Consequences of Brexit

Shirvan (0:00)

In a historic nationwide referendum, nearly 52% of the British voters chose to leave the European Union. Both the UK and the EU are now entering uncharted territories. For the first time in history, the EU will lose a member. Evidently, this will trigger a chain of events for the European Bloc, as well as for the United Kingdom and far beyond. In this report, we will explain the outcome of the Brexit. My name is Shirvan, and welcome to CaspianReport. For more information on the channel, please visit our Patreon page.

The Brexit referendum will be followed by negotiations between London and Brussels. A new framework of relations between the UK and the EU will have to be worked out. Matters such as freedom of movement of people, goods and services will have to be settled. Furthermore, any agreement between the UK and the EU will have to be ratified by the EU member states, as well as the European and British parliaments. The whole process could take up to two years to complete. In the meantime, the UK will still remain a full member of the EU.

Once a final deal is reached, the UK will have to invoke Article 50 of the Lisbon Treaty. What's more is that the European Parliament could actually reject the British withdrawal agreement, and this would only postpone the British exit. For example, some countries such as Germany, Ireland, Belgium and the Netherlands would want to quickly settle the British exit to minimize any financial instability. However, France would want to make things more complicated to send a diplomatic message to other Eurosceptic parties both at home and abroad. Yet, the most immediate consequence of the Brexit referendum will be financial. As confidence in the pound will decrease, the value of the currency will fall. Following this, inflation will rise. Already, the pound has dropped 10% against the dollar. This is just a taste of what's to come. Fluctuating rates will hit stock exchanges throughout the world, especially in East and South Asia. The European Central Bank and the Bank of England will try to minimize the damage by providing liquidity to banks. As usual in these kind of situations, the Central Bank will try to cut interest rates, but this will hurt the pound even more. For now, the most likely outcome is that the UK falls into a recession. In fact, according to the British Treasury, the economy will contract by 3 to 6% in the two years the UK negotiates its exit terms.

It's not just the UK that will feel the fallout. The two years of uncertain terms will restrain places where the pound is a favored currency.

The central banks of India, Japan and China have already issued warnings of a financial fallout within those two years. Another immediate consequence of the British exit concerns the common market of the EU.

An estimated 45% of British exports goes to EU countries and 53% of its imports comes from the Bloc. Thus, it will be essential for the UK to reach a new free trade agreement with the European Union. However, free trade agreements are extremely complicated. For example, it took South Korea almost a decade to reach a free trade agreement with the European Union in 2009 That's the kind of lengthy procedures we're looking at. And without a trade agreement, exports and imports would be subject to tariffs as set by the World Trade Organization. For example, the price of a bottle of French wine would increase by about 30%.

That's bad for both the French wine maker as well as the British retailer and consumer. So if there are so many negative consequences of the Brexit, what exactly motivated millions of Britons to reject the EU?

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Shirvan (4:45)

Well, there are many underlying reasons ranging from weak EU monetary policies to the democratic deficiencies in Brussels. However, perhaps the most decisive factor was the refugee crisis and immigration policy. As immigration has skyrocketed in the UK, the freedom of movement of people was an important concern for voters. Nearly half of all immigrants entered the UK under the EU's freedom of movement law.

In the UK, immigration has come to stand for something more than just immigration itself. Many British citizens feel that they are no longer in charge of their own country. Accordingly, political parties that rejected the EU promised better immigration regulations and more prosperous economic prospects. Yet, these two issues are actually blended together. If you want to access the EU market, you have to accept the freedom of movement. You may reject this, but that also means the expulsion from the EU market. So, in its basic terms, the referendum was really a choice between decreasing immigration and increasing wealth. For now, London has sacrificed its prosperity for the sake of controlled immigration. However, the subsequent challenge will fall upon the next prime minister. He or she will have to disappoint the people who rejected the EU. Unlike the promises of a vibrant 21st century economy, Brexit will not achieve this. Quite the contrary, the next prime minister will face widespread resentment as he will have to explain the dire economic conditions. A less prosperous economy means fewer jobs and lower tax receipts, which will lead to more austerity. This content among the British public towards the national government will only grow in the coming years. But the UK is not the only one who will feel the consequences of their Brexit. The referendum will set off a chain reaction fueled by Euro-skeptic political parties across the European Union. For example, in France, one of the founding members of the EU, the approval rates of the EU have dropped to an all-time low, even lower than in Great Britain. In Greece, the population is still upset with the German-imposed austerity regulations, and the ongoing pension reforms are already creating a constrained situation.