What is Brexit and why should you care?

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Brexit refers to the possibility of Great Britain deciding to leave the European Union. The term is an abbreviation of British Exit, and originates from the term Grexit when Greece considered the same thing. The referendum will be held on June 23rd, where the voters will decide whether Britain should stay or go.

The cost related to the membership is considered high, and  many brits are feeling that money could be better spent domestically. The number that is presented by those favoring to leave is 18 billion pounds annually, but the net cost is actually approximately 10 billion pounds due to a special discount where parts of the contribution is refunded. The cost of EU is also only 1,3% of the total annual spending of 772 billion pounds by the UK government. While some claim that Brexit will benefit the UK economy, the majority of analysts also show that the cost of leaving EU will exceed the contribution to the membership, and workers will suffer in the long run. IMF predicts that a Brexit will have grave consequnces for the British economy.

Transfer of power and sovereignty is one of the arguments that rallies many supporters of an exit. Brits do not trust the bureaucrats in Brussels, and oppose the what they view as a political elite. Brexit-supporters believe that Great Britain should regain it’s sovereignty and  “ Take back control” has become the primary slogan for Brexit. The rhetorics are similar to those of Greece’s Golden Dawn, Donald Trump and Marine Le Pen in France. The European migrant crisis adds fuel to the fire, and Trump even endorse Brexit as Britains best option to stop immigration. Boris Johnson is one of the most profiled supporters of Brexit, and compares it to escaping prison. This follows a wave of nationalism and opposition and contempt towards reigning politics that is currently sweeping many countries. Immigration, political instability, threats of terror and increased globalization creates fear and uncertainty.  This creates room for a climate where arguments and decisions are based on emotions and fear rather than facts. If Yoda taught us anything, it is that fear leads to anger. Anger leads to hate. Hate leads to suffering.

Even though the polls make it difficult to predict the outcome of the referendum, the silent majority could still determine the outcome in the end. However, if the majority decides to vote to leave the EU, what will happen?

First of all, a vote will not automatically trigger a separation from the European Union. According to article 50 of the Lisbon treaty, the EU will negotiate a new agreement with the withdrawing country over two years. The short-term effects of a Brexit will be negative. Both for Britain, as well as the rest of Europe. A vote to leave could send shock waves across the global economy, and could even trigger a global depression. It is also believed that Brexit will be a disaster for London’s tech sector, as well as the Venture capital industry in Britain. Brexit could also threaten London as a financial hubthreaten London as a financial hub, leaving room for  cities like Frankfurt or Paris to become the new financial center in Europe.

Another question that follows is whether Brexit will be the beginning of the end for the European Union? The support for the European Union is declining in several other member countries, and the Brexit could trigger a domino effect across Europe. As a response, European leaders are preparing to handle the aftermath.

If Great Britain decide to leave, they will need to reconnect with the rest of Europe in some way. This is by no means considered a straight forward process, and could result in a seven years long limbo before Britain reconnects to the rest of the EU. The terms of a membership in the EEA (European Economic Area) would most likely be similar to full membership in the European Union. Another plausible alternatives are bilateral agreements similar to Switzerland, Turkey, Canada or a free trade agreement with the EU based on a WTO membership. The EEA alternative is considered the alternative that will have the least negative impact on British GDP.

Regardless of chosen model, CNBC  states that there are three main areas that will be key in the aftermath.

  1. Immigration. This is one of the reasons to leave. But limiting immigration into Britain, will also limit immigration the other way.
  2. Free trade. Britain’s trade deficit towards EU has reach record levels, and the British economy is dependent of a frictionless market for exports.
  3. Financial services. Will British banks be able to “passport” financial services across borders outside of EU? Even if passporting rights were preserved, the United Kingdom would still lose its position as a financial hub.

After spending some time investigating the subject I still have a shitload of unanswered questions. A general trend in my opinion is that the strongest arguments to leave is based on emotions rather than facts. The only thing that is certain is that the short term consequences will be negative. I agree that the European Union in its current state is flawed in several ways, but I do believe that the long term effects of a Brexit will be negative for both UK and the EU.

 

 

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