile, but Europe would still be in a fix if “Remain” had won.

  • If Remain had won, refugees from Africa and the Middle East, many with the UK as their destination, would still be struggling across the Mediterranean or taking land routes into Eastern Europe. The EU would still be desperately trying to stem the tide and to accommodate those whom it can’t stop.
  • If Remain had won, thousands of refugees would still be dying as their rickety boats capsized and sunk.
  • If Remain had won, Greece would still be chafing under EU-imposed austerity as its economy endures depression-like conditions. Spain and Portugal would still be wondering if they are next.
  • If Remain had won, Poland and Hungary would still be fighting against EU mandates that disrupt their internal affairs.
  • If Remain had won, several EU governments would still be engaged in deficit spending that exceeds EU guidelines, while the EU’s inability to stop them continued to expose its inability to enforce its decisions.
  • If Remain had won, the European Central Bank would still be holding interest rates below zero, buying private assets with public money, and propping up insolvent banks that must fail if the Eurozone economy is to ever recover.
  • If Remain had won, Russia and NATO would still be facing off in the Baltic Sea, forcing already stretched governments to boost defense spending.
  • If Remain had won, ISIS-sponsored or ISIS-inspired terrorists would still be plotting attacks like the ones in Paris and Brussels.
  • If Remain had won, border checks would still be in force within the supposedly free-travel Schengen zone countries, making one of the EU’s greatest achievements into a mockery.
  • If Remain had won, sizable minorities or even majorities in other European countries would still be agitating for their own exit opportunities. Catalonia would still be trying to separate from Spain. The Lega Norde in Italy would still be agitating for Northern Italy to secede. The Walloons and the Flemish would still want to sunder their ties with Belgium. Marine Le Pen would still be gaining strength in France.
  • If Remain had won, the Supreme Court of Austria’s ruling that an extremely close presidential vote must be taken again would still stand, opening up the possibility that a far-right-wing party might take control of a major European country. The frustration over immigration and immigrants is growing. Nationalism, as opposed to loyalty to the European Union, is a rising tide that shows no sign of receding.
  • If Remain had won, Italian banks would still be down some €400 billion, an enormous proportion of Italy’s GDP. German banks would still be teetering. I’ve written about both before. What I haven’t mentioned is how desperate the situation is becoming for European insurance companies, which are even larger than the banks. Arguably, many are in worse shape in a negative-rate regime.
  • If Remain had won, the growing criticism of the ECB would still be growing, and negative rates would still be distorting European financial markets.

I could go on, but you get the point.

Europe already faced a whole host of serious problems before the Brexit vote. It has done perilously little to resolve them and could yet make some of them worse. The EU routinely takes years to achieve consensus, even on trifling issues. It did not need another challenge. But it has one anyway.

Brexit Surprise

The Brexit victory surprised many people. I didn’t have a firm expectation either way, though the populist tide rising in many places around the globe convinced me that the Leave side had a good shot.

What did surprise me was the 52%-48% margin. I keep seeing the vote described as a “big” victory for Leave. Was it? I’m not so sure. We would be having an entirely different conversation right now if a few more than 2% of the voters had gone the other way. That’s not what I would call a dramatic difference, at least on the national level. The margin was much more lopsided in certain areas like Scotland, which went heavily Remain.