Maybe Brexit isn’t so bad after all

With the end of the year approaching, I have been thinking about which of my views have changed over the last 12 months. Here’s one: I no longer think Brexit is a bad idea. I’m not ready to endorse it, because I don’t feel comfortable with the nationalism and populism surrounding so much of the Leave movement, but I no longer wish the referendum had gone the other way.

To be clear, I still believe the pro-remain arguments I and many others made four years ago. Even two years ago, I would have argued that the U.K. is better off as part of the European Union, for all the well-known pro-trade, pro-migration and pro-cooperation reasons. The problem is that, especially in the last year, the EU has become a less workable political union, especially for the U.K.

COVID-19 has helped to clarify my thinking. Even though a pandemic is obviously an international issue, many of the most effective responses have been at the national level. It is noteworthy that the U.K. approved the Pfizer-BioNTech vaccine for distribution before the EU, and to the benefit of the British people. That national approval process was fully compatible with EU law, although the EU is seeking ever-greater regulatory powers and indeed regulatory cartelization over time. When rapid, emergency responses become more salient, the case for staying in the EU weakens.

A second issue concerns fiscal policy. Projected EU budget deficits could run as high as 9% of GDP, due largely to the pandemic. These deficits are largely unavoidable, and the U.K. is doing the same. Still, patching together the euro zone with budget deficits of that size is going to absorb a great deal of the EU’s energies in the coming years. What if it is necessary to forgive a lot of Italy’s debt to hold the euro zone together? Can you imagine a messier and more contentious debate?

To be clear, this isn’t anybody’s “fault”; a common currency can’t work without fiscal rules of some kind, to preserve the integrity of the monetary union. But it’s a safe bet the EU will be obsessed with matters relatively distant from British concerns for the foreseeable future. From the U.K.’s point of view, the EU’s focus is going to seem increasingly irrelevant. If you join a bridge club but everyone else there is arguing about chess, you might start to wonder if your attention is pointed in the right direction.

Then there is the rise of illiberalism in Hungary, and to a lesser extent Poland, which is perhaps the EU’s biggest problem right now. The EU is seeking to withhold aid from those nations for weakening their independent judiciaries, and they are in turn threatening to veto the union’s $2.2 trillion budget and recovery package, which requires unanimous support. In response, the EU is considering approving that package outside its normal procedures.

More likely than not, a compromise will be found. But you have to wonder how long a well-functioning EU can tolerate a nonfree nation such as Hungary. The EU certainly does not appear on the verge of kicking Hungary out (Germany, for one, would not welcome such a move, given its strong interests in Eastern Europe). But the challenges to the EU model presented by nations such as Hungary are much worse than they were in 2016, when the Brexit referendum was held.

Even if the EU succeeds in pushing Hungary around —- and I hope it does — it is not necessarily a good outcome for the U.K. Such a policy would require weakening the EU’s unanimity requirements on many decisions, and that is something the U.K. should feel uncomfortable about. If Hungary can be pushed around, so can the U.K.

Finally, southeast England is emerging as a global technology center, especially in artificial intelligence and biomedical research. That’s great news for the U.K. But how does it square with the EU’s long-term pursuit of tougher regulations on tech companies, higher privacy standards for platforms and apps, and more stringent regulations on AI algorithms?

Will the U.K. find its interests represented by such a process? Will it be able to develop AI innovations and products without requiring prior permission from Brussels? Maybe so, but the mere existence of this uncertainty could hold back British efforts and delay investment decisions.

Many Americans, especially conservatives, underrate the value of the European Union. It has helped to maintain peace, stability and relatively free trade for decades. But the events of the last year have prompted me to rethink its virtues. I still don’t view Brexit as a great decision, but neither do I see it as a terrible one.

Tyler Cowen is a Bloomberg Opinion columnist.