Individual Case Report #3

UV7341-PDF-ENG.PDF

Home >Business & Finance homework help >Financial markets homework help >Individual Case Report #3

UV7341 Rev. Jun. 29, 2018

The Panic of 2008 and Brexit: Regional Integration versus Nationalism

[The] rise in nationalism is a global trend, and one of three critical consequences of the 2008 financial crisis that will play a pivotal role in shaping geopolitics in 2017. (The other two are economic stagnation and instability in export-dependent countries.) Its rise stems from the rejection of the internationalist model that has dominated international relations since the end of World War II. In places like Europe, it is easy to see why internationalism is losing favor. It is less obvious for the US. The European Union (EU) put in place policies and regulations that prioritized the Union’s survival over national interests, and this inherently creates conflicts of interest between the bloc and member states. This was exacerbated by the 2008 financial crisis. Member countries saw their economies crash while their hands remained tied by Brussels, which was slow to act and offered a narrow range of Band-Aid solutions.

—George Friedman and Allison Fedirka1

The Brexit vote was a triple protest: against surging immigration, City of London bankers, and European Union institutions, in that order.

—Jeffrey Sachs2

[T]he financial crisis of 2008–2009, which started in the U.S. but rapidly spread to Europe, has initiated a new period characterized by three larger crises: of capitalism, of democracy, and of the project of European Integration.

— Timothy Garton Ash3

Why have citizens across Western democracies become increasingly nationalistic, opposed to mass migration, and suspicious of international institutions? One answer is that this is a consequence of the financial crisis, which has left deep pockets of economic deprivation and underemployment. But that answer is clearly wrong, because these trends have been in place for the better part of 30 years. A more accurate answer would be that they reflect an inherent tension between national democratic sovereignty and elite-led efforts at global integration, and that this tension has now reached its breaking point.

—Roberto Stefan Foa4

On June 23, 2016, British citizens voted to leave the European Union (EU) by a margin of 52% to 48%. In advance of the referendum, President Barack Obama, US Assistant Secretary of State for European Affairs Phillip Gordon, and former US president, Bill Clinton, urged British voters to remain a part of the EU, due to the economic power that the UK brought to the EU and its role as a leader in geopolitics. On the other hand,

This case was prepared by Robert F. Bruner, University Professor, Distinguished Professor of Business Administration, and Dean Emeritus and Kevin Hare (UVA ’17). Copyright © 2017 by the Trustees of the University of Virginia Darden School Foundation. All rights reserved. To order copies, send an email to sales@dardenbusinesspublishing.com. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation. Our goal is to publish materials of the highest quality, so please submit any errata to editorial@dardenbusinesspublishing.com.

This document is authorized for use only by Ivan Gotic (IvanGotic53@gmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies.

Page 2 UV7341

then-presidential candidate Donald Trump declared the UK to be “better off without [the EU].”5 It seemed extraordinary to some observers that American leaders would seek to influence British voters in what was an internal matter. Why did American (and other foreign) leaders deem it important to express an opinion? And what was the source of the surprising British sentiment? Was the UK referendum an isolated case or the symptom of broader forces at work? And what might those forces be?

The Foundations of European Economic Integration

The ideal of integration among the European countries was “to make war [within Europe] not merely unthinkable but materially impossible”6 and generally promote economic growth and welfare. Six countries agreed in 1951 to form the European Coal and Steel Community, which morphed in 1955 into the European Economic Community. The membership grew and, in 1993, the community agreed via the Maastricht Treaty to form the EU—this dramatically lowered trade barriers among member states and created a supranational European citizenship that greatly enhanced the mobility of the population among member states. By 2017, the EU included 28 countries.

The government of the EU consisted of numerous units, spanning a parliament, courts of law, a central bank (and a common currency, the euro), an executive council, and a bureaucracy to implement laws and regulations. As the EU matured, the size of its government increased, and critics charged that its tax burden, intrusion into the sovereignty of member states, and zeal for integration exceeded its mandate.

The Rise of UKIP and Separatism in the UK

Early in 2013, the Conservative Party in the UK came under immense pressure both from a growing Euroskepticisma within the party and the continued success of the United Kingdom Independence Party (UKIP). The UKIP had risen from a relatively unknown entity in British politics in the first years of the 21st century under the leadership of Nigel Farage. In the 2001 and 2005 parliamentary elections, the party gained only 1.5% and 2.1% of the vote, respectively. By the 2009 European Parliament elections, however, UKIP won 16.5% of the vote, good enough for second place, and displaced the traditional left Labour party in the process.

While the UK had not embraced the full measures associated with European integration—it had declined to join the European Monetary Union (EMU) or adopt the euro—the major British political parties had never embraced this ideology. Beginning as a one-issue party dedicated to simply leaving the EU, UKIP expanded its popular appeal on a variety of issues as its vote share expanded. One of the primary drivers of UKIP’s electoral success was its stance on immigration and against the free movement of people within the eurozone.

Since the beginning of the 1990s, European nations have embraced a system of reduced border controls in order to facilitate open movement of European citizens throughout the continent and islands. Beginning with the Treaty of Maastricht in 1992, citizens of EU nations had the right to move through and settle in other nations of the EU. The resulting migration into the UK by residents of other European nations became a central campaign issue for UKIP in its highly successful 2009 and 2014 bids for British seats in the European Parliament. Survey evidence shows that from the middle of 2007 until May 2008, immigration was the most important issue for British voters.7 As the Panic of 2008 took hold, however, grave concerns about the rapidly deteriorating state of the British economy quickly took the lead. Throughout this time, and especially beginning in late 2012, polling showed a substantial rise in fears about immigration. This tracked an increase in immigration from other EU nations during this time as well, with a net flow of immigration from the EU at

a “Euroskepticism” was the political attitude of disbelief in the benefits of alliance with the EU.

Page 3 UV7341

approximately 50,000 for the year ending September 2012, and increasing to 150,000 for the year ending December 2014.8

The entrance of UKIP onto the national political stage was further assured by the results of the by-elections held between the 2010 and 2015 parliamentary elections. Under the British political system, by-elections are held when members of the House of Commons either resign or die between major elections. From the middle of 2011, UKIP began to compete strongly for local electoral seats, posting especially strong results in traditional Conservative and Labour districts in both southern and northern England.

British Negotiations for Reform

Faced with the rise of this new political force, David Cameron, the leader of the Conservative Party, was elected prime minister following the Conservative victory in the 2010 general election. He was faced with the necessity of reexamining the British relationship with the EU. In a speech delivered on January 23, 2013, Cameron promised the British people a process of negotiations over the membership status of the UK as part of the EU, followed by a simple plebiscite over the future of that membership.9 Cameron presented three main challenges:

First, the problems in the Eurozone are driving fundamental change in Europe. Second, there is a crisis of European competitiveness, as other nations across the world soar ahead. And third, there is a gap between the EU and its citizens which has grown dramatically in recent years. And which represents a lack of democratic accountability and consent that is—yes—felt particularly acutely in Britain.10

Beyond simply laying out these challenges, Cameron laid out his proposals and principles for the EU moving forward: competitiveness among EU nations, flexibility to incorporate a growing number of nations and cultures, more power and autonomy concentrated in each member state, democratic accountability through a strengthening of the national parliaments at the expense of a growing European parliament, and finally, fairness to all members of the EU, not simply those who were party to the EMU and the eurozone. Cameron believed he could secure a debate on these issues and advocated forcefully for remaining a part of the EU after the process of reforms.

In May 2012, public polling on the question of UK independence from the EU began to align with leaving the EU, for the first time since the implementation of the euro. Survey results confirmed this wave of separatism following the speech by the prime minister, though most polling suggested a contentious debate and no clear answer.11

Fifteen months after Cameron made his speech outlining a process of negotiations, in March 2014, he returned to the international stage to make his five guiding principles more concrete. His proposals centered on controlling immigration to the UK; establishing national sovereignty over pan-European legislation; reducing bureaucratic red tape for business; reducing the influence of the European Court of Human Rights over British law enforcement and courts; and putting a stop to the attempt by the EU to make the nations of Europe “ever closer.”12 In November 2014, those goals were further refined and specified as being a return to 1990s levels of net migration; an overhaul of the British welfare system in order to restrict access to British citizens, rather than all EU citizens; and more stringent privileges regarding deportation. In a letter to the EU in November 2015, Cameron clarified that eurozone laws should not necessarily apply to EU members outside of the EMU, and that, specifically, the UK would be free from the responsibility to bail out eurozone members in the future.13

Page 4 UV7341

Referendum and Campaigning

Negotiations between Britain and the EU finally concluded in February 2016. In a speech to Parliament on February 20, Cameron laid out the results of those negotiations and offered a simple choice to British citizens. On June 23, 2016, Britain would vote to either stay in the EU with new restrictions in place, or leave it altogether.

As the respective campaigns for the two opposing movements, Vote Leave and Stronger In, began to be formalized, key political stakeholders allied themselves with each side. The campaigns defied standard political parties: Cameron allied with Labour leader Jeremy Corbyn to advocate for continued British membership in the EU, primarily on the grounds that the issues facing Britain—climate change and terrorism, as well as stagnant economic growth—beset all Europe. Below the party-leadership tier, cabinet members such as George Osborne (chancellor of the exchequer) as well as former Labour prime minister Tony Blair supported the campaign.

The opposition, heading up the Vote Leave campaign, was primarily led by Conservative cabinet minister Michael Gove, former London mayor Boris Johnson, and Labour MP Gisela Stuart. While consistently an ardent proponent of leaving the Union, UKIP leader Nigel Farage was not part of the official leadership structure and instead led his own allied campaign to leave the EU.

To make its case, the Stronger In campaign primarily relied on:

 Economic growth, specifically the potential for a Brexit vote to destroy access to the single European market, which would significantly boost British exports and other UK businesses.

 Avoiding a reduction in free trade leading to a reduction in both investment in the British economy as well as a lower standard of living for families.

 Britain’s role as a world leader. Many associated with the Stronger In campaign feared that following an exit from the EU, Britain would lose that special place.

On the other hand, the Vote Leave campaign decried the Stronger In positions as scare tactics and instead advocated leaving the EU, offering major policy positions such as:

 Additional funds sent to the EU, totaling GBP350 million weekly, could be spent on the National Health System.b

 Britain would be able to control its borders—in order to screen immigrants more carefully.

 Increased opportunities for bilateral free-trade agreements, not requiring the approval of the EU.

 A freedom from lawmaking at the European level, which the Vote Leave campaign framed as being antidemocratic.

Polling throughout the campaign, beginning before the announcement by Cameron, showed that there was a significant lead in votes to remain in the EU in late 2015 and early 2016, but not an insurmountable one, and often within the margin of error of the poll. As the spring advanced, however, votes to remain sustained a narrow lead. A caveat to this, however, was the consistently large portion of the population unwilling to commit to a side. While some polling evidence registered undecided voters under 10% of the population, most polls revealed large segments of voters who had yet to make up their minds.

b GBP = British pounds; USD = US dollars.

Page 5 UV7341

Beginning in May, the polling began to tighten significantly, and in early June, it had become clear that votes to leave the EU had taken the lead as the portion of the undecided population declined steadily. In the waning days of the campaign, however, the race became a dead heat, with a sizeable group still undecided, making knowledge of the outcome difficult to discern.

Referendum and Results

On June 23, 2016, British voters headed to the polls. The outcome of the referendum, dubbed “Brexit”— a combination of “Britain” and “exit”—resulted in a victory for those who voted to leave, with 52%, compared to 48% who voted to remain. Voter turnout across the UK stood at 72.2% of those eligible. Below the surface, there were also significant dispersions of voters. For instance, both Scotland and Northern Ireland voted in strong numbers in favor of remaining in the EU, with margins of victory of 24 and 11 points, respectively. Contrary to this vote however, Wales and England voted to leave—in proportions not significantly different from the UK as a whole.

There was also a considerable split in the voting based on geography within England. In many London boroughs, votes to remain tallied well over 75%. This pattern was repeated across a number of larger British cities such as Manchester, Liverpool, Bristol, and Leicester. Rural Britain, concentrated in northern and eastern England, but also drawing strongly on the stagnating Midlands region, voted strongly in favor of leaving the EU.

National referendums can confer legitimacy on a policy decision that has gridlocked a national legislature. And with the advent of digital technology, it was hoped that a referendum of a better-informed electorate would democratize policy making, enhance political discourse and communication, and produce a more cosmopolitan electorate. But after the Brexit vote, analysts pointed out that the democratic appeal of national referendums had flaws. The ability of referendums to gauge the national will is vulnerable to low turnout, electoral confusion, charismatic demagogues, contagion by social media, and attention-grabbing fringe movements.

After the Referendum

One of the immediate effects of the Brexit vote occurred in the currency markets. On Friday, June 24, the British pound lost as much as 13% of its value and hit a 30-year low. By the end of 2016, the British pound had declined further amid fear and uncertainty concerning the future of the British economy, reaching USD1.234 by the end of 2016, down from USD1.488 on the eve of the referendum. The shockwaves also spread across most British equity markets as well, though mostly in the near term. While the FTSE 100, which measured the largest 100 companies listed on the London Stock Exchange, fell 5.6% in the days following the vote, it went up nearly 13% by the end of 2016. Uncertainty over the timing and method of exiting the EU contributed to considerable uncertainty about the future of British markets, fueling speculation about the continued dominance of London as a financial center in the era of restricted immigration.

In the weeks and months following the June referendum, the British political landscape experienced a massive upheaval. Starting in the days immediately following the vote, Prime Minister David Cameron announced his resignation as soon as a new member of the governing coalition was selected as prime minister. As the primary leader of the Stronger In campaign throughout the spring, he had staked his future leadership on the result. Following Cameron’s resignation, former Home Secretary Theresa May was appointed prime minister in July 2016. A member of the Conservative party, May originally supported the Stronger In campaign, but pledged to uphold the will of the people, famously remarking, “Brexit means Brexit, and we’re going to make a success of it.”

Page 6 UV7341

In order to leave the EU, May and the UK Parliament must vote to trigger Article 50 of the Lisbon Treaty, which was passed in 2007 in order to reform the bases of the original treaties creating the EU. Following the formal invocation of Article 50, the UK will have two years to negotiate the terms of withdrawal from the treaty and the EU. In October 2016, May signaled that she intended to notify the EU of the triggering of Article 50 by the end of March 2017. Though not formally triggering Article 50, in January 2017, May called for a “hard” or “clean” Brexit that would involve a complete withdrawal from the single European market, giving far greater control to the British government over immigration, customs, and trade, while limiting international access.

Nationalism and Separatism in Europe

Following the Panic of 2008 and the sovereign debt crises in Europe, substantial nationalist political factions arose throughout Europe. In many major European countries, political parties espousing a return to a past European landscape—keying in on restrictions on immigration and refugee resettlement—had taken center stage in recent elections. Coupled with an uptick in separatist parties seeking to gain complete autonomy for regional governments, the European political landscape had changed significantly.

The rise of these parties affected small, isolated countries such as Denmark and Finland, as well as the most prominent and successful regional powers, such as Germany and France. In France, the Front National (FN), or National Front, which surged in public-opinion polling ahead of the April 2017 elections, capitalized on support in deindustrialized areas and with blue-collar workers across the nation. The rise of UKIP in the UK, a party distinctly and successfully advocating for a removal of Britain from Europe, as well as the rise of Alternative für Deutschland (AfD), or Alternative for Germany, both demonstrated the serious levels of support for populism and nationalism.

A Revival of Older European Nationalist Parties

While always on the fringes of the French political system, the FN maintained an electoral presence for decades. In the 2002 French presidential election, Jean-Marie Le Pen, father of 2017 presidential candidate Marine Le Pen, advanced to the second round of voting by narrowly receiving the second-highest tally in the initial round. The staunchly populist party failed, however, to gain any ground on its initial victory when the elder Le Pen’s opponent, Jacques Chirac, won 82% of the vote in the second, final round. The FN regained voter support in part due to its anti-European and antiglobalization positions. Similar to the United States, 2017 presidential candidate Marine Le Pen repeatedly embraced US President Donald Trump, adopting similar slogans and positions regarding protectionism and Russian foreign policy. In terms of absolute support, in the December 2015 elections, the FN won 6.6 million votes—up 200,000 despite a 20% drop in overall voter turnout. With an emphasis on immigration and rising Muslim populations, the FN polled at 45% with blue- collar workers and 38% with the unemployed and younger workers in late 2016.14 The success of nationalist parties with the economically disenchanted, however, was not unique to FN and France.

Among the political parties featuring deep European roots, the Freedom Party of Austria (FPO) was one of the first to be formed. Founded in the years following World War II by former members of the Nazi party, the FPO changed in the decades that followed and came to represent classically liberal economic views. In the 1980s, the FPO adopted anti-immigration policies and later evolved into a party representing a broad range of antiestablishment positions bent on remaking Austria’s power structure. The most recent rise of the FPO as of 2017 came amid steadily rising unemployment figures in Europe following the global financial crisis. More broadly, the lack of economic opportunity in Austria drove a populist economic message. The manifestation exists in voting patterns similar to the FN in France, as Austrian manual laborers overwhelmingly voted for the FPO in the December 2016 presidential election, while white-collar workers strongly supported the opposition.

Page 7 UV7341

The result of the election, however, was a victory for the coalition opposing the FPO. The FPO candidate, Norbert Hofer, received 46.2% of the vote in the final round, demarcating the strong position of the party. Not all European nations experienced a similar resurgence, however, as many saw completely novel parties arise.

New Parties at the Table

As of 2017, perhaps the most recent party formation to threaten well-established European parties was Alternative für Deutschland (AfD) in Germany. The party began as a reaction to the eurozone bailouts and was initially formed by economists; however, one founder, Bernd Lucke, left the party in 2015 because of its growing nationalism. In its first national election in 2013, AfD won slightly less than 5% of the national vote, a modest total for German elections. Ahead of the 2017 elections, however, AfD polled as high as 16%, a high figure for German elections. Like many European populist parties, the composition of AfD voters was unconventional. One professor of political science at the University of Mainz identified up to one-third of supporters as previously not supporting a party before AfD rose to prominence. Politically, AfD aligned itself with a number of its nationalistic counterparts, taking a distinctly anti-immigration stance, especially following the 2015 refugee crisis and mass migration to Germany. To that end, the party favored a reintroduction of stronger border controls as well as more stringent regulations regarding asylum seekers. The official positions of the party went even farther, asserting that “Islam is not part of Germany,”15 and proposing bans on both the Muslim call to prayer and the wearing of burqas in public. Economically, the party supported reforms in the eurozone to limit the size of bailouts and called for a referendum on whether Germany should drop out of the EMU.

Many other European nations, facing increased debts and stagnant economies, coupled with a massive increase in asylum seekers arriving on the continent, saw a similar rise in populism and nationalism. In Denmark, one of the few European nations not using the euro, the Danish People’s Party (DPP) emerged. This nationalist, anti-immigration, and anti-EU party finished second in the 2015 elections, with 21% of the vote, only a year after winning 27% of the vote in the 2014 European Parliament elections. Elsewhere in Scandinavia, the political forces were similar; the Sweden Democrats party—similar in politics to the DPP—received 13% of the vote in 2014.

Italian politics were characterized by strong populist and separatist elements over the previous quarter century. Lega Nord (LN), or Northern League, was founded in 1991 as a party dedicated to promoting federalism in Italy; the party began to gain power in the following decade.16 After forming a coalition government with Forza Italia and Silvio Berlusconi in 1994,c LN became powerful on the national level.17 In the 1996 elections, the party unexpectedly won 10% of the popular vote, with most votes coming from conservative districts with a high concentration of commerce and professional employment.18 Employing a populist rhetoric, party leader Umberto Bossi clearly distinguished between the “ordinary people” who supported LN and the Roman political class. This common populist framing carried over into Italian politics after the Panic of 2008 as well.

In 1996, LN began to call for the secession of the “Padanian” region in Northern Italy, beginning the calls with protests that drew nearly a quarter of a million participants.19 Following the global financial crisis, LN surged to over 20% of seats in the national legislature. Apart from LN, a new political force arose in Italy, one that was less concentrated on regional exceptionalism. The Five Star Movement—an explicitly antiestablishment party, which based its platform on a drive to remove politicians from Rome and the center of the Italian political landscape—polled over 30% in early 2017, the highest of any party in Italy. One key

Forza Italia was a center-right political party in Italy led by Silvio Berlusconi. Berlusconi was prime minister of Italy for nine years, the longest- serving since the end of World War II.

Page 8 UV7341

difference between many of the European nationalist parties and the Five Star Movement was that many of the voters were former center-left voters and municipalities, which differed significantly from the right-leaning politics of the majority of the leading European populist parties. Their voters, however, mirrored many of the blue-collar supporters of the FN in France and the FPO in Austria.

The Case of Greece

Unlike that of many of their European counterparts, but similar to the Italian experience, the Greek political landscape was remade by populists on both the left and the right. As one of the countries hit hardest by the Panic of 2008 and subsequent sovereign debt crises, the country saw an initial rise in populism from the political Left. Late in 2009, a Socialist government was elected under George Papandreou. Following bailouts of the Greek government and protests over the austerity measures imposed by the EU in the summer of 2011, Papandreou stepped down in favor of Lucas Papademos. Following another series of bailouts, the populist party Syriza won snap elections in January 2015, making leader Alexis Tsipras prime minister. Tsipras advocated for debt cancellation rather than more austerity, a position that was contrary to the more hawkish EU.

Aside from the left-leaning populist views of the new government in Greece, there was also a precipitous rise in right-wing nationalism. Following the beginning of the sovereign debt crisis in 2010, Golden Dawn exploded into the political atmosphere. The party took the Euroscepticism rhetoric and actions to a more extreme level as well. In 2015, party leaders faced trial after the party was accused of murder and armed attacks on civilians. The party adopted an anti-immigrant and proethnic–Greek stance that led many to label it neofascist and neo-Nazi. While not seeing proportions of the vote as high as nationalist parties in other European nations, in the 2015 elections, Golden Dawn secured nearly 500,000 votes. Supporters of the party were concentrated in the Aegean islands and the Dodecanese islands to the southeast of mainland Greece, which was also the point of arrival for many asylum seekers. The party won 7.8% and 8.1%, respectively, in the islands, while the national vote share totaled 7%. Succeeding across Europe, nationalist parties have enlisted new voters from across each nation.

Provincial Separatism within European Nations

Two regional separatist episodes featured prominently in subnational European politics in the years following the Panic of 2008. The first example was the Catalonia region of northeastern Spain. This region was one of the most prosperous in the nation, home to major cities such as Barcelona as well as productive industries. The movement in Catalonia began on National Day of Catalonia, September 11, 2012. Driven primarily by feelings of economic superiority as against court-ordered restrictions on regional independence, thousands of protestors marched in the streets. In late January of the following year, the regional government passed the “Catalan Sovereignty Declaration,” making Catalonia officially a sovereign entity—though this was later ruled unconstitutional. At the end of 2013, the regional government once again tried to establish independence, setting a formal date in late 2014. Only a few months later, however, the Spanish government denied the region the right to hold such a vote, which provoked the region to hold a “participatory” vote on the date originally planned. The result was a resounding victory for independence, with that side winning over 80% of the vote. Nearly a year later, in September 2015, the region once again held elections—this time using the regional legislature as a de facto referendum. Once again, proindependence parties won, gaining an absolute majority in the Catalan Parliament. This case was not the only instance of subnational exceptionalism boiling over.

While the Catalan region strove for independence from Spain, many in Scotland made a similar push to leave the United Kingdom. In early 2013, First Minister of Scotland Alex Salmond declared that Scotland would

Page 9 UV7341

hold a referendum on whether it would leave the UK and set the date for September 18, 2014. The referendum, concurrent with the rise of the Scottish Nationalist Party (SNP) foreshadowed the referendum in 2016 over the future membership of the UK in the EU. The SNP began the 21st century with a base of support of around 15,000 members, though this number rose steadily after 2003. In the months before the referendum, party membership had reached 40,000. Similar to other regional movements, the party argued in favor of using Scottish taxation and social security payments on Scots, as well as increasing benefits for children and the elderly. In September 2014, First Minister Salmond, who had advocated strongly in favor of independence, lost the referendum 55% to 45%, a result welcomed by then-US president Barack Obama and UK prime minister David Cameron. Party membership continued to rise following the referendum, however, and by mid-2016, membership stood at a formidable 120,000. These two separatist episodes demonstrated many of the overarching nationalist sentiments held by the wider European population and illustrated the battles being fought by national governments against broader isolationist parties and stances.

Making Sense of the Broader Trends

Exhibit 1 summarizes the chronology of separatist movements and events over the 1991–2016 period. Exhibits 2 and 3 present the changes in legislative representation by separatist parties. And Exhibit 4 gives changes in representation in the European Parliament by separatist parties. Clearly, separatist sentiment increased after the Panic of 2008 and the ensuing global financial crisis.

Elsewhere, the Jasmine Revolution of 2011 triggered an era of civil turmoil that swept many Middle Eastern nations. Followed by the civil war in Syria, the collective effect was to prompt a massive migration of refugees from war, civil unrest, and oppression toward Europe. Initially, European nations agreed to harbor these refugees, but as the economic, civil, and cultural burden mounted, public sentiment turned negative.

The chronology of Brexit and other separatist events suggests the influence of four powerful forces:

 Economic nationalism. The increasing desire to retreat from free trade stemmed from the dislocations associated with the growing integration of nations into the global economy. Such dislocations included unemployment, the loss of manufacturing operations to lower-cost countries, and trade deficits. The Panic of 2008 and global financial crisis accelerated and amplified the economic dislocations. Parties advocating economic nationalism seemed to advocate mercantilism.d

 Political nationalism reflected a recoil from international treaties that might bind the sovereignty of a nation. Voters felt growing alienation from supranational and multilateral institutions such as the European Parliament, International Court, World Trade Organization, NATO, and the United Nations. Parties advocating political nationalism seemed to advocate separatism and even isolationism in foreign policy—this did not bode well for multilateral treaties and organizations.

 Cultural and ethno-nationalism. Purists sought to exclude immigrants and even return the country to the profile of an earlier day. Cultural nationalists might range from those who sought to return the country to uniformity of language and cultural traditions to (at the other extreme) racists, Holocaust deniers, and violent “skinheads.”

 Populism. Embedded in many of the separatist movements was a distrust of the elites in business, government, and cultural institutions. Populists asserted that the elites had forgotten or abused the

d Mercantilism motivated the spread of colonial powers in the 17th century and advocated amassing wealth and productive capacity through favorable trade balances, protectionism, and possibly, war.

Page 10 UV7341

common people. Thus the populists sought to reclaim power over economic, political, and cultural decisions from the elites.

All of these manifestations revealed a paradox, that as globalization strengthened, so did the appeal of national identity. The World Values Study found that since 1981 measures of national pride rose in virtually all countries.20 And equally significant was the resistance to pluralism that resulted from these forces.

Page 11 UV7341

Exhibit 1

The Panic of 2008 and Brexit: Regional Integration versus Nationalism

Chronology of European Separatist Movements and Events

Events of Panic of 2008

August 9, 2007: BNP Paribas announces it cannot value assets in tow of its hedge funds.

September 13, 2007: British lender Northern Rock receives emergency financial support from the Bank of England; lines to withdraw money from accounts extend around block.

February 17, 2008: Private bid for Northern Rock fails; nationalized by UK government.

March 16, 2008: JP Morgan buys Bear Stearns with help of US Federal Reserve.

Summer 2008: Home prices crater and new mortgages fall in UK and US

September 15, 2008: British bank Barclay’s bid for American investment bank Lehman Brothers not approved by the Financial

Separatism, Nationalism, and Populism in Europe

1991: Formation of Northern League (LN), or Lega Nord, in Italy—party dedicated to creating more federal Italy.

1994: LN allies with Silvio Berlusconi’s Forza Italia party to win parliamentary elections as coalition.

April 1996: LN unexpectedly wins 10% of popular vote in national election.  Most votes came from conservative districts with concentration of

commerce-related employment.  Party leader Umberto Bossi used language to distinguish between

“ordinary people” from the North and the “political class” based in Rome.

September 1996: LN calls for secession of “Padanian” region of Italy (various northern states); 200,000–250,000 people attend demonstration for independence; party eventually loses momentum and power in following two years.

Page 12 UV7341

Events of Panic of 2008

Services Authority (FSA); Lehman Brothers goes bankrupt.

September 17, 2008: British mortgage lender HBOS is rescued privately by Lloyd’s.

October 3, 2008: US Senate and House approve Troubled Asset Relief Program (commonly known as TARP).

October 8, 2008: UK government approves GBP500 billion* (USD874.4 billion**) rescue package.

October 13, 2008: RBS, Lloyd’s TBS and HBOS are bailed out by UK.

December 2008: Major US automakers GM, Ford, and Chrysler are bailed out from TARP appropriation.

January 19, 2009: Prime Minister of the UK Gordon Brown announces new bailout for financial system.

February 2009: USD787 billion stimulus package (ARRA) passed in United States.

March 9, 2009: Last major Icelandic bank shut down by financial authorities.

Spring 2009: Bank of England begins “quantitative easing” by periodically injecting up to GBP50 billion into UK economy.

Separatism, Nationalism, and Populism in Europe

January 26, 2009: Icelandic parliamentary government collapses due to extreme banking crisis in country.

January 30, 2009: Iceland put on fast track to European Union (EU) membership to provide aid during financial collapse.

October 2009: Socialist government elected in Greece under George Papandreou.

Page 13 UV7341

Events of Panic of 2008

April 2010: Greek debt rated junk.

May 2010: Initial Greek bailout.

October 2010: Austerity programs implemented in the UK.

November 2010: Ireland bailed out by EU for USD113 billion.

April 2011: Greece begins to struggle to repay bailout.

May 2011: Portugal is bailed out by EU.

October 26, 2011: Greek debt restructured in plan which forgives nearly half of original debt.

May 2012: EU and Greece reach agreement on second bailout.

June 9, 2012: Spain receives up to USD125 billion in bailout funds for its banks from members of the eurozone; bailout less stringent than others in Europe.

September 2012: European Central Bank unveils program to buy unlimited bonds from eurozone countries.

Separatism, Nationalism, and Populism in Europe

June 2010: New Flemish Alliance, a separatist party, wins most seats in national elections, but is unable to form government. Belgium continues without government.

May–July 2011: Massive protests rock Greece in reaction to austerity imposed by EU; negotiations between EU and Greece in order to change the terms of repayment begin.

October 31, 2011: George Papandreou calls for referendum on second bailout, then cancels; steps down in favor of Lucas Papademos.

December 2011: Belgian minority party from Wallonia forms fragile governing coalition 541 days after crisis began.

September 11, 2012: Protests begin in Catalonia in Spain on “national day” in favor of independence movement primarily driven by economic woes from financial crisis and court-ordered restrictions on independence.

January 23, 2013: Catalonia passes “Catalan Sovereignty Declaration” making Catalonia sovereign entity; later ruled unconstitutional.

Page 14 UV7341

Events of Panic of 2008 Separatism, Nationalism, and Populism in Europe

March 21, 2013: Scotland declares that it will have a referendum on its independence on September 18, 2014. Proponents include First Minister Alex Salmond, who touts Scotland’s natural resources. Opponents cite security and economic reasons.

April 2013: Center-right coalition wins election in Iceland, vows to put EU negotiations on hold.

December 2013: Catalan government agrees on date for independence referendum. (Catalonia Votes).

April 8, 2014: Spanish government denies Catalan government the right to formally hold vote of independence.

September 18, 2014: Scotland votes to stay as a member of the UK, 55% to 45%. Result is welcomed by Prime Minister David Cameron and US President Barack Obama.

October 4, 2014: 97% of municipalities in Catalonia favor holding independence vote; up to 80% of Catalan Parliament favor independence.

October 2014: Spanish court suspends planned Catalan independence vote.

November 9, 2014: Catalonia holds “participatory” process. Nonbinding results favor independence 80.76% to 4.54%.

January 2015: Populist party Syriza wins snap elections in Greece; new Prime Minister Tspiras advocates for debt cancellation.

March 2015: Icelandic government announces it is dropping its bid for EU membership.

August 3, 2015: Catalan Prime Minister Artur Mas sets elections for September to be used as de facto referendum on independence.

September 2015: Pro-independence parties gain an absolute majority in Catalan Parliament.

February 2016: Negotiations end between UK government and EU for terms of staying in EU.

February 20, 2016: Prime Minister David Cameron calls for referendum on whether the UK should leave the EU and encourages support; sets date for June 23, 2016.

April 15, 2016: Official Brexit campaign begins; allegiances non-party based.  Vote Leave: Argues in favor of restricting free movement of

peoples, freedom from European regulations and a reprioritization of spending on British citizens; primarily supported by former London mayor Boris Johnson (Conservative), Kate Hoey

Page 15 UV7341

Events of Panic of 2008 Separatism, Nationalism, and Populism in Europe

(Labour), and UKIP (United Kingdom Independence Party) led by Nigel Farage.

 Stronger In (Remain): Makes case primarily in favor of the economic and security aspects of remaining a part of the EU; supported by Prime Minister David Cameron (Conservative), Chancellor of the Exchequer George Osborne (Conservative) and Labour leader Jeremy Corbyn, former prime ministers Tony Blair (Labour) and John Major (Conservative)

April 23, 2016: President Obama writes op-ed for The Telegraph in favor of “Remain” campaign.

May 16, 2016: Then-candidate Donald Trump expresses support for Brexit in April 2016: Italy attempts to resolve interview with Piers Morgan on Good Morning Britain. banking instability through creation of industry-led bailout fund. June 23, 2016: United Kingdom votes to leave the EU.

June 24, 2016: Donald Trump expresses support for Brexit, saying, “Basically, they took back their country. That’s a great thing.”21; Prime Minister David Cameron announces resignation.

July 13, 2016: Pro-Brexit Home Secretary Theresa May becomes prime minister, promising to follow the results of the referendum and invoke Article 50, formally beginning the process of leaving the EU.

December 23, 2016: Italian government bails out world’s oldest lender, Monte dei Paschi di Siena. * GBP = British pounds. ** USD = US dollars.

Data source: Created by author from available news outlets.

Page 16 UV7341

Exhibit 2

The Panic of 2008 and Brexit: Regional Integration versus Nationalism

Separatist Parties and Seats Gained in National Legislatures

Party Seats 2004–2009 Seats 2009–2014 Seats 2014–2019

Five Star Movement (Italy) 0 0 15/73

Northern League (Italy) 4/78 9/72 5/73

UKIP (Great Britain) 12/78 13/72 24/73

Sweden Democrats 0/19 0/19 2/20

Order and Justice (Lithuania)

1/13 2/12 2/11

Alternative for Germany (Germany)

N/A N/A 7/96

National Front (France) 7/78 3/74 24/74

Party for Freedom (Netherlands)

N/A 4/25 4/26

Congress of the New Right (Poland)

N/A N/A 4/51

Freedom Party of Austria (FPO)

1/18 2/19 4/18

Flemish Interest (Belgium) 3/24 2/22 1/21

Source: Created by author from data obtained from the European Parliament and BBC.22

Page 17 UV7341

Exhibit 3

The Panic of 2008 and Brexit: Regional Integration versus Nationalism

Nationalist Voting Power by Region (National Legislative Elections)

10%

15%

20%

25%

30%

35%

40%

45%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Av er ag e Su

pp or t

UK/Ireland Mediterranean Northern Europe

Source: Created by author from data obtained from the European Parliament and BBC.23

Page 18 UV7341

Exhibit 4

The Panic of 2008 and Brexit: Regional Integration versus Nationalism

Nationalist and Populist Party Voting Power by Region (EU Parliamentary Elections)

2004‐2009 2009‐2014 2014‐2019

Se at s H

el d

UK/Ireland Mediterranean Northern Europe Scandinavia Eastern Europe

Source: Created by author from data obtained from the UK Electoral Commission, the Ministry of the Interior of France, the Federal Returning Officer (Germany), the Ministry of the Interior of Greece, the Ministry of the Interior of Spain, the Ministry of the Interior of Austria, and the Ministry of the Interior of Italy.24

Page 19 UV7341

Endnotes

1 George Friedman and Allison Fedirka, “Nationalism, the United States, and Cyclical Crises,” Mauldin Economics, January 2, 2017, http://www.mauldineconomics.com/this-week-in-geopolitics/nationalism-the-united-states-and-cyclical-crises# (accessed June 13, 2017).

2 Jeffrey Sachs, “The Meaning of Brexit,” Project Syndicate, June 25, 2016, https://www.project-syndicate.org/commentary/meaning-of-brexit-by- jeffrey-d-sachs-2016-06 (accessed Jun. 13, 2017).

3 Timothy Garton Ash, “Is Europe Disintegrating?” New York Review of Books, January 19, 2017, 24. 4 Roberto Stefan Foa, “It’s the Globalization, Stupid,” Foreign Policy, December 6, 2016, /http://foreignpolicy.com/2016/12/06/its-the-globalization-

stupid/ (accessed Aug. 18, 2017). 5 “EU Referendum: Donald Trump Backs Brexit,” BBC News, May 6, 2016, http://www.bbc.com/news/uk-politics-eu-referendum-36219612

(accessed Jun. 13, 2017). 6 Quoted from the declaration by French foreign minister Robert Schuman, May 9, 1950, at http://europa.eu/european-union/about-

eu/symbols/europe-day/schuman-declaration_en (accessed Jun. 14, 2017). 7 James Dennison and Matthew Goodwin, “Immigration, Issue Ownership, and the Rise of UKIP,” Oxford Academic,

https://academic.oup.com/pa/article/68/suppl_1/168/1403397/Immigration-Issue-Ownership-and-the-Rise-of-UKIP (accessed Jun. 13, 2017). 8 https://academic.oup.com/pa/article/68/suppl_1/168/1403397/Immigration-Issue-Ownership-and-the-Rise-of-UKIP. 9 EU Speech at Bloomberg, https://www.gov.uk/government/speeches/eu-speech-at-bloomberg, January 23, 2013 (accessed Jun. 14, 2017). 10 https://www.gov.uk/government/speeches/eu-speech-at-bloomberg. 11 “Leaving the EU,” Research Paper, House of Commons Library, July 1, 2013,

http://researchbriefings.parliament.uk/ResearchBriefing/Summary/RP13-42 (accessed Aug. 18, 2017). 12 Tim Ross, “David Cameron: My Seven Targets for a New EU, Telegraph, March 15, 2014,

http://www.telegraph.co.uk/news/newstopics/eureferendum/10700610/David-Cameron-my-seven-targets-for-a-new-EU.html (accessed Aug. 18, 2017).

13 “The Four Key Points from David Cameron’s EU Letter,” BBC News, November 10, 2015, http://www.bbc.com/news/uk-politics-34779250 (accessed Aug. 18, 2017).

14 Anne-Sylvaine Chaussany, “How France’s National Front is Winning Working-Class Voters,” Financial Times, October 21, 2016, https://www.ft.com/content/ad9502f4-8099-11e6-bc52-0c7211ef3198 (accessed Aug. 18, 2017).

15 “Germany’s Right-Wing AfD Party Adopts Anti-Islam Manifesto,” France 24, May 2, 2016, http://www.france24.com/en/20160502-germany- right-wing-AfD-party-adopts-anti-islam-manifesto (accessed Aug. 18, 2017).

16 Benito Giordano, “The Contrasting Geographies of ‘Padania’: The Case of the Lega Nord in Northern Italy,” Wiley and Royal Geographic Society, 2001. 17 Giordano, “The Contrasting Geographies of ‘Padania.’” 18 Iluvo Diamanti, “The Lega Nord: From Federalism to Secession,” Italian Politics 12, no. 65 (1997). 19 Diamanti, “The Lega Nord: From Federalism to Secession.” 20 See Foa, “It’s the Globalization, Stupid,” for more discussion. 21 “Donald Trump in Scotland, ‘Brexit a great thing,’” BBC News, June 24, 2016, http://www.bbc.com/news/uk-scotland-glasgow-west-36606184

(accessed Sept. 8, 2017). 22 The official 2014 results are here: http://www.europarl.europa.eu/elections2014-results/en/country-introduction-2014.html and the official 2009

results are here: http://www.europarl.europa.eu/elections2014-results/en/election-results-2009.html; BBC results are here: http://news.bbc.co.uk/2/shared/bsp/hi/vote2004/euro/html/2.stm (all links accessed Aug. 18, 2017). 23 http://www.europarl.europa.eu/elections2014-results/en/country-introduction-2014.html;

Official 2009 results are here: http://www.europarl.europa.eu/elections2014-results/en/election-results-2009.html; BBC results are here: http://news.bbc.co.uk/2/shared/bsp/hi/vote2004/euro/html/2.stm (all links accessed Aug. 18, 2018).

24 United Kingdom, http://www.electoralcommission.org.uk/our-work/our-research/electoral-data France, http://www.interieur.gouv.fr/Elections/Les-resultats/Legislatives Germany, https://www.bundeswahlleiter.de/bundestagswahlen/2017.html Greece, http://ekloges.ypes.gr/current/v/public/index.html?lang=en#{“cls”:”main”,”params”:{}} Spain, http://www.infoelectoral.mir.es/min/busquedaAvanzadaAction.html?vuelta=1&codTipoEleccion=2&codPeriodo=201606&codEstado=99&codCo munidad=0&codProvincia=0&codMunicipio=0&codDistrito=0&codSeccion=0&codMesa=0 Austria, http://wahl13.bmi.gv.at/ Italy, http://elezionistorico.interno.it/en/ (all links accessed Aug. 18, 2017).