Brexit: What Is It? Why Is It Important? Where Does It Stand?
On Thursday, June 23, 2016, a referendum was held to decide whether the United Kingdom (UK) should leave or remain in the European Union (EU). The term “Brexit” was coined, combining “Britain” and “Exit.” The “Leave” supporters won the vote by a hair’s breadth, with 51.9 percent voting in favor of the UK exiting the EU and 48.1 percent voting for it to stay. While the vote took place over two years ago, many details such as the amount of money the UK will owe the EU upon leaving, what happens to UK citizens living in another part of the EU and vice versa and trade between the UK and EU have not yet been resolved. Hammering out all of these details is what is causing the deal negotiations to linger.
What caused Britain to want to exit the EU? The supporters of Brexit were primarily in favor of leaving the EU because of immigration. The EU offers citizenship and free trade and free movement across its participating nations. Because of this, there has been a major influx of immigrants, particularly from the EU, to Britain. Brexit supporters think that it is too easy for people to immigrate from the EU to the UK and that the immigrants are saturating the job market.
While immigration was a major concern for many Brexit supporters, it wasn’t the only one. Many people from the UK were frustrated by the lack of British independence and preferred not to have to answer to a larger European entity. Furthermore, the UK was spending large amounts of money in dues to the EU, frustrating Brexit supporters who felt it was a waste of funds.
The UK secession from the EU could have major impacts on its own economy and the world economy at large.
Since the vote in 2016, the UK economy has taken a major hit. The pound drastically plummeted immediately after the vote and again after article 50 was implemented, amounting to a 30 year low of $1.11 before rising again. Since then it has been steadily weakening. Before the deal the pound was selling at $1.50; now it’s selling at $1.26. The decrease in the exchange rate between the dollar and the pound allowed United States citizens to spend more money on UK goods, and has allowed Americans to take more vacations in Britain than before. Despite this extra spending in the UK, economist calculated that Brexit has caused the UK GDP to decrease 1-2 percent per year until its two year deadline in March — an average of about 30 billion pounds per year.
The further implications of Brexit will depend on whether there is a “hard” Brexit, a “soft” Brexit or no deal at all. A “soft” Brexit would be a scenario in which a deal is made that allows the UK to maintain some light ties to the EU. This could mean that the UK would still be part of the single market in the EU and the customs union, allowing free trade and movement of goods across all borders within the EU. On the flip side, the UK would still have to pay some money to the EU for participating and would probably have to concede to allowing EU citizens to move freely in and out of the UK which, as mentioned earlier, is what Brexit supporters primarily oppose.
A “hard” Brexit would entail the UK leaving the single market and customs union. They would still have few ties to the EU, but ultimately the UK wouldn’t have to pay anymore to be part of the single market and would also restrict free movement across the borders. Additionally, it would restrict UK citizens from working anywhere in the EU for free.
Lastly, if no deal is reached by the March 29 deadline, then the UK will automatically exit the EU without any ties in place whatsoever. It would be treated just like any other country in the world relative to the EU. Yes, this would give the UK the most independence possible, but on a global scale this could be the worst of the three options. A total secession would cause major tariffs on the many goods and services that are transferred between the UK and the EU each day, increasing prices dramatically. Furthermore, the lack of a deal would also cause difficulties in air traffic as planes would have to figure out how to navigate across Europe using different flight paths which would largely increase the use of fuel and therefore flight prices.
After Prime Minister Theresa May postponed the vote, I have lost much confidence in the ability of the UK to come to an agreement before the deadline. Unless there is a second referendum, I suspect that Brexit will not reach a deal and that the UK will automatically exit the EU upon the March 29, 2019 deadline and become the independent nation that its people hoped it would be.
Photo Credit: Institute of Economic Affairs
Photo Caption: As the March 29 deadline for ending Brexit negotiations approaches at a rapid pace, the UK and the EU are still nowhere near a deal.