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Brexit’s Doom Spirals

LONDON – Financial markets are giving a thumbs-down to Brexit, and they are right to do so. But because it is finance, not democratic civil society, that is pushing back against the United Kingdom’s decision to leave the European Union, the Brexit debate will become more bitter, and the fallout more severe.

The June referendum’s initial economic effects were negligible, and may even have been slightly positive, now that the UK’s post-referendum growth figures are being revised upward. But the British pound is sinking, the cost of financing UK government debt is rising, and the process of actually withdrawing from the EU could be highly destructive.

Having decided to leave the EU, it is in the UK’s interest to manage withdrawal in a way that minimizes short-term adjustment costs and long-term adverse effects. Likewise, it is in the EU’s interest to mitigate not only the economic impact, but also the reputational damage implied by the loss of a major member state.

Ideally, participants in a conflict think coolly and rationally about their long-term interests, and act accordingly; unfortunately, they rarely do. Just as a married couple’s divorce often leads to bitterness and pitched battles that benefit only lawyers, the UK’s divorce from the EU will almost certainly descend into acrimony. As hostility rises, an amicable settlement will become less likely, and everyone will end up losing more than they have gained.