All eyes of the world were on Brussels, Belgium, as a terrible catastrophe destroyed dozens of lives. British citizens, while paying their respects, were also contemplating this tragedy with their own loved ones’ security weighing heavily on their minds. On July 23rd 2016, UK citizens will get a very rare opportunity to secede from the European Union (EU), ending favourable visa agreements which may allow terrorists easier access to British civilians. However, according to some this could potentially come at a price in the form of a possibly weaker economy.
Is Britain’s growth held back by their contribution to the EU?
Due to the referendum looming over their heads, British citizens have to make a choice between keeping the status quo or obtaining their freedom by leaving the EU. Europe is now no longer the centre of the world due to the rise of Japan, China and India over the past two decades. Their existence has caused a large portion of wealth to fly out of Europe into countries that have a larger growth potential. Thus, the EU is rapidly losing its position as a dominant power in the world, therefore any benefits that Britain gained from EU in the past is slowly becoming smaller.
Additionally, the EU consists of 28 different nations where each have their own attitude towards work, tax and corruption. A single market under the EU does not exist as every country’s economy and society is unique. Due to countries handling their politics differently, it has resulted in a large economic gap between the economically strong such as Germany, UK and France. While on the other end of the spectrum lay countries who are high in debt, such as Italy, Greece and Spain. Due to the influence of these financially weak countries, they could potential drag down UK’s economy if they continue to remain in EU.
Furthermore, the recent Migrants Crisis with a total asylum count of 1,321,560 fleeing their war-torn countries and entering Europe. Border security has been comprised as authorities simply do not have the necessary resources to conduct a thorough background check on all migrants. On top of that, these migrants are only required to remain within the continent for 2 years before being granted an EU passport which gives them access into every country within Europe. Many consequences may arise with this huge influx of movement freedom, which grants terrorists opportunities to gain entry into UK and cause terror and harm. The weak security systems implemented within Europe will cause major security risks that may arise in the future.
Although all these issues are not dire, it is better to prevent a disaster from happening than having to cure it once it has happened. Britain leaving EU may cause short term losses for the UK, however the country will benefit greatly in the long term. There is no need to maintain a membership with an organization that is going downhill and showing no signs of recovery.
Are the benefits of remaining within EU greater?
The British population is clearly split on whether to remain a part of the EU, where latest polls are reporting that between 51% to 55% of voters want Britain to remain apart of the European Union. Studies and reports provide a plethora of evidence and arguments to keep the EU a united front as even Christine Lagarde, director of the International Monetary Fund, stated: “(Brexit) would be a negative on all fronts”.
It currently stands that all countries currently part of the Union have a unified free trade agreement, allowing capital to flow unrestricted between borders. If the United Kingdom were to hypothetically leave, it would require major renegotiating of trade agreements to maintain a relationship with the world largest trading bloc, as well as the other countries with a signed FTA with the EU, such as Mexico. The loss of these agreements creates severe economic consequences for Britain as 12.6% of its economic output is directly linked to exports directly to the EU. Even with a new agreement and low border tariff installed, the average income for a British Household could be cut by £850 ($1,583AUD).
Even in the most optimistic scenario it would take at least 5 years after the referendum for the trade agreements to be renegotiated. In this time, British GDP would be 3% lower by 2020 compared to if it opted to stay a recent report by PwC concluded. In this 5-year time span, it would cost Britain over £100 billion (186 billion AUD) in lost GDP and over 3 million jobs. It can therefore be seen that the economic ramifications alone provide justification to many to vote to stay apart of the EU. Furthermore, by removing itself from the EU, Britain puts itself in a vulnerable position to loose much of the investment it receives from the other 28 states. If the people do vote to leave, the lose of growth due to the aforementioned: trade, investment and job loss could will take 15 years to recover.
General costs to British citizens will rise as they will sacrifice many exemptions and luxuries they receive due to their current membership. When travelling within an EU state, British citizens are charged lower romancing bills, lower credit card fees and cheaper flights. Independence by becoming a fully separate sovereign nation, British citizens will have to sacrifice these current agreements and benefits.
Potential Issues arising from British Exit
The insistent ‘in-out’ referendum Britain finds itself immersed in, needs to be consequentially assessed due to its heavy repercussions, especially if ‘Brexit’ proceeds. In the situation Britain leaves EU, it may trigger a migration crisis and cause a great mess within the European currency. Further independency actions could hinder their politico-economic relationship with EU.
In spite of the hefty membership fees of £340m to remain in the EU, the closely-knit relationship and intergovernmental negotiations amongst union countries provides a plethora of benefits for its constituents. Confederated with EU in 1973, Britain’s membership has since had great significance in supporting the nation’s economy and in 2014 trade with EU accounts for almost 51% of goods export (45% including services), evidently the large proportion of exports currently going to EU is due to favourable UK-EU trade agreements. Withdrawal from the EU will inevitably tarnish long established trust and alliance within the treaty, resulting in chances of less agreeable commercial arrangements or potentially cutting off EU trade channels which supposedly adds 55% higher trade for Britain than it would have been trading outside of EU. Moreover, EU grants Britain many benefits in the form of greater recognition of “pound”, “red card” measures that allow blocking of certain EU laws and promoting British welfare. These rewards will all be lost if Britain decides to leave the union.
The economic impact of the decision has great importance for the broader economy outside of Britain. The interdependence that exists between Britain, United Kingdom and European Union countries means any shocks to the British economy will ripple and substantially affect neighboring nations. It is estimated that ‘Brexit’ will permanently diminish the UK GDP by 2.25% and subsequently incomes are likely to fall 6.3% to 9.5%, equivalent to almost £78b in total or £3000 per household. Ultimately, the collaboration between countries within the European Union provides an advantage to all members when it comes to exercising bargaining power and influence around the globe. However, Britain’s exit will weaken this long-standing dominance that will hurt all EU constituents.
Summary
By several accounts, the British Exit or “Brexit” is estimated to leave UK citizens with lower GDP and income. The migrant crisis and the resultant security crisis looming over Europe makes isolation a very attractive alternative. From a global perspective Europe seems to be besieged with problems, which gives more reason for the British to leave.
In an uncertain world, the UK public has no choice but to play a gamble. When June comes, will they gamble that terrorist activity caused by the migrant crisis will not result in a weaker UK? Or will the British public bet that Asia will give them enough economic prosperity, and stronger UK borders enough security, to compensate for weakened economic links with Europe? The future is unclear, but quite frequently people have made rash decisions when their safety and freedom are threatened.
References
http://www.gq-magazine.co.uk/article/why-we-should-leave-the-eu-european-union-tony-parsons
http://www.telegraph.co.uk/finance/comment/11968813/Three-reasons-why-Britain-needs-Brexit.html
http://ec.europa.eu/trade/policy/countries-and-regions/agreements/
http://money.cnn.com/2016/03/18/news/economy/eu-referendum-trade-income/
http://edition.cnn.com/2016/03/09/europe/uk-queen-brexit-report/
http://www.economist.com/blogs/graphicdetail/2016/02/graphics-britain-s-referendum-eu-membership
http://www.investopedia.com/terms/b/brexit.asp
https://en.wikipedia.org/wiki/European_Union
The CAINZ Digest is published by CAINZ, a student society affiliated with the Faculty of Business at the University of Melbourne. Opinions published are not necessarily those of the publishers, printers or editors. CAINZ and the University of Melbourne do not accept any responsibility for the accuracy of information contained in the publication.
