Brexit and the Economy. Why Britain will remain a Global Player


Elaboration, 2017
11 Pages, Grade: 1,9

Excerpt

Table of Contents

1. Introduction

2. Nobel-Prize winning economists against Brexit

3. Financial Heart of Europe

4. Sir Dyson – We have to walk away

5. Dependence on the final deal

6. A leap in the dark

7. Works Cited

“It will be a formidable challenge for Britain’s next prime minister to make an economic, diplomatic and political success out of Brexit. Or, to set the bar at a more realistic level, to contain the damage.” 1

Andrew Rawnsley

1. Introduction

On 23. June 2016 the UK voted to leave the European Union. It is scheduled to depart at 11pm UK time on Friday 29 March, 2019. The UK and especially Prime Minister Theresa May and David Davis, Secretary of State for Exiting the European Union, and EU negotiators have “provisionally agreed on the three "divorce" issues of how much the UK owes the EU, what happens to the Northern Ireland border and what happens to UK citizens living elsewhere in the EU and EU citizens living in the UK.”2 Several issues like possible new trade agreements have not been finally negotiated yet. Nevertheless, this paper aims to show the economic consequences of Brexit and why Britain will still remain a powerful nation for the next decades. The main part is based on the opinions of powerful economic leaders or experts.

When talking about economic issues and possible developments you should keep in mind that there is no one who can accurately predict all details of its economic impact. Considering all relevant factors is nearly impossible. There are four reasons for that:

1. There are several impacts on many areas of the economy, like currency fluctuations or inflation, which are hard to predict.
2. The outcome is dependent on the conditions of the final deal which has not been finally negotiated yet.
3. There is no precedent. Nothing like a Brexit happened before.
4. The economy is always unpredictable.

Even David Davis, as the Secretary of State for Exiting the European Union, admits that he cannot quantify the economic impact of Brexit.3 This unpredictability makes Brexit one of the most discussed topics with a wide range of different opinions.

2. Nobel-Prize winning economists against Brexit

Although the future is uncertain most of the articles and reports published in Germany concerning Brexit are rather negative. One of the reasons for that is that a lot of famous people from the economic sector expressed their concerns about Brexit. One day after the Referendum in 2016 one of the leading economists and Nobel prize-winning Professor at Princeton University and London School of Economics, Paul Krugmann, wrote an article for the New York Times in which he blames politicians like Nigel Farage or Boris Johnson for ruining the country. Furthermore, he denounced the yellow press for the upcoming economic damage which will be caused by the Brexit: “Well, that was pretty awesome – and I mean that in the worst way. A number of people deserve vast condemnation.”4 According to Krugman leaving the EU is likely to harm the UK’s economy. Only “a small group known as Economists for Free Trade (EFT), who have received extensive coverage from the BBC and the pro-Brexit media, argue that it could boost UK GDP by as much as 4 per cent.” One of the most prominent claims of these pro Brexit economists like David Davis is that leaving the EU could enable the government to easily conclude huge export deals with non-European countries. However, Krugman and his colleagues reject these arguments and point at studies “showing how EU membership has significantly enhanced UK trade since the country entered the bloc in 1973.”5

Krugman is not the only famous economist who is an opponent of the Brexit. In a last-ditch attempt another ten Nobel prize-winning Professors wrote a letter to the Guardian in which they “warn of long-term damage after Brexit.” In addition to that LSE’s professor Christopher Pissarides added that it is alarming that the pro Brexit campaingers seem to try to “dismiss economists as irrelevant”6.

3. Financial Heart of Europe.

There is no doubt that London and its financial institutions are the economic driving force in the UK. One of the most important questions when talking about the Brexit and its economic impact is whether Brexit will seriously cause damage to the UK’s financial sector. It is undoubted that London has the most competitive infrastructure in Europe. It would take decades to rebuild that infrastructure in another city. Therefore, it is unlikely that all financial institutions will leave. Even if there is “hard Brexit”, meaning no final deal between the UK and the EU, the big financial institutions will be prepared to manage their day-to-day business with branches in Germany, France or other EU member states. To prepare for a “no-deal” scenario, Goldman Sachs is expanding their existing EU hubs in Frankfurt and Paris. Furthermore, Deutsche Bank and JP Morgan expect to move hundreds of jobs to the continent after Brexit.7 Although a hard Brexit could possibly lead to a deregulation of the financial market in the UK, the finance sector will partly suffer from not being the gate to Europe anymore. Nevertheless, London is not only the financial heart of Europe but (together with New York) the financial capital of the world, which means that it is not completely dependent on the EU.8 This deregulation of the market could possibly lead to a more profitable and faster economic relationship with Asian markets.

Although a huge economic loss in London’s financial industry is not to be expected, many of the bankers are pessimistic about the future after Brexit. According to a survey of the Bertelsmann Stiftung, most of the people who are working in the financial sector are afraid of possible staff reductions caused by losses of profits. To limit a possible loss Andreas Dombret, board member of Deutsche Bank, suggests introducing a free trade agreement for banking services to obstruct a “competition of deregulation” in the world’s financial markets. Furthermore, he warns the financial firms operating from Britain that “potentially need a new or modified EU license. The transition phase is not a safety net,”9

4. Sir Dyson – We have to walk away

Sir Dyson is probably one of the most prominent figures in the Brexit campaign and a supporter of leaving the European Union. In an interview with Andrew Marr he explained he “would walk away!”: because “they will come back to us. We are in an incredibly strong position.”10 Moreover, he claims that the UK should leave the single market. Even if the EU would impose import duties it would not be a big issue for the British economy. Currency fluctuations would be far greater than the costs for the duties. In addition to that he states that imposing import duties would be, in any case, suicidal for the EU and he strongly believes that they want a free trade agreement with the United Kingdom. 11

According to Dyson, the EU economy has, for example, ignored the technological developments over the last decades. “We have to refocus ourselves as Singapor did 50 years ago when it split from Malaysia.”12 Singapore is now the 2nd largest technology exporting country in the world. Oxford University politics professor Jan Zielonka supports Dysons point of view that it is not Britain which has lost the EU: “Britain has been lost. One of the most important members of the European Union in economic and security terms.”13 Furthermore, he wants Brussels to ask itself how it lost the most important member of the EU with Brexit.14

5. Dependence on the final deal

The most important question when it comes the Brexit in terms of economic consequences is whether the UK will stay in the single market. In contrast to Sir Dyson the Institute of Fiscal Studies claims that "any country in the WTO - from Afghanistan to Zimbabwe - has 'access' to the EU as an export destination. "Single market 'membership', by contrast, involves elimination of barriers to trade in a way that no existing trade deal, customs union or free trade area achieves."15 The IFS expects the national income to increase by 4% when staying in the Single Market and therefore wants the government, and especially David Davis to do everything to remain as a part of it. Moreover, the institute claims that Britain could be up to £70billion worse off if it leaves the single market.16 In addition to that a study by economists at the London School of Economics has estimated “the damage could be as great as 9.5 per cent of GDP if the UK leaves the EU without a free trade deal.”17

[...]


1 Rawnsley, Andrew. „Brexit: a journey into the unknown for a country never before so divided”. The Guardian. Guardian News & Media Ltd, 26 June 2016. Web. 25 February 2018.

2 Hunt, Alex / Wheeler, Brian. „Brexit: All you need to know about the UK leaving the EU”. BBC NEWS. British Broadcasting Corporation, 22 February 2018. Web. Accessed 22 February 2018

3 Cf. Bienkov, Adam. “David Davis admits he has not calculated the huge costs of a no-deal Brexit”. Businnes Insider. Axel Springer SE, 15 March 2017. Web. 25 February 2018.

4 Krugman, Paul. “Brexit – The Morning after.” The New York Times. The New York Times Company, 24 June 2016. Web. 26 February 2018.

5 Chu, Ben. „Brexit: 'Zero chance' leaving EU will make Britons better off, Nobel laureate economist Paul Krugman says”. Independent. Independent News & Media, 15 September 2017. Web. 26 February 2018.

6 Threanor, Jill / Asthana, Anushka. „Nobel prize-winning economists warn of long-term damage after Brexit”. The Guardian. Guardian News & Media Ltd, 19 June 2017. Web. 26 February 2018.

7 Aarons, Steven / Foerster, Jan-Henrik. „Deutsche Bank Expects to Move 4,000 Jobs to EU After Brexit“. Bloomberg. Bloomberg L.P., 1 August 2017. Web. 26 February 2018.

8 Pooler, Michael. „New York and London vie for crown of world’s top financial centre”. Financial Times. The Nikkei, 1 October 2014. Web. 26 February 2018.

9 Jones, Huw. „Bundesbank's Dombret tells banks a Brexit EU access deal unlikely”. Reuters. Reuters, 8 Febuary 2018. Web. 27 February 2018.

10 Marr, Andrew. “Sir James Dyson speaks to Andrew Marr about Brexit”. Youtube. Online Video. Youtube, 12 November 2017. Web. 26 February 2018.

11 Cf. Ibid.

12 Ibid.

13 Scotto di Santolo, Alessandra. „Brexit is a counter-REVOLUTION' Professor warns EU must wake up to loss of UK”. Express. Northern and Shell Media, 15 February 2018. Web. 27 February 2018.

14 Cf. Ibid

15 Swinford, Steven. “Britain could be up to £70billion worse off if it leaves the Single Market after Brexit, IFS warns.” The Telegraph. Telegraph Media Group, 10 August 2016. Web. 26 February 2018.

16 Cf. Ibid

17 Chu, Ben. „Brexit: 'Zero chance' leaving EU will make Britons better off, Nobel laureate economist Paul Krugman says”. Independent. Independent News & Media, 15 September 2017. Web. 26 February 2018.

Excerpt out of 11 pages

Details

Title
Brexit and the Economy. Why Britain will remain a Global Player
College
University of Osnabrück  (IfAA)
Course
Brexit
Grade
1,9
Author
Year
2017
Pages
11
Catalog Number
V424246
ISBN (eBook)
9783668697706
ISBN (Book)
9783668697713
File size
634 KB
Language
English
Series
Aus der Reihe: e-fellows.net stipendiaten-wissen
Tags
Brexit, Economy, Britain, Global Player
Quote paper
Sebastian Lammers (Author), 2017, Brexit and the Economy. Why Britain will remain a Global Player, Munich, GRIN Verlag, https://www.grin.com/document/424246

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