United Kingdom and the EU
In this article, we shall analyze the UK and the European Union Referendum, or the ‘Brexit’ vote. We will answer a variety of questions with regards to how this movement for leaving the EU came about, the arguments for the UK leaving the European Union, criticisms of breaking away from the EU, as well as the political after effects of the referendum as it pertains to domestic politics, economics, and international relations.
Brexit is “the idea that the Brits may vote to leave the European Union. There are some strong commercial reasons to NOT do so, but the Brits don’t like all the “social” bits that go along with staying” (Criss, 2016). As we shall discuss, there are multiple factors driving individuals’ decision as to whether they want to leave the European Union.
On June 23rd, 2016, citizens within the United Kingdom voted on the question of whether or not they wanted to break away from the European Union. Over 30 million people from England, Gibraltar, Northern Ireland, Scotland, and Wales votes in the referendum. Voters chose by a margin of 51.89% to 48.11% to leave the European Union. This EU referendum raises a number of questions with regards to the future of the UK and its relations with other European countries.
Now, it is important to note that this referendum is not legally binding; UK lawmakers do not have to actually make the decision to leave the European Union. However, the vote “reflects what the voters want, and it will force policymakers to act in what could be around 2-years worth of negotiations that ends with the UK officially leaving the EU” (Ro, 2016).
Some have argued that the United Kingdom and the EU referendum was actually a referendum on existing politicians in the UK. For example, a Time Magazine article notes that “The 52% of the British electorate who voted the U.K. out of the E.U. yesterday have signaled clearly that they want to “take back control.” They want to be governed by British leaders, observe British laws and control British borders. They’ve listened to dire predictions from pro-European British politicians, European politicians, economists, bankers, academics, think tank wonks, movie stars, athletes, members of the clergy,Barack Obama and Donald Trump. And it’s pretty clear that a majority of British voters don’t trust any of them. This was a vote against the entire political class…”. However, politicians are not only taking this seriously, but are now in conversations about their approach following the post-Brexit referendum.
One of the interesting developments with regards to the UK referendum regarding whether to leave the European Union were the geographical differences that existed; “London, Scotland and Northern Ireland wanted to remain, while voters in Wales and every English region outside of the capital backed the campaign to leave” (Armstrong, 2016). In sections below, we shall discuss what countries such as Scotland and Northern Ireland are discussing, following the Brexit vote.
Can the UK (Or Any Cther Country) Leave the European Union?
In short, yes. Before the 2009 Lisbon Treaty, there were no specific discussions conditions listed for which a country could leave the international organization. Scholars argue that this was done so as not to weaken the European Union; at that time (as there still are now) there were concerns about the success of this new organization (Moagar-Poladian, et al., 2015). However, there were two ways in which a country could still leave the European Union:
- According to the first approach, there was a unilateral right of withdrawal, even if there were no explicit stipulations in this respect –by the right of any sovereign state to withdraw from concluded international treaties. This approach was not universally accepted, particularly given that the European Court ruled for EU member states, that the accession to the EC brings a permanent limitation to sovereign rights.
- Therefore, before Lisbon Treaty, the main way of withdrawal from the EU was consensual withdrawal. In very restrictive conditions, it would have been possible also for member states to exit the union under the Vienna Convention (1969), mentioning as the main reason the fundamental change of circumstances about the time of contract (Moagar-Poladian, et. al, 2015:
This specific topic of leaving the European Union was in fact later addressed under the 2009 Lisbon Treaty, where, a country has the ability to leave the EU if it so chooses. Article 50 of the Lisbon Treaty allows for a country to exit the European Union.
Some within Britain itself have raised the issue of leaving for quite some time. David Cameron himself in 2013 had “asked for the renegotiation of terms and conditions for Britain’s membership of the EU” (Moagar-Poladian, 2015).
Why did the Brexit “Leave” Vote Happen?
One of the questions that many asked immediately following the announcement of the Brexit vote was ‘How did this happen?’ What was driving so many individuals in the United Kingdom to vote to leave the European Union?
A large underlying factor for the Brexit vote even happened had to do with what has been argued is a “British Euroscepticism.” This can be seen as early as the first initial constructs of the European Coal and Steel Community in Europe (in 1951) (the foundations of the European Union today), as well as the European Economic Community (formed in 1957). While countries such as France and Germany were early members, “a wary Britain, keen to preserve links with the Commonwealth and America, stood aside from both. Only in the 1960s did the British, impressed by the continent’s stronger economy, try to join, eventually doing so in 1973” (Economist, 2016).
What is important to note here is that–for Britain, the decision to join has much less to do with the sentiment of a united Europe and much more to do with whether the benefits outweigh the costs of joining (Economist, 2016). In the 1980s, Britain’s Margaret Thatcher debated with the European Economic Community over Britain’s financial contribution levels to the international organization.
However, the concerns with the European Union were not merely over fees. Throughout those decades (whether in the 1960s, 1970s, or later), the left (the Labor party) was critical of what this economic international organization would do to domestic jobs. Thus, “[i]n 1975 Harold Wilson dealt with Labor splits over Europe by staging a renegotiation and putting the result to a referendum–a tactic remarkably similar to Mr Cameron’s today” (The Economist, 2016: 4). Then, in the 1980s, the left was still pushing for leaving the EEC.
However, it was what happened in 1998 that led to further critique of the EEC. As The Economist (2016) notes: “The pivotal moment came in 1988, when the European Commission’s president, Jacques Delors, promised the Trades Union Congress that Europe’s single market would be buttressed by tougher labor and social regulations. This reinforced Thatcher’s growing Euroscepticism, and led directly to her Bruges speech attacking excessive EU interference in the same year” (4).
They go on to note that “[h]er political downfall two years later was triggered by her denunciation of Mr Delors’s plans for closer EU integration and a single currently. This marked the point when the Tories replaced Labour as the party of Euroscepticism” (4).
Additional Reasons Given for the UK Leaving the European Union
There are a number of more recent factors cited by those who have wanted Britain to leave the European Union.
Sovereignty: For one, there was a movement within the UK that the European Union decisions were too controlling on policy options within England and elsewhere, and that, by being a part of the European Union, the UK was giving up its sovereignty. It is for this reason that one of the most used slogans by the “Vote Leave” movement was “Take Control,” signaling calls for Britain to re-establish control of its own policies. Political leaders supporting the “Leave Movement” argued that being a member of the European Union was restricting sovereignty and democracy for Britain. For example, “Michael Gove, the justice secretary, complains that “our membership of the EU stops us being able to choose who makes critical decisions which affect all our lives”” (The Economist, 2016). Others, such as Boris Johnson, the former mayor of London, argued that being a part of the European Union was not in line with parliamentary democracy (The Economist, 2016).
David Cameron aimed to find ways to protect British sovereignty, all the while keeping the UK within the European Union. For example, “[t]he prime minister is proud of the European Union Act of 2011, which makes any treaty passing new powers to the EU subject to a referendum[,]” and continues to advocate the power of state governments (The Economist, 2016), and not European Union powers over the state.
Related to the worry about the loss of sovereignty , there was some concern that Britain has to acquiesce to the European Convention of Human Rights on issues that it may disagree with such as deportations, prisoner voting rights, etc…(while the European Court of Justice is an EU body, however, it must be noted that since the European Convention on Human Rights is not itself based within the EU, for the UK to ignore the ECHR, it would have to pass repeal what is known as the Human Rights act, which gives authority to the ECHR to set human rights law precedent) (Wheeler & Hunt, 2016).
There are also structural conditions in the EU that “Vote Leave” individuals have pointed to as indication of the weakened power the UK has. It has been noted that “…there is undeniably a democracy deficit in the EU. It is supranational, but elections (including European ones) are fought on national issues. There is no Europe-wide demos. Voters cannot throw out the EU’s collective leadership. Both the council and the parliament are remote and unaccountable, with decisions often agreed on by shifting alliances. This may partly explain why voter turnout in European elections is so much lower than in national ones…” (The Economist, 2016: 5).
This issue of sovereignty is a politically charged issue within Britain and also the European Union. While both sides want to argue that sovereignty either exits (or is eroded when within the European Union), it is rarely either/or; “The truth is more complex. A country can be wholly sovereign yet have little influence. Britain has signed some 700 international treaties that impinge on sovereignty” (The Economist, 2016). The question remains: whether joining an organization, and giving up some power, is worth all of the benefits that a state may receive.
Furthermore, it has also been pointed out (Rosenfeld, 2016) there were also suggestions by some that a push towards a common European Union would take away from British identity. Part of this was related to the issue of immigration (and refugee inflows into Britain), but part of this has also been concerns that the EU and a common European identity was threatening individual British identity.
Moreover, the question about immigration, and more recently, questions about the Syrian refugees was one that divided some within Britain; there was a feeling that the country had to adhere to policies of countries within the European Union. Some went as far as saying that the Brexit vote was due to a xenophobia within Britain (Beauchamp, 2016). Britain has seen high increased in immigration figures since 1993, and for those in favor of Brexit, they point to EU laws on refugees as part of the reason for the increase in immigrants (Beauchamp, 2016), and this is an issue that has been a driving force for those looking to leave the European Union.
For example, former British Prime Minister Tony Blair (of the Labour Party) pushed policies that would allow for greater migration into Britain. For example, “Since 1997, when the Labour Party, under his leadership, swept into office in a landslide, British society has been transformed by a wave of immigration unprecedented in its history. Over the following years, roughly twice as many immigrants arrived in the United Kingdom as had arrived in the previous half-century. Many who arrived during that earlier era hailed from the Caribbean and South Asia, and by the early 1990s, 7 percent of England and Wales’ population belonged to ethnic minorities. By now, that share has grown to over 14 percent. This, more than anything else, has been Tony Blair’s legacy, and it is a legacy his successors Gordon Brown and David Cameron have been grappling with ever since” (Salam, 2016).
There is a belief that some race issues that have been underlying the Brexit vote. In many parts of London (and other urban areas within England, for example), there seems to have been much more tolerance for ideas such as cosmopolitanism. However, with increased immigrant populations living away from the larger cities, there is a belief (as Salam, 2016) argues, “that the white British population is particularly sensitive to the rate of immigration. When an immigrant influx is relatively gradual, resistance to immigration is limited. When it occurs very rapidly, the level of resistance intensifies and support for explicitly anti-immigration parties like the U.K. Independence Party (UKIP) increases.”
So, as the European Union continued to advocate the free movement of people, there have been expectations to allow people to enter without problems. Britain has indeed experienced significant migration, and many of those coming into the country as immigrants have not been European. Thus, “among the British elite, at least, anti-immigration sentiment has long been seen as a proxy for racism against nonwhites” (Salam, 2016). And there have been numerous stories on the levels of racism levied at foreigners, whether Arabs, Muslims, or Polish citizens from within the European Union (Taylor, 2016).
But, this has become more complex because while some of the issues of anti-immigration have centered on issues of race and religion, other elements are centered more on economics (Salam, 2016); with increased unskilled labor coming into Britain, there were worries that low-skilled laborers in Britain would lose their jobs to those willing to work for lower wages. Salam (2016) points out that what made Britain, and not some other states in Europe, even more appealing to low-skilled laborers was that Britain has been more lax in its work regulations compared to countries such as France. With little restrictions, or work limits, those without skills will have more of a chance to find employment, compared to placed with higher wages (which also leads to more competitions from within the country), but also limits on work hours (Salam, 2016).
A second reason why Britain has been seen as an attractive location has to do with the benefits system, compared to other European countries. As Salam (2016) writes:
there are some European countries with welfare states that demand years of contributions before one can start drawing benefits and others where prior contributions are not generally required. Less-skilled immigrants to countries with noncontributory welfare states can start drawing benefits fairly quickly, regardless of their contribution. Britain is one such country: Under Tony Blair, Britain greatly expanded the use of refundable tax credits as a tool for poverty reduction, and this strategy has been wildly successful. But under EU rules, Hungarian newcomers are just as entitled to these benefits as, say, a poor Welshman. Regardless of whether this is a good idea, it is easy to see why some Britons find it frustrating.
Thus, it has been these issues and arguments posed by the “Vote Leave” movement, when they called for the UK to exit the European Union.
Cameron himself tried to limit immigration, but when doing so, seemed at times to come up against EU regulations calling for continued open migration. Thus, when he tried to adjust the rules, other leaders, primarily from central and Eastern European Union states, fought against it (Salam, 2016).
So, some wonder whether Cameron’s failure to adjust the rules for Britain, or to curb immigration were the reasons for the majority “Leave” vote. There are thoughts that “Had Cameron managed to secure a solid commitment from the European Union to do something as simple as limit the access European immigrants had to British welfare state benefits for, say, two or three years, Remain almost certainly would have won” (Salam, 2016).
The EU Referendum Vote in Scotland
While the majority of voters within the United Kingdom chose to leave the European Union, voters in Scotland was largely opposed to leave the international organization. There was a strong push for them to “Remain” within the European Union, with 62 percent of people voting chose to remain within the European Union (38 percent voted to leave the EU) (Pearson, 2016).
Thus, following the vote, First Minister Nicola Sturgeon spoke out about the vote, saying that the position to remain focused on the need to “protect our place in the world’s biggest single market, and to protect the jobs and investment that depend on it” (Yahoo Finance, 2016). In addition, she mentioned that she would examine and “explore all options” that could keep Scotland within the European Union. This does include the possibility of Scotland voting for independence from the United Kingdom (Yahoo Finance, 2016). In fact, part of the Scottish National Party’s platform was their promise to reconsider independence if, as Sturgeon noted, Scotland would be “taken out of the EU against our will” (Pearson, 2016).
In 2014, 55 percent of those who voted in Scotland voted to stay within the United Kingdom (Pearson, 2016). However, the recent development may be beneficial to those who favor the independence movement in Scotland. For example, “Former First Minister and SNP [Scotland National Party] leader Alex Salmond, the architect of the 2014 independence referendum that ended in defeat for the nationalists, warned a second ballot was likely if the country is “dragged” out of the EU” (Armstrong, 2016). While the vote was close the first time around, some analysts believe that the issue of the European Union might just be enough to get a majority who would support an independent Scotland.
Northern Ireland and Brexit
As mentioned, along with Scotland, Northern Ireland overwhelmingly voted to stay within the European Union. So this decision is only to lead to further calls for continued Northern Ireland membership in the European Union. Leaders in Northern Ireland came out against the majority vote. For example, Deputy First Minister Martin McGuinness was quoted as saying that because of the vote, “the British government now has no democratic mandate to represent the views of the North in any future negotiations with the European Union and I do believe that there is a democratic imperative for a ‘border poll’ to be held” (Armstrong, 2016).
Who Supported (and Who Opposed) Brexit?
The primary groups who urged staying in the EU was “Britain Stronger in Europe – the main cross-party group campaigning for Britain to remain in the EU was headed by former Marks and Spencer chairman Lord Rose. It was backed by key figures from the Conservative Party, including Prime Minister David Cameron and Chancellor George Osborne, most Labour MPs, including party leader Jeremy Corbyn and Alan Johnson, who ran the Labour In for Britain campaign, the Lib Dems, Plaid Cymru, the Alliance party and the SDLP in Northern Ireland, and the Green Party. Who funded the campaign: Britain Stronger in Europe raised £6.88m, boosted by two donations totalling £2.3m from the supermarket magnate and Labour peer Lord Sainsbury. Other prominent Remain donors included hedge fund manager David Harding (£750,000), businessman and Travelex founder Lloyd Dorfman (£500,000) and the Tower Limited Partnership (£500,000)” (Wheeler & Hunt, 2016).
The main group advocating a departure from the European Union was the “Leave” coalition, “A cross-party campaign that has the backing of senior Conservatives such as Michael Gove and Boris Johnson plus a handful of Labour MPs, including Gisela Stuart and Graham Stringer, and UKIP’s Douglas Carswell and Suzanne Evans, and the DUP in Northern Ireland. Former Tory chancellor Lord Lawson and SDP founder Lord Owen were also involved. It had a string of affiliated groups such as Farmers for Britain, Muslims for Britain and Out and Proud, a gay anti-EU group, aimed at building support in different communities. Who funded the campaign: Vote Leave raised £2.78m. Its largest supporter was businessman Patrick Barbour, who gave £500,000. Former Conservative Party treasurer Peter Cruddas gave a £350,000 donation and construction mogul Terence Adams handed over £300,000″ (Wheeler & Hunt, 2016). Others, such as UKIP leader Nigel Farage were also advocating Britain leaving the EU, although Farage was not directly a part of the Leave coalition (Wheeler & Hunt, 2016).
The Financial Effects of Britain Leaving the EU
One of the interesting factors of the Brexit vote was the question of the economic effects that Britain could face if they decide to leave the European Union. In fact, many economic analysts were quite outspoken about just how detrimental this decision to leave the European Union would be for Britain (Ro, 2016).
Britain–and other international markets–saw an immediate financial effect following the published results of the Brexit vote which saw voters call for the UK to leave the EU. It was noted that “All the major indices (^FTSE, ^GDAXI, ^FCHI) in Europe slid on the news and US futures are following suit. Japan’s Nikkei closed down almost 8% today. The British Pound was down as much as 11% and the Euro was as much as 4% lower” (Yahoo Finance, 2016). In fact, the pound was the lowest that it has been in 30 years (Shaffer & Imbert, 2016).
With regards to the specific falls within the European markets, “London’s FTSE (.FTSE) dropped almost 5 percent while Frankfurt (.GDAXI) and Paris (.FCHI) fell 6 to 8 percent. Italian (FTMIB), Spanish (.IBEX) and European bank stocks (.SX7P) all headed for their sharpest one-day drops ever” (Reuters, 2016).
The British pound also took a hit right after the referendum outcome was announced, with it having “dived by 18 U.S. cents at one point, easily the biggest fall in living memory, to hit its lowest since 1985. The euro in turn slid 3 percent to $1.1050 (EUR=) as investors feared for its very future” (Reuters, 2016).
Moreover, the UK’s credit rating also suffered following the Brexit vote. For example, Britain’s Standard & Poor’s credit rating fell from AAA to AA, and their Fitch credit rating went from AA+ to AA (The Guardian, 2016).
Economic Investment and Growth in the UK
However, the economic effects of the Brexit vote are not merely short-term, but there are questions about the long-term economic implications of leaving the international organization. Economists believe that should Britain leave the EU, they will face a series of economic challenges. For example, Pantheon Macroeconomics’ Samuel Tombs was quoted as saying that “If fully followed through, this will be an act of economic self-harm with global ramifications” (Ro, 2016).
He went on to add that “Unless a swift deal can be done, however, the UK is likely to enter recession,” Tombs wrote in a note to clients. “Businesses will hold back from investing, credit costs will rise, and import prices will soar, squeezing households’ spending power. The UK would not leave the single market overnight; lengthy trade negotiations with the EU will ensue, and the UK can’t be forced out for two years. But the direction of travel would be clear: British exporters’ access to the single market, and to markets in other countries that have free trade agreements with the EU, would be impaired” (Ro, 2016).
In fact, “The U.K.’s Treasury itself reported that its analysis showed the nation “would be permanently poorer” if it left the EU and adopted any of a number of likely alternatives. “Productivity and GDP per person would be lower in all these alternative scenarios, as the costs would substantially outweigh any potential benefit of leaving the EU,” a summary of the report said” (Rosenfeld, 2016).
Some of the reasons with regards to the negative economic effect due to leaving the EU has to do with the economic benefits that being a member of the European Union offers. One of the greatest changes will be the issue of free trade; by being a member of the EU, the UK enjoyed free trade with other European Union countries. This should no longer be the case. So, they will hurt from an inability to trade freely with other countries, which economists expect hurt them greatly.
In addition, other countries that received benefits by investing in an EU country such as the UK might now think twice before doing so. It has been argued that “The general thinking is that many international corporations, notably those based in the U.S. and China, invest in U.K. operations partly so they can readily access the free-trade corridors the U.K. enjoys with the rest of the European Union. So since the leave camp won, many of those companies could see drastically reduced profits” (Rosenfeld, 2016).
For example, looking at the United States and the UK, “In 2014, American direct investment into the EU totaled about 1.81 trillion euros, and about 1.99 trillion euros flowed in the opposite direction, according to the European Commission” (Rosenfeld, 2016). This is a large sum, and analysts suggest that any effect on this figure could have strong financial implications (Rosenfeld, 2016).
It is for this reason that so many of the larger businesses wanted to stay within the European Union (Wheeler & Hunt, 2016).
Pension Plans Following Brexit
There have also been questions regarding what Brexit might do to the pension plans within Britian. As Wheeler & Hunt (2016) explain, “During the referendum campaign, David Cameron said the so-called “triple lock” for state pensions would be threatened by a UK exit. This is the agreement by which pensions increase by at least the level of earnings, inflation or 2.5% every year – whichever is the highest.” They go on to add that “If economic performance deteriorates, the Bank of England could decide on a further programme of quantitative easing, as an alternative to cutting interest rates, which would lower bond yields and with them annuity rates. So anyone taking out a pension annuity could get less income for their money. Though it’s worth pointing out that annuity rates have been falling since before the vote anyway.”
Debate on the EU Currency
One of the other primary reasons as to why Britain wanted to leave the UK had to do with the EU currency, the Euro. Some have argued that the Euro has led to high unemployment within the EU member states, and since the UK was unwilling to adopt the EU, there were thoughts that this sort of action would happen sooner, if not later, for the UK (Lee, 2016).
Following the vote, investors moved away from the British currency towards what they saw as “safer” currencies such as the Japanese Yen, the Swiss Franc, as well as the American dollar (Rosenfeld, 2016).
Right now, Britain’s pound continues to be at a much lower point that in the past years, but it remains to be seen what the long term effects of Britain leaving the European Union will have on the pound, and also on the Euro.
UK Banking and the European Union Exit
The move away from the EU is also expected to impact the UK banking system. For example, scholars argue that
“UK’s withdrawal from the European Union would generate the relocation of banks in countries that allow them to maintain their access to the EU single market (for example Ireland), which sums up over 500 million consumers. Already, the number of banking units in the UK has declined from 2009 to 2012 by 4.11% (from 11,869 to 11,381 units). Also, the number of employees has decreased by 10.53% from 2009 to 2013 (471,129 to 421,508), according to the European Central Bank (ECB, 2015). The same statistics indicate a reduction in the EU banking institutions operating in the United Kingdom by 19.5% (from 77 in 2009 to 62 in 2013) and those from outside the EU from 91 to 90 in the same range (1,09%). The value of the assets held by British subsidiaries of EU credit institutions decreased by 25.7% (from 508.13 billion pounds in 2009 to 377,600,000,000 pounds) in 2013. It is noticeable a downward trend regarding financial cooperation between the banks of the UK and the EU banks, strengthened by the decrease of the British foreign direct investments in Europe’s countries and, especially, in the European Union” (Moagar-Poladian, 2015).
There is also a certain linking that London banks and the financial sector has for international business and trade. London has been viewed “as an intermediary between the US, EU and Asia. In the event of UK’s exit from the EU, London would lose a great deal of its influence” (Moagar-Poladian, 2015). Is is also expected that many people would also leave the UK to work in EU-countries (Moagar-Poladian, 2015), on account of the benefits that exist by being a part of the international organization.
Political Effects of the UK leaving the European Union
It is very difficult to know exactly the effects of the UK leaving the European Union. The effects of the UK voting to leave the EU are not limited to Prime Minister David Cameron resigned following the announcement that the UK voted to leave the European Union.
Following Cameron stepping down from office in a few months, the UK will need a new Prime Minister. This is expected to occur in late September, 2016. According to “the party’s existing rules, Conservative MPs would hold a series of ballots, with all but the two most popular candidates being eliminated. The final two will then go into a run-off in which all Conservative Party members will get a vote” (BBC, 2016a).
The referendum also also brought tension within the Labour Party. For example, the leader of the Labour Party, “Jeremy Corbyn is coming under pressure from within the parliamentary party to consider his position too. Two MPs have submitted a motion of no confidence in Mr. Corbyn, accusing him of weak leadership during the referendum” (BBC, 2016a). It was reported that on June 26th, 2016, “Mr. Corbyn abruptly fired his shadow foreign secretary [Hilary Benn]— the party’s spokesman on foreign affairs — to try to head off an internal coup begun by some Labour members of Parliament disappointed with Mr. Corbyn’s lackluster campaign to keep Britain in the bloc” (Erlanger, 2016).
Many within Labour were furious with the Brexit vote, and believed that Corbyn did not put together a strong enough (and effective enough) effort to ensure that Britain would remain within the European Union (Erlanger, 2016). Then, there were some looking to have a vote of confidence with regards to Corbyn. Corbyn spoke on the questions that people had of his work leading up to the ‘Brexit’ vote saying that “I did all I could” (BBC, 2016c) with regards to trying to ensure Britain would remain within the European Union.
Immediate Effects of the Brexit Vote on the UK
Following the Brexit vote, there were expectations that numerous changes would affect Britain rather quickly. However, according to a September 21 report by the Office for National Statistics (ONS), there has not been a great amount of negative impact on things like consumer spending. However, this report did not measure the service sector, which is the vast majority of Britain’s economy (at over 75 percent) (BBC, 2016). However, “There does seem to have been a decline in confidence in the small business sector. The first survey by the Federation of Small Businesses (FSB) since the Brexit vote showed more small and medium-sized businesses were pessimistic about the future than positive for the first time in four years. Meanwhile, international body the OECD…revised its 2016 GDP growth forecasts for the UK slightly upwards from 1.7% to 1.8%. However, it has cut the forecast for next year from 2% to 1%, saying: “Uncertainty about the future path of policy and the reaction of the economy remains very high and risks remain to the downside”” (BBC, 2016).
Long-Term Effects of Brexit
As mentioned, it is very hard to know what the exact affects of the UK leaving the EU will be. It has been argued that certain issues will be even more difficult to predict. For example, take the issue of trade. While we know that there will be implications for Britain leaving the European Union with regards to trade, we don’t know exactly what they will be. For one, Britain would still have to create a new trade agreement with the EU, and there is believe that it could take upwards of a decade to complete (Economist, 2016).
Economic Effects of Brexit
One of the more discussed topics around Brexit centers on the question of the finances and trade agreements. A key benefit of being within the European Union is the barrier-less conditions within the international organization; British industries benefit by being able to have expanded markets, selling their products without tariffs. This single market system (implemented in 1992) by the EU has been viewed as “the EU’s biggest achievement and one of the main reasons it was set up in the first place” (Wheeler & Hunt, 2016).
Now, “Given the crucial role of London as a financial centre, there’s interest in how many jobs may be lost to other hubs in the EU. Four of the biggest US banks have committed to helping maintain the City’s position. But HSBC will move up to 1,000 jobs to Paris, the BBC understands” (Wheeler & Hunt, 2016). Others such as Jaguar Land Rover have also warned about the effects that Brexit will have on their sales. For example, in a September 29th, 2016 report in the Financial Times, “Hanno Kirner, the company’s strategy director, said in a speech ahead of the Paris Motor Show that trade barriers would “not only affect what we sell, but what we buy and it will ultimately damage our business and British jobs”” (Campbell, 2016). Kirner was also quoted as saying that “Europe has emerged as our biggest market,” he said, adding that sales of Jaguars to the EU more than doubled last year, while Land Rover sales rose 20 per cent. “It is incredibly important to us” (Campbell, 2016).
Others, such as Mike Hawes of the Society of Motor Motor Manufacturers and Traders (SMMT) was quoted as saying that “We’re very concerned that the future state of the automotive industry and the success could be jeopardised if we’re not in the single market”” (Campbell, 2016). British automotive companies are very reliant on the European market for their products; it has been said that about 60 percent of cars manufactured in Britain are sold to European markets, and this reaches close to 80 percent for some of the plants (Campbell, 2016).
The Effects of Brexit on Immigration
As mentioned earlier, one of the primary concerns for the “Vote Leave” supporters has been the lack of influence over immigration policy in the UK. Thus, this seemed to be a key factor in the vote to leave the European Union. However, questions remain as to whether immigration will be greatly altered in the post-Brexit era.
On the surface, it should seem that Britain would now be able to restructure immigration rules as they see fit, given that they would no longer be tied to the rules and regulations set forth in the European Union. However, the situation is more complicated than that.
For example, even with Britain being out of the European Union, they still may have pressure to accept immigrants into their country. If not, then other EU states might hold it against them when the post-Brexit trade deal would be negotiated (Calamur, 2016). Plus, there are still expectations that some leaders of “Leave” want British citizens to have free travel elsewhere. Some, such as the former mayor of London, Boris Johnson, have said that the future will look like the relationship Norway has; but he did not reference the point that Norway also has free movement (Calamur, 2016). Related to this, Donald Tusk, the President of the European Council, was quoted in late June, 2016 as saying that “There will be no single market a la carte,” or, that Britain is not able to choose what works, and what doesn’t work for them, and proceed accordingly (Calamur, 2016).
Some believe that following the initiations for officially exiting the EU, like a trade negotiation, there will also be negotiations on immigration and the free movement of people. There is a belief that Britain may allow immigrants, but that they will stipulate that they are higher skilled workers. However, this may negatively affect migration numbers from European Union countries such as Poland and/or Romania (Calamur, 2016), which could cause issues during the negotiation period with the European Union.
The Future of the UK and the EU
Since the UK has voted to leave the EU, based on the Lisbon Treaty, now begins a two year process for them to make the arrangements for the withdrawal from the organization (BBC, 2016b), although Cameron himself said that the leader following him would be the one to decide when the exit process would officially begin (2016a).
In the meantime, discussions will be had between the EU and the UK on the process for them to leave. It should be noted that just because the UK voted to leave the EU does not make the decision automatic. As discussed earlier, the vote itself is non-binding, so theoretically, leaders could move away from the decision. However, expecting leaders to respect the results, there is also an issue of coming to an agreement with the rest of the EU states, since “[q]uitting the EU…has to be negotiated with the remaining 27 members and ultimately approved by them by qualified majority. These negotiations are meant to be completed within two years although many believe it will take much longer. The European Parliament has a veto over any new agreement formalising the relationship between the UK and the EU” (BBC, 2016a).
If the UK actually decides to leave the European Union, many have wondered what the relationship between the UK and the EU will look like in the months and years after the official removal of the UK from the international organization (Time, 2016).
The EU state leaders were quite upset when the announcement that the UK was leaving the EU was made. Some have noted that “The mood in Brussels [following the announcement] is resentful and despondent, while governments across Europe are scared. They feel the heat from angry electorates who share many of the criticisms of the EU highlighted during the UK referendum campaign” (BBC, 2016b).
Here were some of the comments made by world leaders following the Brexit vote on June 24, 2016:
- German Chancellor Angela Merkel expressed “great regret” at the British decision, saying: “This is a blow to Europe and to the European unification process”
- French President Francois Hollande said the vote “seriously puts Europe to the test” but called for the EU to push on with reform and investment
- Italian PM Matteo Renzi, who will meet Mr Hollande on Saturday, said: “Europe is our house,” adding that “the house needs to be renovated, perhaps freshened up”
- Russian President Vladimir Putin said the decision showed the UK’s unhappiness with migration and security
- Greek PM Alexis Tsipras said the vote was “either a wake-up call or the beginning of a dangerous path”, adding: “We urgently need a new vision and beginning for a united Europe” (BBC, 2016b).
Then, on June 27th, it was reported that Lithuanian foreign minister Linas Linkevicius was quoted as saying that the UK must make it known that their intentions to leave the European Union are “clear and final,” given the various effects that have been seen on the markets since the Brexit vote (Yahoo News, 2016b).
Just some of the questions and possibilities that are being raised for the future relations between the UK and the EU are the following:
Will the U.K. try to follow Norway, a member of the European Economic Area but not the E.U.? That would provide privileged, but not total, access to the single market, but the U.K. would still have to contribute to the E.U. budget and accept regulations drawn up in Brussels.
Will it look to imitate Switzerland, which relies on individual agreements with E.U. members to gain partial access to the single market? That’s not the best result for Britain’s all-important finance sector, and Switzerland still accepts free movement of labor from other E.U. states.
Or Britain could look for inspiration to Canada, which has built a “comprehensive economic and trade agreement” with the E.U. that would provide the fullest possible (though still incomplete) access to the single market without having to send money to Brussels or offer open borders to E.U. workers. But European negotiators are unlikely to make it that easy. There are other possibilities, but they will all take time to hammer out (Time, 2016).
Other options include the “Turkish model” in which the UK would adhere to the EU Customs Union (EUCU). Or, the UK could enter into a series of bilateral agreements with EU countries through the World Trade Organization (Moagar-Poladian, 2015). Depending on which model the UK would follow, we could see different rules based on issues related to the free movement of goods, services, capital, persons, questions about the EU budget, being held to European Union law, among many other issues (Moagar-Poladian, et. al. 2015).
Any all of these plans, the issue for the “Leavers” in Britain is that they don’t want to contribute (at least at the current rate levels) to the European Union, nor are they willing to allow freedom of movement of individuals. However, “the starting positions are that the EU will only allow the UK to be part of the European single market (which allows tariff-free trade) if it continues to allow EU nationals the unchecked right to live and work in the UK. The UK says it wants controls “on the numbers of people who come to Britain from Europe”. Both sides want trade to continue after Brexit with the UK seeking a positive outcome for those who wish to trade goods and services” – such as those in the City of London. The challenge for the UK’s Brexit talks will be to do enough to tackle immigration concerns while getting the best possible trade arrangements with the [EU]” (Wheeler & Hunt, 2016). As a result of the uncertainty of the future, there are also many questions about people from the EU currently living in the UK, and vice versa. It remains to be seen what will exactly happen for these individuals (Wheeler & Hunt, 2016).
Whatever the decision or future will look like, if the UK does in fact leave the EU, it is safe to say that the relationship between the UK and the other EU states will be quite different–both politically and economically–than what we have seen up until this point.
Difficulty of Establishing Trade Agreements that Only Suit the UK
Leaders of countries such as Italy (through Prime Minister Matteo Renzi) have warned Britain that it will be “impossible” for them to receive an agreement with the European Union that will include special privileges (Withnall, 2016). Britain would not only lose the benefits of trading with the EU states, but they would also lose out any any new agreements with other countries the EU is negotiating with (such as the US, India, and also China) (The Economist, 2016).
However, Britain in turn as been looking to the World Trade Organization as a way to get the free trade deals, without any of the concessions that may have to go with it. For example, Liam Fox, who is the International Trade Secretary for the UK has said that after the UK will be its own, free member state in the WTO, that then they will only expand their free trade activity. He also called for other EU states to negotiate a new agreement, and that by not doing so, those living in Europe would be the ones that would be most effected by no trade agreement (McCann, 2016).
But even this approach is uncertain. For example, while Britain may indeed try to go through the WTO to ensure trade openness, the deals they get through bilateral agreements might not be as beneficial to them, if a country is even willing to set up a deal to begin with (The Economist, 2016).
Furthermore, there will still be difficulties to establish trade agreements with EU states. As The Economist (2016) notes, “the atmosphere post-Brexit would be frosty. The EU would have a big incentive to be unhelpful, for fear that other countries might copy Britain in leaving. Even at the best of times, the EU finds it easier to deal with small countries; protectionist interests within Europe resist deals with bigger ones. Any trade offer from the EU requires the approval of all 27 other member countries, plus the European Parliament.”
Moreover, even agreements in the WTO are not completely tariff less, something they were able to get by being a part of the EU. Furthermore, some sectors are held at higher tariffs; the car industry would thus take a large hit (with rates at 10 percent) (The Economist, 2016). Moreover, the WTO approach (along with a Canadian approach that Britain is also considering) “omit most services, including financial ones, which make up Britain’s biggest exports to the EU. Rival financial centres such as Paris, Frankfurt and Dublin would seize the chance to win back business following Brexit” (The Economist, 2016).
Could the UK Stay within the EU?
Ever since the Brexit vote, pundits and analysts have raised the question of whether there is anything that could be done to keep the UK within the European Union. As of late June, 2016, a petition calling for the UK to remain within the EU was signed by 3.8 million people (Leo, 2016).
The ruling leaders of Britain have continued to say that they will carry out Brexit. For example, Teresa May, who took over the Prime Minister position following David Cameron’s resignation, while herself not wanting to leave the European Union, made it clear that she will respect the vote and follow through on the Brexit (Wheeler & Hunt, 2016).
The first option is to do nothing. If we recall, the Brexit vote is not legally binding, but rather seen as an advisory vote (Leo, 2016). It has also been pointed out that British Parliament itself would need to ratify any agreement to leave the European Union (Wheeler & Hunt, 2016).
So, UK leaders are not legally bound to recognize the vote (although not doing so could be costly, politically, given that over 52 percent of the voters voted to leave the European Union). As long as no political leader actually invoked article 50 of the Lisbon Treaty, the process for leaving the EU has not yet begun. But again, “It is difficult to predict how pro-Brexit voters would respond if their government ignored the referendum’s result, but such a move risks empowering more extreme voices. British politics, already in tremendous turmoil, would face an uncertain future, as would the lawmakers who will be up for re-election.”
Interestingly, another political option could be if a pro-EU political current comes into office. As Wheeler & Hunt (2016) note, “One scenario that could see the referendum result overturned, is if MPs forced a general election and a party campaigned on a promise to keep Britain in the EU, got elected and then claimed that the election mandate topped the referendum one. Two-thirds of MPs would have to vote for a general election to be held before the next scheduled one in 2020.”
Again, all of these are political possibilities, each with their own sets of challenges.
Secondly, one of the parliaments within the UK could veto any action to leave the EU, since, leaving the international organization must get the support for the governments of Northern Ireland, Scotland and Wales. With Scotland heavily opposed to leaving the EU, they could block any action. Where it becomes messier however is if the new leader of the Britain decides that s/he wants to go through with leaving. If this is the case, the government in Britain “could repeal the law that gives Scotland veto power” (Fisher, 2016).
Third, the UK could attempt to re-vote. There is actually a precedent for doing so. For example, “In 1992, Danish voters narrowly rejected a referendum on joining one of the treaties that laid the European Union’s foundations. Eleven months later, after a flurry of diplomacy, Denmark held a second referendum, which voters approved. Similar scenarios unfolded in 2001 — and again in 2008 — when Irish voters rejected European Union treaties before embracing them in second referendums in subsequent years.” However, Fisher noted that if a new vote was held, it is no guarantee that the results would vary.
Plus, there are political risks associated with doing this as well. As Fisher (2016) writes, “If any member state can extract special concessions by threatening to leave, it undermines the union’s ability to make Europe-wide policies. It also gives other states an incentive to play chicken with exit referendums, a dangerous game that could easily end in disaster.”
Fourth, the UK could leave the EU without ‘leaving’ the EU. As mentioned above, they could say they are ‘leaving,’ while agreeing to continue having ties (in the way of Norway, Switzerland, etc…). They could negotiate on elements of the EU that more voters support, and leave behind what they disagree with. However, they may have to continue paying membership fees, something the ‘Brexit’ supporters spoke against (Fisher, 2016).
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