Mahrukh A Mughal
AFTER the 2nd world war Winston Churchill advocated the idea of United States of Europe, however being an early supporter of pan-Europeanism he did not have Britain join the ESCS in 1951. He remarked, “We have our own dream and our own task. We are with Europe, but not of it. We are linked but not combined. We are interested and associated but not absorbed.” Now after a long association with the 28 EU member countries the people of Britain voted for a British exit from the EU in a historic referendum on June 23. Cameron called the referendum as a calculated gamble, aimed at silencing the Eurosceptics in his own party for a generation. Cameron said it would be best for his successor to negotiate the terms of Britain’s exit- and to trigger article 50 of the Lisbon treaty, which begins the formal process of withdrawal.
The world is still struggling to come out of the global financial crisis. Though the global economy isn’t in crisis at the moment, but growth is muted and uneven among countries. The IMF’s forecast for growth rate is 3.5 percent for this year. The Chinese economy is slowing, the US recovery has hit a slower patch, and major emerging economies like Brazil are in recession, and Europe and Japan are stagnating. Across Europe, trade and immigration may lose ground to nationalism and protectionism. The EU itself, minus market-oriented Britain, may turn to more government intervention and regulation. Other countries may eventually seek to leave the bloc.
The most direct pain will be felt by the UK, while the direct consequences for the world economy are likely to be more moderate. The bank of England could have to print money to finance government spending, Tax cuts or both, many big companies use the UK as the base for their European operations. London’s strength as a banking center is in part based on easy access to financial markets in Europe. Regulatory approval to do business in the British capital means an all-access to pass to other 27 EU countries, a process called pass porting. Global banks like JPMorgan chase have already said that they would have to move jobs from London to European mainland if Britain leaves the EU.
The impact on UK-EU trade would depend on how quick and amicable negotiations are on a new set of relations. Britain could wind up like Switzerland, which simply adopts EU requirements without having any say in how they are decided. Britain sends 48 percent of its exports to the EU; less than any other member country but still quite significant. The price for continued market access, however, could be allowing free movement of workers. A desire to control immigration was a major force behind the “leave” campaign, so it’s unclear if such an agreement could ever be reached. Currently, UK companies are able to trade with the EU on a Tariff free and quota free basis, however, who will stop Brussels seeking to impose a 5% Tariff on UK car exports. There are also the risk that the EU will impose quotas, which limit the amount of goods and services that can be sold into Europe. The UK will be required to negotiate a single deal with 27 remaining EU states under EU’s common commercial policy. It will definitely not be on country-by-country basis; however, the EU maintains a single harmonized customs border and UK will simply negotiate with EU on the continued terms of trade.
And if UK becomes able to be like Norway and join the European free Trade Association (EFTA) or the European Economic area (EEA), it might still be able to get access to the single market, but in those circumstances it would still follow all of relevant EU rules on free movement of people, and the UK would have no formal influence over the legislative process-MEP’s no commissioner, no seats on council. It may also follow Switzerland on a case-by-case basis.
Currently, the bitter reality of “Leave” is that the one day after the vote, Markets plunged sharply around the world, suggesting serious economic risks were on the horizon. However, many experts have differing views on just what BREXIT would mean and exactly how dire it could get. Some say that there will be an immediate slowdown of growth; however it will be covered if the confusion and uncertainty is dispelled by the UK towards its future policies. It’s true that the pound has fallen by a lot compared with normal daily fluctuations, but Britain is a nation that borrows in its own currency, not subject to a classic balance-sheet crisis due to currency devaluation- that is, it’s not like Argentina, where the fall in Peso wreaked havoc with firms and consumers who had borrowed in dollars.
Economist, Larry summers say that the effects on the rest of the world depend heavily on psychology. The governor of bank of England, Mark Carney has stated that there will inevitably be a period of uncertainty but there will be no immediate change to our relationship with the EU. And he also said that the BOE would make £250bn of additional funds available through its normal market operations to stabilise markets, as needed. BREXIT will rightly be taken as a signal that the political support for global integration is at best waning and at worst collapsing. Global trade has lagged global growth in recent years.
Single market benefits have gone and there are certain issues for Britain to be dealt with EU, reaction in Scotland and other areas after referendum, immigration issues and searching of new markets? So far as the defense & foreign policy of UK after Brexit is concerned who can deny that Britain is a nuclear power and has the world’s fifth largest economy, may not need the EU to be a relevant player on the international stage. Britain has close relations with the US and the US has been a long-standing supporter of European integration and Britain’s part in it and has concern over the security of Europe, however it may not have damages with the US relationship. On the other hand some renowned security experts believe that even today EU membership still means a lot to Britain’s national security.
— The writer is political analyst based in Lahore.