Hot topic: Understanding Brexit

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As a European and firm believer in its benefits, I thought I would try objectively to represents both camps arguments and conclude by giving my personal opinion. However, I will start by explaining what the Brexit is about as I feel very few people understand and/or realise the importance of this referendum. The BBC website did an excellent piece on presenting what is happening and why.

What is the Brexit?

What is happening?

A referendum is being held on Thursday, 23 June 2016 to decide whether Britain should leave or remain in the European Union.

What is happening?

A referendum is basically a vote in which everyone (or nearly everyone) of voting age can take part, normally giving a “Yes” or “No” answer to a question. Whichever side gets more than half of all votes cast is considered to have won.

Why is a referendum being held?

Prime Minister David Cameron promised to hold one if he won the 2015 general election, in response to growing calls from his own Conservative MPs and the UK Independence Party (UKIP), who argued that Britain had not had a say since 1975, when it voted to stay in the EU in a referendum. The EU has changed a lot since then, gaining more control over our daily lives, they argued. Mr Cameron said: “It is time for the British people to have their say. It is time to settle this European question in British politics.”

What is the European Union?

The European Union – often known as the EU – is an economic and political partnership involving 28 European countries. It began after World War Two to foster economic co-operation, with the idea that countries which trade together are more likely to avoid going to war with each other. It has since grown to become a “single market” allowing goods and people to move around, basically as if the member states were one country. It has its own currency, the euro, which is used by 19 of the member countries, its own parliament and it now sets rules in a wide range of areas – including on the environment, transport, consumer rights and even things like mobile phone charges. However, the BBC miss the most important point. The EU was created in order to avoid a third World War and ensure that state members would not fight with each other.

What will the referendum question be?

“Should the United Kingdom remain a member of the European Union or leave the European Union?”

What does Brexit mean?

It is a word that has become used as a shorthand way of saying the UK leaving the EU – merging the words Britain and exit to get Brexit, in a same way as a Greek exit from the EU was dubbed Grexit in the past.

Who will be able to vote?

British, Irish and Commonwealth citizens over 18 who are resident in the UK, along with UK nationals living abroad who have been on the electoral register in the UK in the past 15 years. Members of the House of Lords and Commonwealth citizens in Gibraltar will also be eligible, unlike in a general election. Citizens from EU countries – apart from Ireland, Malta and Cyprus – will not get a vote.

Pros and cons of Britain voting to leave Europe

Membership fee 

For: Leaving the EU would result in an immediate cost saving, as the country would no longer contribute to the EU budget. Last year, Britain paid in £13bn, but it also received £4.5bn worth of spending, “so the UK’s net contribution was £8.5bn”. That’s about 7 per cent of what the Government spends on the NHS each year.

Against: According to Martin Wolf, a well respected economist from the Times, “the net fiscal cost is a mere 0.5 per cent of gross domestic product. Moreover, this could be regained in full only if the UK abandoned altogether its preferential access to the EU market. The UK is also one of the least regulated high-income economies. Its recent labour market performance demonstrates its continuing (and remarkable) flexibility. A study from the Centre for European Policy Studies adds that only “6.8 per cent of UK primary legislation and 14.1 per cent of UK secondary legislation” was passed in order to implement EU law.

Trade 

For: Ukip leader Nigel Farage believes Britain could follow the lead of Norway, which has access to the single market but is not bound by EU laws on areas such as agriculture, justice and home affairs. Leading Brexit campaigner Boris Johnson, meanwhile, has proposed adopting a Canada-style trade arrangement. “I think we can strike a deal as the Canadians have done based on trade and getting rid of tariffs” and have a “very, very bright future”, he said. The idea was quickly dismissed by the PM, who said it would mean “years of painful negotiations and a poorer deal than we have today”. Eurosceptics argue that the vast majority of small and medium sized firms do not trade with the EU but are restricted by a huge regulatory burden imposed from abroad.

Against: The EU is a single market in which no tariffs are imposed on imports and exports between member states. “More than 50 per cent of our exports go to EU countries”. Britain also benefits from trade deals between the EU and other world powers. “The EU is currently negotiating with the US to create the world’s biggest free trade area,” says the BBC, “something that will be highly beneficial to British business.” Britain risks losing some of that negotiating power by leaving the EU, but it would be free to establish its own trade agreements. Moreover, “If Britain were to join the Norwegian club,” says The Economist, “it would remain bound by virtually all EU regulations, including the working-time directive and almost everything dreamed up in Brussels in future.” And it would no longer have any influence on what those regulations said. Martin Wolf states that the argument that the UK should leave because a eurozone break-up would damage the UK economy is simply not valid. “If the eurozone broke up in a disorderly fashion, the damage to its closest partners might be substantial. Yet the EU will remain the UK’s biggest trading partner indefinitely. Thus the UK would be damaged by a eurozone break-up, whether in the EU or not. Arguing that leaving would shield the UK against such a disaster would be like arguing Canada should leave the North American Free Trade Agreement, to avoid a US financial crisis. It makes no sense”.

 

A study by the think-tank Open Europe, which wants to see the EU radically reformed, found that the worst-case “Brexit” scenario is that the UK economy loses 2.2 per cent of its total GDP by 2030 (by comparison, the recession of 2008-09 knocked about 6 per cent off UK GDP). However, it says that GDP could rise by 1.6 per cent if the UK was able to negotiate a free trade deal with Europe – ie to maintain the current trade set-up – and pursued “very ambitious deregulation”. Whether other EU countries would offer such generous terms is one of the big unknowns of the debate. Pro-exit campaigners argue that it would be in the interests of other European countries to re-establish free trade, but their opponents suggest that the EU will want to make life hard for Britain in order to discourage further breakaways.

Investment

Inward investment is likely to slow in the run-up to the vote, due to the uncertainty of the outcome and its consequences: that’s what happened in before the Scottish independence referendum in 2014. It is most likely that the pound/euro will be on parity £1 = 1 euro

For: Whilst Brexit campaigners suggest that, free from EU rules a regulations, Britain could reinvent itself as a Singapore-style supercharged economy. Barclays, has put forward a worst-case scenario that might benefit the Outers. It says the departure of one of the EU’s most powerful economies would hit its finances and boost populist anti-EU movements in other countries. This would open a “Pandora’s box”, says the Daily Telegraph, which could lead to the “collapse of the European project”. The UK would then be seen as a safe haven from those risks, attracting investors, boosting the pound and reducing the risk that Scotland would “leave the relative safety of the UK for an increasingly uncertain EU”.

Against: In the longer term, there are diverging views: pro-Europeans think the UK’s status as one of the world’s biggest financial centres will be diminished if it is no longer seen as a gateway to the EU for the likes of US banks. Fears that car-makers could scale back or even end production in the UK vehicles could no longer be exported tax-free to Europe were underlined by BMW’s decision to remind its UK employees at Rolls-Royce and Mini of the “significant benefit” EU membership confers. Likewise, Business for New Europe says tax revenues would drop if companies that do large amounts of business with Europe – particularly banks – moved their headquarters back into the EU, meaning many job losses in the UK.

Immigration

Under EU law, Britain cannot prevent anyone from another member state coming to live in the country – while Britons benefit from an equivalent right to live and work anywhere else in the EU. The result has been a huge increase in immigration into Britain, particularly from eastern and southern Europe.

According to the Office for National Statistics, there are 942,000 eastern Europeans, Romanians and Bulgarians working in the UK, along with 791,000 western Europeans – and 2.93m workers from outside the EU. China and India are the biggest source of foreign workers in the UK.

For: Farage says immigration should be cut dramatically, and the leaving the EU is the only way to “regain control of our borders”. Other pro-Brexit campaigners would not necessarily reduce immigration, but say that it should be up to the British Government to set the rules.

Against: while the recent pace of immigration has led to some difficulties with housing and service provision, the net effect has been overwhelmingly positive

David Cameron says that concessions he won during the renegotiation of Britain’s EU membership will reduce immigration as new arrivals will receive a lower rate of child benefit. 

Jobs

The effect of leaving the EU on British jobs depends on a complex interplay of the factors above: trade, investment and immigration.

For: A drop in immigration would, all else being equal, mean more jobs for the people who remained with higher wages

Against: Pro-EU campaigners have suggested that three million jobs could be lost if Britain goes it alone.  Labour shortages could also hold back the economy, reducing its potential for growth. Stuart Rose, former Marks & Spencer chief executive and a prominent pro-EU campaigner, conceded recently that wages may rise if Britain leaves – which would be good for workers, but less so for their employers. Writing for the London School of Economics, Professor Adrian Favell says limiting freedom of movement would deter the “brightest and the best” of the continent from coming to Britain and reduce the pool of candidates employers can choose from. Free movement of people across the EU also opens up job opportunities for British workers seeking to work elsewhere in Europe.

 

Britain’s place in the world

For: leaving the EU will allow Britain to re-establish itself as a truly independent nation with connections to the rest of the world.

Against: Brexit would result in the country giving up its influence in Europe, turning back the clock and retreating from the global power networks of the 21st century. Brexit would bring some clear-cut advantages, says The Economist. The UK “would regain control over fishing rights around its coast”, for example. But it concludes that the most likely outcome is that Britain would find itself “a scratchy outsider with somewhat limited access to the single market, almost no influence and few friends”. Britain would remain a member of Nato and the UN, but it may be regarded as a less useful partner by its key ally, the US. The American government fears that the “EU referendum is a dangerous gamble that could unravel with disastrous consequences for the entire continent”, says The Guardian.

Security

For: Work and Pensions Secretary Iain Duncan Smith, who has come out in favour of Brexit, says we are leaving the “door open” to terrorist attacks by remaining in the EU. “This open border does not allow us to check and control people,” he says. Colonel Richard Kemp, writing in The Times, says these “critical bilateral relationships” would persist regardless of membership, and that it is “absurd” to suggest that the EU would put its own citizens, or the UK’s, at greater risk by reducing cooperation in the event of Brexit. “By leaving, we will again be able to determine who does and does not enter the UK,” says Kemp, a former head of the international terrorism team at the Cabinet Office. “Failure to do so significantly increases the terrorist threat here, endangers our people and is a betrayal of this country.

Against: However, a dozen senior military figures, including former chiefs of defence staff Lord Bramall and Jock Stirrup, say the opposite. In a letter released by No 10, they argue that the EU is an “increasingly important pillar of our security”, especially at a time of instability in the Middle East and in the face of “resurgent Russian nationalism and aggression”. Defence Secretary Michael Fallon has also said the UK benefits from being part Europe, as well as Nato and the United Nations. “It is through the EU that you exchange criminal records and passenger records and work together on counter-terrorism,” he said. “We need the collective weight of the EU when you are dealing with Russian aggression or terrorism.”

My views

I must say that I am very intrigued to understand what Brits will vote in few days time. I feel that exiting would be a step backwards and a risk that I wouldn’t want my son to pay for in the future. We have been very fortunate that since the second world war we have not had any conflict in Europe. If the UK left Europe it could be the beginning of the end for the EU and who is to say that a third world war would not be on our door step. Many of you have not known these dark times but you have all read your history books. Therefore, lets confine these moments to the books and let’s make sure that we do not write any new chapters.

My views on Trade

I work for a Fashion British retailer. British fashion is highly trendy in Europe and trade is growing fast. Some people believe that the Brexit would have no or little impact. I beg to differ. In the short term, I believe that it will be positive, with a most likely scenario of £/euro parity. For European citizens to buy on my website will have never been that cheap. However, the cost of sending that product to Europe will be more expensive and longer due to the potential reintroduction of tariffs.These WTO tariffs range from 32 per cent on wine, to 4.1 per cent on liquefied natural gas, with items like cars (9.8 per cent) and wheat products (12.8 per cent). The UK would also need to strike deals with other countries to leviate these barriers. Needless to say that it will be a lengthy and costly operation. It is also worth to assume that as Damian Chalmers, professor of European Union law at the London School of Economics, says the bigger threat to the UK exports would not be necessarily from WTO tariffs, but other EU states imposing new regulations and other “non-tariff barriers” to keep UK services out.

My views on investment

Simple, not appealing anymore. London is the financial capital of Europe. It would lose its status and most businesses would most likely exit their investment centres. Although I will cover this in the job section, people losing their jobs will be huge.

My views on jobs

JOB LOSSES overall, with some opportunities in few sectors. This is linked to the immigration policy that would see thousands of European migrants exiting the country. Good news? Not so sure. Yes Brits would find more opportunities but businesses would have to train and pay a lot higher wages than now. Why? Simple. It is the demand and supply concept. You will have more jobs to fill than active workers. Therefore, each employer will have to raise the wages to attract and/or retain the best workers. This will lead to a price inflation and ultimately the consumer will pay that price. We know that in inflation cycles, people spend less and save more, which is not what you need in order to stimulate the economy. The other part is that although on paper you would have more jobs to fill, part of the demand will go away with the EU migrants, therefore businesses will close down creating more unemployment.

Virgin Money chief executive Jayne-Anne Gadhia says a Brexit could cause UK job losses and eventually cause mortgage rate increases. Speaking to the Telegraph, Gadhia says the UK voting to leave the EU would lead to a spiral of inflation, job losses and interest rate hikes that would cause mortgages, and other financial services, to become more expensive.

My views on the housing market

Not covered by many, but I foresee a lot of social issues when it comes to the housing market. House prices in England are stupid. Why? again it is the simple rule of demand and supply. If many EU migrants leave the country, it will mean more homes become empty and thus available but 2 main issues persist for me:

  1. People paid high prices for their house and mortgages and the value of their property will fall. In fact, the interest rates are likely to go up creating a real bottle neck and putting at a stand still the housing market.
  2. Construction will stop with hundred of jobs with it.

I feel that this is a bleak future afor mortgage owners at the moment. However, if like me you are renting, you should look out for bargains as people will have to sell on the cheap.

My views on immigration

This is the topic that most pro exit center their arguments against. My view is simple once again. Immigration is good for the economy, for the culture and the development of a nation. However, I will agree that the EU is too large and should have been restricted and better policed. Some eastern European members should be excluded and other bad pupils like Greece should have been kicked out. I really feel that it is a false debate. The UK has always had borders, unlike other member states, and therefore is able to restrict who comes in and out. If there was a Brexit, what would you do with all the legal immigrants? There is no plan that is my point. Do you think state members such as France would police immigration in the same way? You can bet that the refugees in Calais would soon be in Dover. In fact some measures have already been introduced. Non-EU migrants who have spent more than five years working in the country will be required to earn £35,000 per year or else face deportation

What about terrorism? Surely it is better to work all together than in silo.

So yes to regulation but no to suppression, the economical impact would be damaging.

Conclusion

I will conclude by saying that like any relationship you will have some good and bad times. I firmly believe that the relationship that the UK entertains with the EU offers better outcomes than negatives, and you should not divorce until you have been able to work through your issues (immigration being for Brexit voters the main one). It is quite telling that the Queen (monarch) and the conservative leader David Cameron of all people are in favour of staying. If Britain did exit, I am sure that in the short term, consequences would be little but in the long term would lose out big time. But it is worth remembering that in constitutional terms, the referendum is “advisory”, not “binding”, meaning the Government can choose how to respond, and I am pretty sure they would over rule the nation’s decision.

From my point of view. Stay in the EU, renegotiate few terms and see where it takes us. After all, an ideal world doesn’t exist.

Happy voting

Benoit Mercier

 

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