The Brexit challenge
Europe is discussing Brexit. In a week’s time, perhaps the discussion will shift to the “day after situation” irrespective of how the people of the United Kingdom vote in a June 23 referendum on whether Britain should leave or remain in the European Union. Will the people of the United Kingdom vote to abandon the European club their government struggled so much to join and since joining has not been just a net contributor to the EU budget but also a key player in European politics?
What would be the contribution or cost of Britain staying in or abandoning the EU? That was one of the questions the Economist Intelligence Unit (EIU) tried to answer in its latest report. Should Britain agree in the June 23 vote to leave the EU, it “would trigger a recession and set real GDP back by 6 percent by 2020,” as forecasted by the EIU.
That was just one of the key findings from the latest report from the EIU titled “Out and Down: Mapping the Impact of Brexit.” Naturally, there would not be an evenly distributed impact on either Europe or Britain; some sectors would be affected more than others. While the largely negative impact on specific industries would vary by sector, the overall impact might indeed be devastating.
The EIU findings included: The uncertainty caused by a “Leave” vote would upset consumer and market sentiment, causing a 14-15 percent devaluation of the pound against the dollar. Delayed investment and spending decisions would hit real GDP growth most in 2017. Weaker trade ties would exacerbate this decline from 2018 onwards, therefore, in real terms the U.K. economy would be 6 percent worse off in 2020.
Pharmaceutical exports, access to medicine and research grants could all be at risk. Any economic downturn would also affect National Health Service funding. London’s financial sector could experience a “brain drain” as European nationals return home.
Probably on the evening of June 23 U.K. Prime Minister David Cameron might be sorry to see a strong Brexit vote outcome, as that would demonstrate how bad his idea was to seek an agreement with other EU leaders to change the terms of Britain’s membership, particularly given the fact that he could not get the special status at the level he demanded. The Britain-EU deal might help sort out some of the things British people have been complaining they did not like about the EU, such as high levels of immigration and giving up the ability to run their own affairs. For example, though Cameron wanted to end foreign workers sending child benefits back to their homeland, such payments will continue but set at a level reflecting the cost of living in workers’ home countries rather than the full U.K. rate. Cameron wanted to cut the amount of benefits low-paid workers from other EU nations could claim when they take a job in the U.K., which would remove one of the reasons people come to Britain in such large numbers. He just could not get the blanket ban that he wanted and instead was compelled to agree to a wording under which “guest workers” were slated to claim tax credits and other welfare payments straight away - but they would gradually gain the right to more benefits the longer they stayed, at a rate yet to be decided. One clear area that he was successful in was the firm accord that Britain will never adopt the euro. Britain will not be discriminated because it retained its national currency rather than the euro and furthermore received a very important concession from fellow heads of government or state that any British money spent on bailing out eurozone nations that get into trouble would also be reimbursed.
One very serious reason filling the sails of Brexit supporters might be the strong emphasis in Britain over the British national character, sovereignty and frustration over British people bailing out failed economies of some other members of the European club.
Days before the crucial vote polls underline that by and large British people believe their country is being held back by Europe, with too many rules on business and billions of pounds a year in membership fees for little in return. The second important issue is unfortunately the rising Islamophobia, or the Syrian refugee syndrome. With an alarming surge in unemployment across the old continent, the so-called four freedoms re objected as well, as most people believe the right to own, settle and own property cannot be granted to everyone.
Obviously, there is a cost to staying as well as abandoning the EU. Britons are against freedom of movement in Europe because of the burden they believe the U.K. has been compelled to undertake. What about Britons in other European countries, particularly nations in the Mediterranean basin, where thousands of Britons have their second houses? A post-Brexit accord with Europe might eradicate many problems, perhaps even by maintaining Britain within the eurozone. From health expenses of the aged Britons let’s say enjoying the Spanish sun at the Grand Canary to keeping Britain attractive to the skilled labor of Europe might still be continued with no problems, even after Brexit.
Yet, an exit decision by Britain might trigger a bigger process, endangering the very existence of the European Union. But, hold on, can the EU manage to come out strengthened, as it has been doing after every test since its inception in 1957?