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What to expect from Brexit

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What to expect from Brexit 26.06.2016 10:54

The formal procedure of secession from the Union is mentioned in the Article 50 of the Lisbon Treaty/Lisbon version of the «Treaty on European Union» and involves application to the European Commission to withdraw from the European Union, in accordance with the constitutional rules of the applicant.

The question of Brexit advantages and disadvantages is most urgent today.

Reasons of Brexit

For EU the extensive integration issues-further enlargement of the Union or intensive-deepening internal integration appeared many years ago. Directly the UK exit from the European Union will be incentive to focus on internal integration policy of the Union.

From the beginning of EU membership since 1972 the UK along with France and Germany have been the largest financial donors of the integration grouping. Is the UK's membership in the EU appropriate from economic point of view that, including expenditures to the Union budget?

  • the UK contribution to the EU budget in 2015 amounted £ 11.2 billion, that is equivalent to 11% of the EU budget,
  • the amount of funds received by country from the EU in 2015 was £ 4.6 billion.

Migration crisis that stirred almost all the EU member-states had a negative impact on the economy of Britain. These events of recent years became the most important reasons for such a decision by the British on referendum.

The mechanism of exit out of the European Union

The procedure of termination of membership in the European Union first appeared in the Lisbon version of the «Treaty on European Union» of 2007. Opportunity, enshrined in the Article 50 of the Lisbon Treaty, envisages submission of withdrawal from the EU, according to the constitutional rules of the applicant.

The EU legislation involves next two years exit from the union, but the absence of such practices may lead to the prolongation of the term by the European Council. For example, a British consulting company Global Counsel expects that the period of uncertainty may last for over ten years. Such uncertainty, as known, has very negative impact on business and investment attraction.

Investment expectations

Absence of economic functioning sustainability and the emergence of potential risks provoke reduction of investments incomes. The devaluation of the pound and euro, capital outflow, according to experts, will cause subsidence of global markets, as European and British markets are closely linked.

Immediately after the referendum Moody's downgraded the credit rating of the United Kingdom and assigned a negative outlook on the level of increased risk zone «AA1». At the same time, the agency Standard&Poor's retained the highest credit rating of the United Kingdom. Absence of a unanimous forecast, even by international rating agencies, provokes unpredictable future development.

The negative impact of Brexit

In connection with Brexit, France and the Netherlands started talking about withdrawal from the European Union. Positive benefits for the donor countries, mostly political, are significantly lower in comparison with country-acceptors who get more economic benefits.

UK specializes in the areas of banking, financial services and insurance. The largest trade partners for exports are the United States, Germany, the Netherlands and France, and for imports are Germany, China, the United States, the Netherlands, France and Norway. Just regulation of foreign trade relationship with EU-countries is now the most important, because of the size of the export there depends directly proportional the number of employed in the manufacture of products/services. In the category of providing services the United Kingdom records profit in trade balance for many years. However, import from the EU compared to exports from the UK is much greater that causes the trade deficit. The expansion of trade relationship for the UK due to the possibility of signing new trade agreements with China, India and the USA, without reference to EU legislation, expands opportunities for exports.

The important step of exit for the United Kingdom from the EU should be conclusion of the agreement on its future relations with the EU-states and procedure of exit on the proposal of the European Commission. Just harmonization of trade relationships and revision of migration policy and the EU regional policy are the most topical today.

Advantages of Brexit

Brexit brings not only negative consequences, but also the new opportunities for the economy. Britain together with Switzerland and other countries may try the effectiveness of alternative models. For example maximally free trade within EFTA (European Free Trade Association), but the issues of labor market, migration or social benefits regulation remain within the competence of national governments.

Consequently, the EU passes a real test. Change of close economic ties between the United Kingdom and the EU partner-countries may not remain unnoticed. The International Monetary Fund experts argue that the UK exit from the EU is at risk of reducing economic prospects of other countries, such as Germany and forecast decline of GDP growth in Germany in 2016 and 2017 respectively.

The development along participating countries of the general and in future the single market was the main purpose for establishment the European Union. Brexit was the impetus to review key principles of the system that requires changes.

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