One of the big debates after Britain’s general election on May 7th is what is commonly referred as Brexit: the possibility of the United Kingdom withdrawing from the European Union. As David Cameron’s Conservative Party won a majority on the last elections, one of the promises made to voters is to hold a referendum in 2017 regarding the UK’s European membership.
As yesterday marked the 200th anniversary of the battle of Waterloo that saw the defeat of Napoleon against British troops, France’s main newspaper Le Monde published an editorial saying that Brexit could be Britain’s own Waterloo, having dramatic repercussions on the country. On the other side of the channel, the public opinion seems to be rather favourable to exiting the European Union.
There are several ways in which the country would be affected by leaving the EU. The global trade between the UK the EU countries amounts to 400 billion a year. Free trade treaties and favourable commercial laws make that possible, and by being out of the Union, Britain would stop benefiting from them. It is estimated that 5% of the GDP is generated by such trades. By being out of the Union, Britain would have, like Norway, to pay hefty taxes to remain part of a free trade agreement. As a reference, the 5 million Norwegians paid 1.7 billion last year for that benefit, and the UK has 65 million inhabitants.
EU migrants also bring more money in taxes paid to the country than they receive in benefits, to the tune of 20 billion a year.
500 banks enjoy the uniform banking around the EU, and some could not withstand not being part of it, while some 250 foreign banks are providing 160,000 jobs to UK workers.
The London School of Economics has calculated that Brexit could result in a 9.5% GDP loss, equivalent to that of the 2008-2009 economic crisis.
What Cameron expressed concerns about were the rules regarding the free circulation of people, as the UK has had a positive immigration balance (between people entering the country and exiting) north of 300,000 people, that put added pressure on public infrastructure, and the need to provide jobs or else benefits for EU migrants. Cameron is looking to reduce that number to the tenth of thousands, but can only do so if Brussels agrees to revise the conditions of the free circulation treaty. Britain would be looking at maintaining free trade with the rest of the Union. While the referendum has been originally announced for 2017, it is likely that it will take place in the fall of 2016, at the same time that Germany and France will be holding general elections.
This is a historical event, as only a few countries have defected from the union in the past. The most notorious being Norway, who completed the negotiation, but then held a referendum that ended up against the country entering the European Union. The UK, with its 65 million people, and strong with the world’s 6th largest economy, would definitely have an impact on how things would move forward with the rest of the members.
Below is an infographic from Hantex Markets that will tell you a little more about what is at stake.