The UK has voted to leave the European Union, with the Leave campaign securing around 51.9% of the vote vs 48.1% for the Remain. David Cameron has resigned as Prime Minister in an emotional speech outside 10 Downing Street. While England voted overwhelmingly for Brexit, Scotland and Northern Ireland backed Remain. The pound crashed to the lowest level since 1985 as sterling fell below $1.35. I think the risk of political contagion is high, but the EU will not disintegrate. There is a chance that the British departure will be an opportunity to push the EU into further integration.
As you all know the UK has voted to leave the European Union, with the Leave campaign securing around 51.9% of the vote vs 48.1% for the Remain. Now that the British people are about to take a running jump, it seems only fair to ask where they we’ll be landing in and what citizens are likely to find in a post Brexit scenario.
Economy. In the short-run, uncertainty over both the UK’s economy and its relations with by far its closest and largest trading partner will be huge. Almost every major global economic body from the Treasury, to the IMF and the OECD agrees that an exit is going to be detrimental for growth and living standards, as the price of departure would amount to £4,300 per household by 2030. Mark Carney, the Bank’s governor, warned that the consequences of Britain’s exit from the EU “could include a technical recession.
FDI. Overall, roughly GBP210bn of investment would be lost during the four years following the referendum. Furthermore, capital flight is expected. FDI inflows should be structurally lower as foreign companies will benefit less from relocating into or expanding in the UK without access to the Single Market. Domestic investment (16% of GDP on average over the past decade compared to 20% in the Eurozone) is not expected to compensate for the lost FDI.
Trade.Those sectors that are the most ingrained in UK-EU trade will see the heaviest impacts For most goods, the UK is a net importer from the EU. In the chemicals, mineral fuels, and manufactured goods industries, over half of exports go the EU. With such large volumes of trade, any disruption will have an immediate impact. In a scenario of complete commercial isolation, meaning without a new free trade agreement: chemical companies could suffer losses of around € 9 bn, mechanical firms would experience a market contraction of € 4.4 bn, and car manufacturers would lose € 3.7 bn .
Trade negotiations.The impact of Brexit will be determined by at least two variables, neither of which is remotely settled: what kind of post-membership relationship with the EU the UK wants, and whether the EU is willing to agree, not to mention the fact the trading deals with countries outside the EU would take years and lot of uncertainty before being finalized. On top of that, the commercial interests of the remaining EU countries will take precedence over giving Britain “a good deal” post-Brexit. Many in the Leave campaign think that Britain’s links with the EU are holding back its focus on emerging markets. But almost 50% of Britain’s exports go to other EU countries. What’s more the EU has or is negotiating 53 free-trade deals with America, China and India, from which Britain will now be excluded.Britain would have to try to replicate them. EU membership and the trade agreements the UK has been so far party to via its EU membership currently cover around 59% of the UK’s global trade, and this could rise to 88% if the EU is successful in its current trade negotiations (much of which is accounted for by TTIP). Many argue that the Canadian trade agreement with the EU could be a template for what the UK could negotiate. But how would the UK be able to negotiate trade deals with other countries, if Canada took to finalise a trade deal with the EU 7 years of negotiations and if President Obama recently said that the UK could take up to 10 years to negotiate trade deals with the US. Without the weight of the Single Market behind the UK, Britain risk being in a poor bargaining position with countries like China.
Artcicle 50. Now that Britain has voted to leave the EU, Article 50 must be invoked. Britain must notify the European Council of its intention to leave and begin negotiations with other member states for its withdrawal. After notifying the Council, Britain has a two-year window to enter into negotiations, with the possibility of an extension. Talks will focus on negotiating access to the single market and creating new trade deals, as well as deciding the rights of movement for EU nationals and Britons. Any agreement would have to be approved by all 27 other member states and may require ratification by national parliaments. If the UK is unable to agree either a deal or an extension, it will automatically face World Trade Organisation rules, which translates into tariffs for all goods sold to the EU. In the meantime, EU laws would still apply to the UK and British Ministers would continue to participate in most EU business. However, the UK would not participate in internal EU discussions or decisions on its own withdrawal.
International clout.The need to bring decision-making back to the Parliament in London and reverse what many in the UK see as the creeping control Brussels has had over British affairs since 1973, raises the question about what sovereignty really is in an interdependent world where issues are global. Robin Niblett, director of Chatham House said recently that “sovereignty in international affairs in the 21st century is about securing outcomes, not about preserving autonomy.” Now that UK leaves the EU, it surely will be able to preserve its autonomy, but it remains to be seen about its ability to influence world events and secure outcomes.
Post Brexit Britain. Brexit is likely to trigger another vote on the question of Scottish independence, not to mention that Northern Ireland. The risk is aninternal constitutional crisis, a Scottix, as well as a Dis-United Kingdom.
Future of the Tory party. The EU debate has taking a toll on the Tory party and his premiership. David Cameron has already resigned. The fact that many Tory voters have voted ”Leave” means that this volte-face by the British centre-right will have profound and lasting consequences for the cohesion of the Tory party. This means the next leader of the Tory party is more likely than not to be an ‘outer’.
Election in Europe and Pandora box?The referendum comes at a politically delicate moment In Europe. There will be elections in all major European countries: on 26 June there will be an election in Spain, without a government for six months; in October there will be a constitutional referendum in Italy; in March parliamentary elections in the Netherlands (with the Eurosceptic party ahead in the polls); in Aprilthere will be presidential elections in France, in October it will be Germany’s turn.Since in almost all EU countries there are many voters who are attracted by the anti-European parties, there is a risk for the European integration process. Even if the risk of contagion is high, the EU will not disintegrate. There is a chance that the British departure will be an opportunity to push the EU into further integration. In spite of everything all, I do hope though that the wake-up call of the Brexit referendum will push the other European countries to take a jump and be bolder in the integration process and move forward in projects the UK has hampered in the past.
In the end, the greatest looser is for sure Cameron, whose bet has been – as we are repeating since January 2013 – definitely fetched, and he even lost it!
But the real loosers are the subjects of Her Majesty, who have gifted Queen Elizabeth a close future of a small Reign, Singapore style, with no influence on the future destinies of our societies, out of Europe and out of United Nations Security Council! There is a lot to see in the next months…
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