Whether you are for or against the United Kingdom (UK) leaving the European Union, you must at least be aware of the consequences, the good and the bad, of such a sudden decision. And unless you were living in the UK, as I was from January to April, you may not have heard too much about the “Brexit” situation, otherwise known as the decision as to whether or not “Britain” should “exit” the European Union. The potential benefits and far-reaching implications, however, are not isolated to Britain but could impact the entire European Union (EU) and moreover the larger global community of trading partners and investors, including the United States.
First, I should start with some background on the decision: the UK Prime Minister David Cameron announced that a referendum will be held this coming Thursday on June 23rd to decide whether or not the UK will remain a part of the European Union. A referendum is essentially a vote where everyone can cast a “Yes” or “No” answer to a question, with a simple majority declared the winner. The European Union is, quite simplistically, “an economic and political partnership involving 28 European countries” that began after World War Two and strives to form an “ever more closer union” between its member states. The reason a referendum is being held in the first place is because many politicians and citizens have been calling for a new vote on whether or not to stay in the union, arguing that Britain is being held back economically and philosophically by the rules and laws to which it is bound by being a member state, including environmental, transportation, and consumer rights laws. The individuals and parties who want to stay in the union essentially argue that EU membership gives Britain many distinct advantages – access to more labor and capital, a better trading platform (the common market), status among other developed nations – that outweigh any disadvantages in retaining membership. The vote is fairly split, with no clear winner guaranteed (Hunt “The Uk’s EU referendum”). If this seems complicated now, just understand that leaving the EU would result in hundreds of other issues having to be examined, from the UK’s involvement in negotiating the Transatlantic Trade and Investment Partnership (TTIP) with the United States to the minute details of the protection of endangered species of bats in the UK under the EU’s endangered species laws.
Moreover, the exact results of leaving the EU would be effected by what kind of relationship the UK would have after the separation, and there are different types of relationships that could be established. For example, the UK could adopt a Norwegian model, in which the UK would still be involved in the European Economic Area, or the UK could structure its relationship along the lines of Switzerland, which means a series of bilateral accords governing access to specific sectors of the common market or a comprehensive free trade agreement (FTA) (“BREXIT: The Impact on the UK and the EU”). However, no matter which type of relationship the UK decides on, there could be serious implications for individuals, businesses, and countries across the globe.
For individuals, one item that should have significant impact is the falling of the British pound to other currencies around the world. The pound has fallen around 5% against the dollar so far this year, hitting the lowest level in more than 6 years, and falling against the Euro by about 12% since November (Imbert “‘Brexit’ Could Deal”). This means rising prices for the goods and services that UK residents purchase both at home and abroad, which could become far worse if the Brexit were to actually follow through. Consumer’s also currently benefit from the lack of trade barriers with EU countries, and the risk that consumers could lose this benefit may be spooking forex markets, an ominous sign of what may be to come considering how much trade the UK conducts with the EU (see Appendix 1) (Dhingra, “Should We Stay or Should We Go Now?”). Moreover, the 5.5 million Brits abroad could lose a lot of the benefits currently afforded to them including National Health Service insurance and pensions, a serious issue to UK citizens that live, work, or study abroad for one reason or another (McVeigh “Brexit Anxiety Stalks”). Another source of potential risk for the average UK citizen would be in the form of future jobs, however there is mixed evidence about the true impact that a Brexit would have on jobs. “Leave” campaigners have seemingly debunked the myth that 3-4 million jobs would be lost if Britain left by pointing to a recent paper by the Institute for Economic Affairs which makes the conclusion that “‘Jobs are associated with trade, not membership of a political union…’” Meanwhile, “remain” campaigners argue that while current jobs are less at risk for disappearance, future jobs are the ones that are truly at risk, particularly in the foreign-owned car industry and financial services industry. These sectors rely heavily on the UK’s membership in the EU, especially the 2.1 million people in the UK’s financial services industry, which has a special dependence on EU Internal Market legislation combined with UK financial regulations. Loss of the former would create an “untried, unknown and unpredictable alternative” which companies would not want to invest future capital and talent into until a proven status quo is in place (“UK and the EU”). Individuals would arguably be in a weaker position, both domestically and internationally, with regard to the detrimental effects that a separate United Kingdom were to have.
Businesses do not fare much better, and the findings on this are much less contested than the factors affecting individuals. For one thing, businesses would suffer from the decrease in foreign direct investment that would surely occur from a split from the EU because, as the London School of Economics explains, “Part of the attraction of the UK for foreign companies is as an export platform to the rest of the EU, so if the UK is outside the trading bloc, this position is likely to be threatened” (Dhingra, “Should We Stay or Should We Go Now?”). Maybe more significantly, EU states are some of the biggest contributors to UK FDI, contributing just over 46% of total inward UK FDI in 2013 and which the UK uses to secure the most FDI projects and jobs with that money of all EU countries (see Appendix 2) (“BREXIT: The Impact on the UK and the EU”) And not much has changed since then, with the most recent statistics from 2014 showing that the UK received the most inward flow of FDI of all EU countries at 28% or about $35 billion. (“UKTI Inward Investment Report 2014 to 2015”) Another red flag for “leave” advocates would be the surveys of company executives about Brexit, which are resoundingly negative: 66% of British firms say that Brexit would negatively impact FDI in the UK, 29% say that a Brexit would impact whether their company would continue to invest in the UK and 36% say that the UK’s international competitiveness would be negatively impacted (“BREXIT: The Impact on the UK and the EU”). As such, companies are already devising contingency plans for what to do, including moving production or staffing accordingly out of the UK to remain competitive with the larger EU (‘Brexit’ Prep: Are Corporations and Investors Ready?). Businesses are doing what they can to prepare for a British falling out with its EU counter-parts, and the results can’t be good for the UK on the whole.
Finally, Britain doesn’t stand on good ground when it comes to the impact that the Brexit will have on not only the country’s own economy and political landscape, but also in connection with other countries that do business with the UK. There would be some benefits, arguably very important ones, when it comes to Britain leaving the EU, including a savings of about £20 billion a year in dues to the EU parliament and greater control over a variety of regulations and laws, which all EU member states must follow, ranging from environmental protection to welfare funding. But not only could these regulations and laws be renegotiated without Britain having to leave the EU, as they have already done and could continue to do in the future, but that £20 billion doesn’t include the allocation that Britain gets from the EU and the rebate which Margret Thatcher negotiated for Britain in 1984, which reduces the real contribution to about two-thirds the original sum (“In, Out, Find a Fib to Shout”). The economics of Britain leaving the EU could be discussed at length, which effectively stem from the disappearance of one of the biggest players from the “single market” and which economists from the London School of Economics have quantified as an overall -3.09% loss to the general welfare of the UK economy (Dhingra, “Should We Stay or Should We Go Now?”). Furthermore, there are more dire implications of the UK leaving the EU: political pressure. Chief politicians and economists like Italian finance minister, Pier Carlo Padoan predict that a Brexit would open the floodgates to other countries that would want to leave the union, including France and several eastern-European countries, which have already seen anti-European sentiment growing since waves of conservative members have been swept into their legislatures (Wintour “Brexit would damage EU and UK”). Nobody wants both a Brexit and a “Frexit”, which would serve to effectively disable and ultimately end the political and economic union that has lasted for over 4 decades. Saving Britain might be the only way to save the European Union.
Individuals, businesses and countries are poised to lose much from a Brexit. What little benefits the UK would gain from its independence would be wiped away by the struggle of competing and negotiating on its own, away from the relative security of the EU. The costs of simply negotiating new FTA’s with other countries would diminish any cost savings the UK were to gain from not having to pay the EU its dues. As the June 23rd is close at hand, UK citizens will have a simple choice to make, as long as the facts are carefully examined and that British citizens believe they are better together, which this author believes they are.
Works Cited
‘Brexit’ Prep: Are Corporations and Investors Ready? Perf. Iain Reid and Stephanie Flanders. Bloomberg.com. Bloomberg, 7 Apr. 2016. Web. 11 Apr. 2016. <http://www.bloomberg.com/news/videos/2016-04-07/-brexit-prep-are-corporations-and-investors-ready>.
“BREXIT: The Impact on the UK and the EU.” (2015): n. pag. Global Counsel. Global Counsel, June 2015. Web. 11 Apr. 2016. <http://www.global-counsel.co.uk/system/files/publications/Global_Counsel_Impact_of_Brexit_June_2015.pdf>.
Dhingra, Swati, Gianmarco Ottaviano, and Thomas Sampson. “Should We Stay or Should We Go Now? The Economic Consequences of Leaving the EU.” Centre for Economic Performance (2015): n. pag. LSE. London School of Economics, Mar. 2015. Web. 11 Apr. 2016. <http://cep.lse.ac.uk/pubs/download/EA022.pdf>.
Hunt, Brian Wheeler & Alex. “The UK’s EU Referendum: All You Need to Know.” BBC News. BBC, 11 Apr. 2016. Web. 11 Apr. 2016. <http://www.bbc.co.uk/news/uk-politics-32810887>.
Imbert, Fred. “‘Brexit’ Could Deal Major Economic, Political Blow to EU.” CNBC. CNBC LLC., 1 Mar. 2016. Web. 11 Apr. 2016. <http://www.cnbc.com/2016/03/01/brexit-could-deal-major-economic-political-blow-to-eu.html>.
“In, Out, Find a Fib to Shout.” The Economist. The Economist Newspaper, 05 Mar. 2016. Web. 11 Apr. 2016. <http://www.economist.com/news/britain/21693943-voters-want-facts-about-britain-and-european-unionbut-these-are-elusive-out-find-fib>.
McVeigh, Tracy. “Brexit Anxiety Stalks the Costa Del Sol: ‘If We Quit Europe, Brits Won’t Buy Here’” The Guardian. Guardian News and Media, 05 Mar. 2016. Web. 11 Apr. 2016. <http://www.theguardian.com/politics/2016/mar/05/brexit-costa-del-sol-spain-eu-referendum>.
“UK and the EU: Better off out or In?” BBC News. BBC, 23 Feb. 2016. Web. 11 Apr. 2016. <http://www.bbc.co.uk/news/uk-politics-32793642>.
“UKTI Inward Investment Report 2014 to 2015.” GOV.UK. Crown, 17 June 2015. Web. 12 Apr. 2016. <https://www.gov.uk/government/publications/ukti-inward-investment-report-2014-to-2015/ukti-inward-investment-report-2014-to-2015-online-viewing>.
Wintour, Patrick, and Rajeev Syal. “Brexit Would Damage EU and UK ‘politically and Economically’” The Guardian. Guardian News and Media, 06 Mar. 2016. Web. 11 Apr. 2016. <http://www.theguardian.com/politics/2016/mar/06/brexit-damage-eu-uk-politically-economically-italian-minister-padoan>.
Leave a Reply