What consequences a brexit would have

The EU has agreed on a reform package with the British. This has made a Brexit less likely, but it still depends on the British referendum. What are the consequences of leaving the EU? https://westwallboats.com answers important questions.

After tough negotiations, the heads of state and government agreed on a reform package with Great Britain. According to the compromise paper available to Reuters, the "emergency brake" called for by the British government, with which EU foreigners can be excluded from social benefits, should apply for a maximum of seven years.

The British Prime Minister David Cameron now wants to speak out in favor of his country’s further EU membership. He assumes that the agreement that has now been reached is sufficient to recommend the British to remain in the EU, he said at the EU summit in Brussels.

A possible exit by Great Britain from the EU has long been an issue on the island – not just since the electoral successes of the eurosceptic UKIP, which the Conservatives around Prime Minister David Cameron are driving with their demands for an EU exit.

Cameron reacted to the growing pressure – also from within his own ranks – when, long before the general election in 2015, he promised to hold a referendum on remaining in the EU if the Tories won the election. His goal: to reform the EU according to British ideas and then achieve a yes to the EU in the referendum.

More than half of all British exports go to the EU countries, which corresponds to a share of 15 percent of the British gross domestic product. More than 50 percent of the goods that Great Britain imports come from the EU: figures that clearly show how closely Great Britain is economically linked to the continent.

A Brexit would have massive consequences for Great Britain, since with the exit the four basic freedoms of the European single market (free movement of goods, services, capital and people) would no longer apply to the country. The government in London would have to negotiate new contracts with the EU in order to secure at least some of the advantages of the internal market.

This is why economists point out that all analyzes of the consequences of Brexit can only be based on assumptions. Because it is still completely unclear how the EU and Great Britain would regulate their economic relations if they left.

Three scenarios – from "gentle" to "hard"

A Study by the Ifo Institute on behalf of the Bertelsmann Foundation from 2015 assumes three scenarios:

  • With the "soft exit", Great Britain is given a status similar to Switzerland and Norway, which have trade agreements with the EU. From the British point of view, the advantage would be that there would be no tariffs. However, there would be the problem of so-called non-tariff trade barriers. These are, for example, regulations for the labeling of products or environmental standards. If these rules are no longer uniform – precisely because different rules apply again as a result of a Brexit on both sides of the English Channel – additional costs will arise for companies.
  • In the second scenario, there is no special trade agreement like with Norway and Switzerland. As a result, both British and EU entrepreneurs would have to pay customs duties again, and their goods would become more expensive.
  • In the worst case, Great Britain loses all privileges – including those that result from the 38 existing trade agreements between the EU and other countries.

Disadvantages – not just for exports

The study comes to the conclusion that the British would have to expect significant disadvantages even in the best case, ie the "gentle exit". It would "increase the cost of British exports and make imported products more expensive". Expressed in numbers, the gross domestic product losses for the UK economy in 2030 would be between 0.6 and 3 percent according to this study.

The British Think Tank Open Europe, often rather Eurosceptic, in 2015 also dealt with the economic consequences of a Brexit. Conclusion: Only if Great Britain could conclude good trade agreements with the EU states and at the same time initiate far-reaching reforms at home would a roughly 1.6 percent higher gross domestic product be possible in 2030.

It is more realistic, however, that the economic development in a Brexit would be somewhere between a plus of 0.6 percent and a minus of 0.8 percent.

Missing payments to Brussels are irrelevant

Both the Bertelsmann study and a survey of the Center for Economic Performance, that Great Britain would no longer have to pay into the EU budget in the event of a Brexit. In 2013 London’s net amount to the EU was around EUR 8.64 billion or around 0.5 percent of UK GDP.

But even the discontinuation of payments to the EU does not change the negative consequences, explains Thieb Petersen from the Bertelsmann Foundation in an interview with "One way or another, Brexit will damage the British economy."

Trembling in the city

He cites the London financial center as an example. With a value-added share of eight percent in the overall economy, the financial sector is of great importance. All well-known US banks – be it Goldman Sachs, JPMorgan, Morgan Stanley or Bank of America – have their European headquarters in London. Still. "Quite a number of financial institutions want to get out of London if Brexit actually happens," says Petersen. The reason: London would be cut off from the EU and the rules there, so the banks would prefer to control most of their activities from continental Europe in the future.

A recent survey of British and German entrepreneurs comes to the result that 33 percent of all financial service providers surveyed are reducing their involvement in the United Kingdom – or want to migrate entirely in the event of a Brexit. "The Frankfurt financial center could be one of the winners," adds Petersen. British newspapers estimate that up to 100,000 jobs could be lost in the City of London alone.

Suffering farmers

Brexit would also have far-reaching consequences for British farmers. Up to 50 percent of their income currently comes from EU subsidies. A study by the London think tank Agra Europe considers it unlikely that the British government would take over the part of the subsidies that the EU should shoulder in the Brexit case. The result: "Only the super-efficient, the top ten percent, could survive without them (the EU subsidies, editor’s note)."

With a Brexit, the EU would lose 13 percent of its population and 17 percent of its economic power in one fell swoop. The EU fears losing international weight without the UK. "A UK exit would be a severe blow to the EU in terms of foreign and economic policy," says the Brussels ARD correspondent Christian Feld. It would be more difficult for the EU to negotiate on an equal footing with the USA, Russia or China, for example. The cohesion of Europe would be further weakened at a time when there is a lack of solidarity and Member States fail to implement joint decisions.

In addition to the political consequences of a Brexit, the EU will also have to cope with the fact that the UK, the second largest economy in the EU, will be eliminated – and with it one of the major net contributors. Although experts see the disadvantages on the part of the British, the Europeans must also expect setbacks. On the one hand, this is due to the fact that – always assuming a weak British economy – the British demand for goods and services from the EU is falling.

On the other hand, EU companies would have to accept higher costs if they want to continue selling their products on the island. As with the consequences for British exporters described above, this is due to the fact that companies would have to include possible tariffs or other standards on the British market in their calculations. 

According to the Bertelsmann study, the effects of a Brexit – in relation to the entire EU in 2030 – would be comparatively small: GDP would decrease by 0.1 percent to just under 0.4 percent. However, there are considerable regional differences (see graphic), Ireland, for example, would have to fear a decline in economic power of up to 2.7 percent.

With an expected minus of 0.1 to 0.3 percent, Germany would hardly be affected. However, individual sectors – such as the automotive industry – would be more affected. The managing director of the British Chamber of Commerce in Germany, Andreas Meyer-Schwickerath, therefore recently warned in a conversation with the dpa news agency that Brexit would hit the German automotive industry "first and foremost".

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