- AN OVERVIEW OF THE CURRENT POSITION AND DEBATES ON BREXIT
The word “Brexit” is an acronym for “Britain” and “exit.” It refers to UK’s secession plan from the European Union (EU).
Prior to 1992, when EU launched a single market—which remains its greatest achievement and main objective—most EU countries were signatories to a free trade zone (an economic system which allows trade without tariffs, quotas or taxes). Britain became an EU member in 1973 (Gifford., 2014). A single currency “the Euro” was therefore introduced to create jobs, boost trade and control market price for uniform economic development in eurozone. But despite the huge benefits which include free movement of people, money and goods within Europe, critics are disgruntled for lack of an effective centrally-controlled structure that could have provided a “fair playing ground” (Foster., 2003) According to Baier et al (2008), EU regulations were subservient to national laws and thus neglected. Taylor (2017) noted that economic imbalance among EU countries triggered mass migration to stronger economies like Germany, France and Britain as evident in the Greek crisis—a recent example of how financial globalization and mismanagement of public funds can empower or destroy economic/financial systems beyond national boundaries.
Having counted the benefits and risks associated with EU membership, Britain is negotiating its exit from eurozone’s single market. However, Brexit remains a dream until the transition period which ends on 29 March, 2019, mainly because Britons are divided in opinions. Negotiations on the withdrawal agreement between Britain and EU members have been going on since 2016 (Paul & Mitchell., 2017).
On 8 January, the Conservatives won UK’s parliamentary debate on Brexit by 303 to 296 votes to Prime Minister Theresa May’s disappointment. Her Plan B (a compromise between “Soft Brexit” and “Hard Brexit”) is undergoing assessment in the Parliament (Wilkinson., 2017).
May’s deal explains details of: EU Withdrawal Agreement which sets 29 March as the exit date, with information on what the financial cost of Brexit estimated at £39 billion—as well as the position of EU and UK citizens residing on both sides; and a supplementary Political Declaration which explains the expected future relationship (trade, security and defence) between both EU and UK by 2020. Remarkably, the 432 to 202 votes on 15 January, 2019, was a humiliating defeat for May’s government, a reason many MPs have questioned her leadership influence and relevance in the Parliament (Rayner et al., 2019).
Figure 1: Brexit Referendum Results
Source: UK Government
Results from the referendum held in June 2016 show that 51.9% of eligible voters support leaving the EU whereas 48.1% wants to stay. 30 million people (approximately 71.8% of the total population) participated. Except Greenland, no nation-state has left the EU. In 1992, the overseas territory formerly owned by Denmark voted after a period of negotiation and eventually seceded. Interestingly, Brexit plan has been tumultuous because the Parliament is yet to meet a legal requirement (majority vote) to exit the EU as stipulated in Article 50, which was adopted in the Treaty of Lisbon as a formal process for any country that wishes to leave the economic bloc. No such law existed before 2009, when Article 50 was enacted into law (Patrick., 2016).
The outcome of referendum votes in England, Wales, Scotland and Northern Ireland is (53.4 to 46.6%), (52.5% to 47.5%), (62% to 38%) and (55.8% to 44.2%).
Figure 2: UK Referendum on Brexit
Source: UK Government
As shown in Figure 2, the problem with May’s government is that voters—citizens and politicians—have different aspirations and the type of Brexit they want. However, she believes a compromise can be reached but Britons are dissatisfied with some parts of the proposed concessions, especially the Irish border backstop (McKenzie., 2019).
- OBSTACLES FACING UK’S BREXIT PLAN
The UK government is in quagmire ahead of the 29 March (11pm UK time) deadline. Britons are scared of inadequate food and medicine supplies and businesses will certainly feel the impact. But until the 2-year conflict-resolution period ends—as allowed on Article 50—Mrs. May’s government can halt the Brexit process and keep its EU membership as advised by opposition parties. This concentration on time as the key factor is confusing because the UK is set to leave with or without a deal with the EU (Mueller., 2019).
The major obstacles to actualizing Brexit are:
Labour Party: The EU will certainly oblige any time-extension request if this favour can enhance their chance of retaining the UK—through a referendum to be conducted few months after the deadline. This is somewhat unrealistic because Labour (UK’s main opposition party), instead, wants a general election which it is sure to win and, with popular mandate, assume powers to influence decisions on “their own version of Brexit” in Brussels. If approved, the general election will extend beyond 29 March and a referendum may be postponed until 2022.
MPs: In a situation where Parliament gains permission to hold a general election as suggested by Labour, this won’t guarantee another referendum without majority votes from MPs. The problem is: many MPs are kicking against holding another referendum. Only Labour MPs as well a small number of Conservatives and minority in the House of Commons are pushing for Plan-B-Brexit, a dream they cannot achieve alone.
Parliament: Unless Theresa May’s Brexit deal is approved by the fractured UK Parliament, it cannot be effective on 29 March, 2019. The PM wanted a vote in this regard on 11 December but feared the negative impact of a loss. On 15 January, 2019, she eventually put it to the vote after gaining support from MPs. Unfortunately, she suffered a historical defeat, having lost by 230 votes. Her Parliamentary loss was the worst for any incumbent government in UK’s political history. So far, she has twice survived “contempt of parliament” thanks to all 118 MPs from the Conservative party who showed loyalty and support in a time-saving act of kindness (Penny et al., 2018)
Figure 3: Brexit Results by Location
Source: UK Government
The PM’s efforts to strengthen negotiations with EU leaders is weakening due to her party’s loss of seats in the lower House (Commons). The former home secretary’s “powerless” situation on Brexit has worsened since some members of her conflict-ridden party jumped ship to remain in the EU (Gibney & Else., 2018).
Northern Ireland Backstop: The Irish border is crucial in Brexit negotiations because it separates Northern Ireland (a part of UK) and Ireland, another EU member state. Both Mrs. May and Leo Varadkar (the Irish PM) want an open border in the post-Brexit era, but Parliament is disjointed because Plan-B-Brexit aims at treating Northern Ireland differently than the rest of the UK, and if this happens, Nic (2018) explains that EU rules and regulations will supersede on trade relations between both sides, particularly on food products, until a permanent “hard border” agreement is reached (Tarran., 2016).
- THE IMPACT OF BREXIT
“No Brexit” and “no-deal Brexit” supporters agree that the Plan-B-deal represents a sensible compromise because it provides a balance between risks and an avoidable chaos. On this premise, Jeremy Corbyn (the Labour leader) is indecisive on another public voting or a new, soft Brexit that will unlock doors to global partners (Mueller., 2019). Some of the identified effects of Brexit are:
- Trade: More than 50% of EU’s international business is in the UK, and this reduces price of goods/services. After Brexit, Britain will most likely cause inflation and a decline in GDP.
- Loss of Income: All countries in Eurozone, including Britain, will experience decline in national income. However, on the average, Brexit impact on overall GDP will be higher in the UK (between £26bn – £55 billion) and £12 – £26bn for EU members. Non-EU with benefit most.
- High Cost of “Divorce”: Brexit entails mandatory payment of £39bn as settlement for outstanding bills that cover pension payments to EU executives as well as the expenses for relocating EU offices and its London-based investments. Though the total payable amount depends on the prevailing exchange rate, a no-deal Brexit means paying less or nothing—and lawsuit from the EU, which last for years. This will certainly tarnish UK’s international reputation.
- Legal: Britons believe their development pace was slowed by EU rules on businesses, particularly because the UK pays billions of British Pounds Sterling as membership fees every year. Brexit thus provides a chance for Britain to promulgate its own laws on trade, defence etc.
- Closed Border: An effectively-monitored border in Northern Ireland will safeguard jobs and improve indigenous businesses (Eichengreen., 2019). In 2016 and 2017, the UK economy grew by 1.8%, and 1.1% in 2018—second only to Germany among all G7 countries. The only fear is that products manufactured by UK companies for EU markets may be incur high tariffs and less profits. Nonetheless, a closed border won’t be a problem since the World Trade Organization (WTO) has laid down rules for trade between countries that have no trade deals (Johnson & Ian., 2017).
- Education: As a global centre for academic excellence, the UK will certainly consolidate its place as the pride of Europe with huge earnings from the education sector. The country has well-developed infrastructure, communication networks, and one of the world’s highest investments in innovation, technology, research and development (R&D) etc (Gibney & Else., 2018). However, the UK will lose out on future EU trade agreements with other countries like the USA and Japan which increase real income by more than 0.5% (Portes., 2016).
- Immigration: Theresa May agreed to reduce the total number of people entering/exiting the UK to at least 100,000 per year. Her opinion was considered “unreasonable” by Home Secretary Sajid Javid, who preferred to use the words “sustainable levels”. Free movement of people in the UK will end by December 2020, when all EU members will need visas on entry points. Though skilled workers will get preferential treatment, treating EU citizens the same way as non-EU migrants is considered an aberration (Forte & Portes., 2017). In June 2018, the UK Office for National Statistics confirmed that in a 12-month period, the total number of non-EU citizens residing in the UK increased to 248,000 whereas, by contrast, number of persons from elsewhere living in Eurozone rose by only 74,000. The data indicates there’s already an impact before Brexit (Wright., 2018).
- Supplies: If the UK exits without a deal with the EU, all ties would be broken immediately with no guarantee for citizens’ residential permits. Additionally, business activities will be disrupted with piles of lorries waiting to be cleared at seaports and land borders. Although the NHS said it is hoarding drugs, food retailers have warned of an “avoidable imbalance” in demand and supply of fresh produce (Philipson., 2018).
- Re-joining the EU: It will be nearly impossible for the UK to re-join the EU after Brexit because doing so would mean starting from the scratch—without rebate. The 27 EU members must give consent before accession talks begin and, after this prolonged, costly Brexit process, it would be understandable if no Eurozone member shows generosity (Forte & Portes., 2017).
- Interest rates: After the 2017 referendum, Bank of England cited an increase in inflation and raised interest rates from 0.25 to 0.5%, a record-high difference since 2007. In 2018, interest rates skyrocketed to 0.75, making it difficult for borrowers to pay off loans/mortgage. Good news is: savers are benefitting from their savings—a sign of UK economy’s buoyancy even in post-Brexit era (Armour., 2017).
- CONCLUSION AND RECOMMENDATIONS
Depending on policies adopted by the UK in post-Brexit era, the economic consequences can be minimal or very high. Nonetheless, low trade volumes resulting from severed business relationships with EU countries will certainly cost more than the gains, but a successful Brexit will—without doubts—send a shockwave across Europe (Sampson., 2017). The researcher therefore suggests:
- Consultations between EU and UK leaders for legislations/agreements that will facilitate “soft Brexit” and specifically institutionalize a permanent customs union as well as enable permanent trading, including movement of people, cash and goods (Hannah & Jill., 2017).
- Consolidation of Theresa May’s power in the parliament. The PM can avoid votes of no confidence by aligning with MPs on “widely accepted” governmental decisions (Rayner et al., 2019).
- Nationalization of industries as suggested by Jeremy Corbyn to instil competitiveness on the global stage—with no obstruction from EU trade rules (Ram., 2017).
- Use of EU laws in post-Brexit UK to avoid legislative “black holes” until the seceding government is able to conduct legal reviews.
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