By Robert Stevens
After months of debate, no real answer has emerged regarding whether Britain should stay in or leave the European Union, and much of the media’s coverage of a Brexit (or British exit) remains deeply speculative. Both the “In” and “Out” campaigns, in efforts to woo voters for the referendum on June 23, spout arguments propped up by “might,” “perhaps,” and “I guess that is a possibility.” With the polls split near enough 50-50 for the past few months, Britain’s future within the EU is unsure.
A British Exit
This uncertainty has been eagerly picked up by politicians, with the “Leave” campaign feeding off nationalist sentiment. They claim that Britain’s sovereignty will be secured, potentially undoing some 700 international treaties that reduce its political autonomy. Moreover, Britain will have far more control over its borders, quelling popular fears over immigration. On the other hand, the “Remain” campaign says very kind things about the EU, twisting numbers at its whim in order to persuade British electorate to vote to stay in the single market.
Most agree that, at least in the short term, a Brexit would cause significant economic damage. British secession from the single European market would be highly disruptive, and is predicted to decrease the gross domestic products of both the European Union and Britain. Britain’s economy is predicted to be the worst off as a result of a Brexit: A report by the Institute for Fiscal Studies pointed out that six of eight major studies on the impact of a British exit argue for a negative outcome, with the British Treasury predicting that GDP could fall as much as 9.5 percent by 2030. Moreover, some argue that the EU is likely to punish Britain for its decision to leave in an effort to stop further dissent by other member states. Tariffs against British trade would hit Britain hard: 47.2 percent of British exports (worth $210 billion) are to the EU, whereas only 6.5 percent ($357 billion) of EU exports’ destination is Britain.
A British exit has the capacity to dramatically shift the landscape of the global financial market. A report by TheCityUK and PwC titled “Leaving the EU: implications for the UK financial services sector,” argued that 100,000 jobs in Britain’s financial sector could be lost by 2020, removing $17.6 billion, or 12 percent of the U.K.’s GDP, from the British economy.
Yet Brexit’s significance is by no means limited to Britain itself. Too much of the Brexit coverage, argues the London School of Economics’ Tim Oliver, is focused on the future of Britain. Yet the United Kingdom, whether it remains in the EU or not, has a considerable effect on the rest of the European bloc, if not the world.
London’s position at the center of the European financial world, warned American firms JP Morgan and Goldman Sachs in a statement to the Parliamentary Commission on Banking Standards, may be threatened by a British Exit. Though the “Leave” campaign retorts that London will remain Europe’s prime financial hub, a Brexit would still cause a reshuffling of the European finance system. Citigroup has already stated that some of its 9,000 British-based staff would be “rebalanced” across other European financial hubs, such as Dublin or Frankfurt. What this means is that, at least in the short term, investment in the European financial market may be put on pause as the security of London is in doubt. It is unlikely to cause utter financial turmoil and few predict a complete financial meltdown as a result of a Brexit, but a British exit from the EU would cause unnecessary economic bumps in a market that still hasn’t fully recovered from the eurozone debt crisis that has been unraveling since late 2009.
Politically, a successful Brexit could cause a domino effect, triggering other secessionist movements. Movements for independence may be reignited in Spain, Northern Ireland, and Scotland. The increased nationalist sentiment that fueled much of the “Leave” campaign’s effort might tip the balance of many European nation-states hoping to regain a sense of sovereignty from the faceless overlords in Brussels. This is already prevalent in much of Europe: Marine Le Pen, the leader of French nationalist party National Front, is regularly winning in opinion polls in the lead-up to the 2017 election, and Austria’s far right-wing candidate, Norbert Hofer, only lost May’s national election by 0.6 percent. A British exit may inspire national self-determination and political autonomy, rejecting the virtues of solidarity pushed by the EU.
There are those who argue that a Brexit may bind the remaining nation-states within the EU together—either through fear of the penalties of leaving or because of a tighter and more cohesive market. But others worry that Britain’s leaving the EU may pose a risk to international security. Britain’s geopolitical influence will likely be muted once it leaves the EU, reducing its sway on trade tariffs and foreign policy decision-making. Others may see the crumbling of the European power bloc as symbolic of the fall of Western dominance. Though such claims sound rather dramatic—not to mention that the EU functions as more an economic coalition than a political one—the democratic West’s democratic cohesiveness may be under threat due to this kind of fragmentation.
Digging deeper into this claim, it becomes evident that the European continent may soon no longer have a cohesive policy for security and foreign affairs. The nations with serious military and nuclear capabilities are Britain and France, and the removal of British forces could create a chink in Europe’s armor. This would potentially increase the EU’s reliance on other international bodies when it comes to military initiatives, such as NATO or the U.N., removing the bloc’s autonomy.
The Brexit vote comes at a time when many important decisions need to be made. Elections in the U.S., France, and the U.N. will be affected by the cohesion of the EU. If the European Union fails to convince its members of its usefulness, then its integrity will be questioned and its global importance reduced.
A successful Brexit may, if we’re lucky, be a good thing. Yet if it goes wrong, then bad things will shortly follow. A Brexit has the potential to cause some pretty deep shockwaves on the global economic and political landscape. If much of finance relies on speculation of markets, then the anxiety of a Brexit itself is damaging. Yet the material effect of a Brexit, which we will find out in just a few days, really is unknown. It is unlikely to be cataclysmic, but a pothole in an already broken road doesn’t make the journey any smoother, either.
Despite all the warnings given by rich and powerful men around the globe, the speculation is not conclusive. It remains to be seen how much of the debate is empty rhetoric issued by scared businessmen worried about their fortunes, and how much has a basis in reality. Brexit is unlikely to ruin any economies, but it may, perhaps, cause substantial collateral damage in years to come.
Robert Stevens is an editorial assistant at World Policy Journal
[photo courtesy of Petr Kratochvil]