What are the Consequences of Brexit?

Question

What are the negative effects of Brexit?

Answer

The term Brexit is used to describe the scenario of the UK’s exit from the European Union. It is an expression created in the 21st century and comes from the contraction of two English words, “British” (British) and “Exit” (exit). This subject was and is still debated in the United Kingdom. June 23^rd 2016: date of the referendum. The question asked to the population during this vote was:

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

The result to this question was a small majority (about 52%) YES to the Brexit. The break-up will take place in at least two years from 29 March 2017, when Article 50 of the Treaty of Lisbon was triggered by the Prime Minister of the United Kingdom. This two-year period will be devoted to the negotiations necessary to organize this exit from the United Kingdom of the EU.

Unaware of the threats of economic disaster wrought by international institutions, the British decided to leave the European Union, thus opening up an era of unprecedented uncertainty. The country should is already overtaken by the concrete consequences of its choice.

Finance

In the immediate future, it is a mini-financial storm that should blow. Seeing the fifth world economic power leaving the European ship will indeed have a global impact. The markets have rushed: gold. The price of the gold increased at the time of the results of the referendum to its highest level in two years. And this is probably only the beginning.

Trading partners

The United Kingdom will lose the benefits of trade agreements between the EU and its partners around the world. Between the exit conditions of the EU, the negotiation of new agreements with it and the conclusion of trade agreements with countries outside the EU, the UK government warned that a good ten years might be necessary to carry out the various negotiations opened by a Brexit. In short, the change is recorded, but it will be long.

Poorer British

Experts from the British Treasury have studied several possible ways of negotiating again treaties. In their scenario in which the United Kingdom would negotiate a free trade agreement with the EU, every British household would lose about 4,300£ per year. From now to 2030, the GDP would be lower by 6% than it would have been in the case of the continuation of the European adventure.

Barriers

The Brexit opened a long period of uncertainty, with consequences for British companies, trade and investment attraction. Trade barriers could be raised during this transition period, with 5.6 billion £ per year of additional tariffs to be paid for British exporters, according to the WTO. Not sure that manufacturing sectors like aerospace, with Airbus and BMW among others, appreciate these new tariff barriers. They could pack their bags.

Less attractive to investors

Many companies use the UK as a gateway to Europe. However, some of them have warned that they will relocate their European headquarters in case of Brexit. The US bank JPMorgan, which employs 16,000 people in the UK, warned that it could move 1,000 to 4,000 jobs out of the country as a result of the Brexit’s victory in the referendum. Other banks could follow. In general, there is a good chance of a decline in Chinese and American investment.

Unemployment

In its “limited scenario”, the IMF, anticipates an unemployment rate of 5.3% in 2017, against 5% today and 6.5% within two years. According to Pwc, the Brexit would cost around € 129 billion in lost business, which would translate into 950,000 fewer jobs by 2020 and an increase in unemployment between 2 and 3%. The financial sector would be among the most affected. If the City of London banks lose the right to sell their financial services from the UK to the EU.

Tax shortfall

This breakdown is expected to drain tax revenues. The Institute for Financial Studies (IFS) forecasts an annual shortfall of between 20 and 40 billion £ by 2020. The UK lose its valuable AAA rating that Standard & Poor’s has consistently attributed to it for half a century.

Visa from EU to UK

It all depends on the negotiated modalities between the UK and the EU member states. And it is therefore not excluded that a visa to travel in the country will be necessary as the United Kingdom is not part of Schengen.

The integrity of the UK

The results of the referendum on the Brexit show a divided country, with London, Scotland and Northern Ireland wanting to stay, while the north of England or Wales have largely voted against. Results that could jeopardize the integrity of the United Kingdom. Scotland’s Prime Minister Nicola Sturgeon said his region “sees its future within the EU”, thus opening the door to a new referendum on independence. In Northern Ireland, Sinn Fein, in favor of retention in the EU, called for a referendum on unified Ireland.

Losses for French companies

If subsequent free trade agreements are not concluded with the EU, France will be among the six countries most affected by the Brexit according to the firm Euler Hermes. French companies could save up to 3.2 billion euros of additional export losses by 2019, in the worst case.