Consequences of a Brexit

A piece in Foreign Policy tries to asses what might happen if the UK leaves the EU, “The death of London as a financial center. A trade war between Germany and Britain. The possible collapse of a historic trade deal. When British voters head to the polls this summer to decide whether to stay in the European Union, the results will have major repercussions at home and abroad — and could trigger economic meltdowns in both the U.K. and Europe. At issue is the so-called Brexit, which would see London choosing to leave an alliance it helped create 43 years ago. For ordinary British citizens, the impact would be felt at airports and train stations, where it could be more difficult to freely move across Europe for the first time in decades. They could also see European-produced goods become more expensive because of an expected fall in the value of the pound”.

The article goes on to mention that “On Feb. 21, amid Brexit fears, the sterling had its biggest one-day drop since the U.K.’s 2009 banking crisis. It could even affect their favourite sports teams because it would be harder to sign soccer players from mainland Europe to contracts in the U.K. because they would not meet more stringent visa requirements. Not surprisingly, Brexit advocates see things very differently. To them, leaving the EU would keep European immigrants from abusing Britain’s welfare system. They say it would give the British government more freedom to negotiate independent trade deals with countries like India, China, and the United States. And advocates say severing the relationship would put Europe’s Syrian refugee problem squarely in the hands of Brussels, not London. That may be significantly understating the real-world economic impact of a Brexit”.

The author goes on to argue that “Add uncertainty to the mix: Nobody’s quite sure what happens to the EU without Britain because no nation has left the EU before. This is the same fear that gripped the EU last summer, when Greece was on the verge of going its own way rather than accepting the onerous austerity measures Brussels was pushing it to adapt. A recent research note published by economists from Citigroup said the Brexit “will be highly negative” for both economies because it would throw out the trade blueprint between the European alliance and the U.K. About 45 percent of British exports going to Europe would be at risk, as would the 16 percent of total EU goods that cross the English Channel to the U.K”.

He cites a German MP who said that a trade war between the UK and EU would be possible but this is almost impossible and could simply be about hype for a domestic audience more than anything else.

He does note that “Pro-Brexit backers take a different view. They argue that the U.K. doesn’t have enough influence in Brussels, despite sending 350 million pounds, or $498 million, to the EU capital each week. Capital Economics, a research consultancy, predicted “business as usual” if a Brexit occurs, anticipating no major economic disruptions. Nigel Farage, leader of Britain’s far-right U.K. Independence Party (UKIP) has proposed giving the U.K. the same status as Norway, which has access to the single market but is not bound by many EU regulations on farming and domestic policy”.

After the “reforms” Cameron returned with a referendum will take place on 23 June, “Bank of England governor Mark Carney refused to explicitly take sides, but warned that the Brexit is “the biggest domestic risk to financial stability” and that some banks would leave London if it occurs. The U.K.’s famous bookmakers favour Britain staying, giving a vote to remain a 77 percent chance. Pacific Investment Management Co., a major bondholder known colloquially as PIMCO, puts the chances of a Brexit at 40percent. A recent YouGov poll found about 37 percent of Brits wanted to stay in the EU, 38 percent wanted to leave, and 25 percent were unsure”.

However a note of caution is needed with these figures as the referendum is not on the minds of most voters at this early stage and as a result these numbers should not be trusted to any significant degree.

The report goes on to mention “The prospect of a Brexit is also dangerous politically, said Heather Conley, director of the Europe program at the Center for Strategic and International Studies. She said Europe is facing a “perfect storm” of crises: the ongoing debate about bailing out Greece, the Syrian refugee crisis, and the looming Brexit referendum. The Greek flirtation with leaving the EU, combined with the U.K. referendum, has made the prospect of abandoning the alliance a possibility for other members who don’t want to deal with broader European issues”.

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