First published 2016
“Brexit” the portmanteau for Britain and Exit is current upbeat in EU after Grexit. But it poses a much more dilemma for the Britons than it was for the Greeks. The result of the referendum will decide the further course for Britain and drive its future growth. The implications are notorious in either case, so the only way left is to find the more shallow side of the valley. With the referendum to be held on Thursday of 23rd June, the pressure and confusion is at its peak.
David Cameron, the prime minister of Britain and leader of the Conservative government held negotiations with EU (European Union) for new trade terms for UK which was only part successful.
The recent public opinion is swinging on 50-50 basis, hence the campaigns to join either side of the bandwagon would prove to be the game changer. In this article we would see the impact of stay or leave decision on various stakeholders and mainly on UK and the industries within it.
IMMIGRATION AND MEMBERSHIP FEE: THE CAUSE FOR THE TURMOIL
As can be seen from the graph above, the immigration from Britain remains to be stable and around 100,000 while that from EU and non-EU countries have increased double bound over the years. In the year ending September 2015, the total number of immigrants to UK were 323,000, approx. 884 migrants each day!!
The concern for Britons is the tax money going for social security of these migrants and for their child’s education.
The issue of immigration is strongly felt within entire Europe, with some countries like Turkey readily accepting the influx while the major giants having difficulty to deal with it.
States of Poland, Hungary, Czechoslovakia all faced a recent uproar from residents to stop Islamic migrations read here.
The second issue forcing the exit is the EU net membership fees that has doubled in 2014/15 (£13 billion) than as compared to 2009/10 (£4.5 billion) as reported in the “HM treasury European Union finances 2015”.
The basis for the formation of EU was the ease of trade between its member nations, with the EU expansion and the crises prevailing in it in the recent times has made UK to lose in every dealings and the benefits reaped are much lesser than the inputs provided.
TRADE AND ECONOMY
Impact on UK
The reliance of Britain on EU member nations for trade will push it to strike one or the other way of trade access within EU.
There are few models already studied like the Norwegian Model of being a part of EEA, Turkish model of establishing own custom unions, comprehensive FTAs, Swiss model of bilateral agreements in all sectors, Most Favored Nation (MFN) model, and lastly trading with EU following WTO standards.
All of these models have one or the other drawback with Norwegian and MFN model totally unbeneficial for UK while the comprehensive FTAs and Swiss style model more favorable.
Britain is 3rd largest economy for EU after Germany and France followed by Italy and Spain. A large chunk of the goods/services trade for UK comes from EU, making both of them interdependent.
The recent superpower for trade in the world remains to be US, followed by EU and then China. Separating from such a big player will take away the benefits of larger association, better negotiation power inherited from the market size and power of representative voice in world forums like UN and WTO. A separate Britain will hold less power as an economy to represent and attract big players.
Though it will get the freedom to manage its own trade regulations but it will lose its lucrative potential as a business market due to its small size as compared to EU market size.
Multinationals established in Britain are mainly due to free access to the EU region, with Brexit these firms might relocate.
The major hit would be to the car industry that is majorly being held by foreigners and in the advent of exit, the plants would be affected in terms of any investment grants and progress.
The other is the financial services sector which would be affected. The slowdown here will render many people jobless and affect the exports figures heavily.
Impact on Britain’s economy
It is predicted that in the worst case the GDP loss would be near to 6-8% and in the best case it would be loss of 1-2%. The most promising to remain anywhere between 0.6-0.8% addition.
These figures are highly discouraging, but nothing could be a sure shot as of now. It will all depend upon trade agreements agreed after Brexit.
Impact on rest of EU
With the Brexit, the powerhold of protectionist nations would surge imposing more restrictions on imports, causing slowdown for other country’s growth prospects. New policies and laws would be enacted with Britain outside EU.
Also as EU stands as a second option for developed countries like US and Japan, while not hitting even the top list for emerging countries, trade negotiations without UK on its side would be tougher (though its internal political integration and coherence).
With EU comprising of 27 states at present majority of which are smaller countries who rely heavily on big giants for trade. In the event of Brexit states like Ireland, Netherlands and Cyprus which are dependent on it would hugely suffer.
In one of his talks PM of Ireland said they would also think about exiting EU if Britain does so.
With the absence of Britain, Germany would lose support against France policy debates, forcing their differences to increase. Possibly leading to disintegration of EU with member states opting out.
Or maybe the two giants would come closer in the interest to make the EU stronger without UK.
JOBS IN BRITAIN AND EU
One of the main concern and argument towards Brexit is the issue of immigrants and the cost incurred for their security and child welfare schemes. The extremists propose to leave EU on the assumption that after exit, Britain would be free to regulate its trade dealing with non-EU countries and prosper.
But with all the large countries like US, Japan, Australia voting against the exit the assumption points a failure. US has even gone its way ahead and declared Brexit as against its national interest and disapproved to discuss any transatlantic trade with independent Britain.
With the car industry and financial services sector taking up the blow and major car manufactures BMW and Jaguar voting against Brexit shows the market for jobs would be less.
The longtime of up to 10 years that the fresh trade negotiations will take to settle, the free Britain economy will suffer with low GDP, more firms migration, less jobs, less salaries, less subsides and more taxes leading to poorer lifestyle.
The impact on EU would be dependent on the stance the member nations takes and how much effort is put to keep the trade upfloat.
IMPACT ON INVESTMENT CHOICE
UK enjoys large chunk of investor attention and investment from larger EU nations. In the event of Brexit, Britain would struggle hard and implement liberal trade and commerce policies than EU countries to retain this investment part.
These will cause competition between Britain and EU. The end product would be either Britain winning to keep the investment interests, or the investors will shift to other EU nations forcing their government to improvise and keep liberal and comparable trade and commerce policies.
These will all be governed by the form of laws and regulations at that time. It would be tougher to move the multinationals away from UK who would be eagerly fighting for its part.
OTHER AREAS AFFECTED
Laws and Taxes
Independent Britain will see turmoil and unstable trade, investment, expenses and other economic uncertainties.
The pound is expected to depreciate, as current news of referendum has shaken it, an independent Britain would be seen as weak by the world and push the pound value down. With the pound depreciating, inflation would surge, interest rates will be kept high causing the market slowdown.
Also administrative costs for trade negotiations, settling up of new trade centers will render less money for subsidies. To save domestic agri businesses, import taxes would be kept high in this sector and it is sure that Britain would never be able to keep the tariff bearer zero. Also the 16% research grant that EU provides Britain every year would be revoked.
The number of immigrants would be catered would be looked after as Britain would be free from EU rule of free movement. The savings from membership fee would be dependent on the trade model adopted.
Also there could be internal disputes like Gibraltar government wants to stay with EU even if Britain leaves.
Seeing the negatives that the Brexit has to offer Britain, it is recommended that as of now it stays with EU. The prosperity or doom of Britain in the event of leaving by large depends upon the way it negotiates trade agreements with other economies. Britain can still further try to negotiate with EU and unionize with other states troubled by immigrants to cope up with the issue. Also Britain is suggested to increase its trade with non-EU states and reduce its dependency on EU member states. Till that time it is in its favor to be a part of larger group.