Effect of Brexit on the European Union and the UK

Essay, 2018

31 Pages, Grade: A


This essay seeks to discuss the impact Brexit is likely to have on both UK and Europe. The essay will be divided into three sections. Section one will discuss briefly the journey to the formation of the EU, then continue with UK’s membership in 1973 and discuss events that occurred after gaining membership. The section two will discuss five probable impacts UK is likely to face in the post-Brexit era. It will discuss the change of trade within Europe, the new posture trade is likely to take as a result of new trade policy, effect Brexit is likely to impact on financial services, the tightening of immigration, and UK’s loss of influence in the international world. The third section will discuss the effect of Brexit on Europe. It will discuss business finding it costly to relocate investment from UK, how Brexit will affect remittance migration to the extent of political contagion, how Brexit is likely to create a gap in the budgetary of the EU, the effect Brexit is likely to take EU’s influence in the international world and how Brexit breeds uncertainty which is bad for business in the EU and risks political contagion.

After the end of the Second World War, the concept of state and political life of Europe had developed almost entirely on the basis of national constitutions and laws. It was on this basis that rules of conduct binding not only on citizens and parties in their democratic states but also on the state evolved. It took the collapse of Europe and its political economic decline to create conditions for new beginnings and give a fresh force to the idea of a new European order (Borchardt, 2010, p. 9). The new order was Western Europe coming together to form a cooperation. This first started with the formation of the European Economic Community (EEC) in 1957 and it is today known as the European Union (EU). The first ever European cooperation was witnessed immediately after the Second World War when the Organization of European Economic Cooperation (OEEC) was formed in April 1948, as a condition for Europe’s receipt of aid from the United States of America (Nugent, 2006, p. 18). This is known in history as the Marshall Aid after the American secretary of state who championed it (Nugent, p. 18). The OEEC was successful but failed to pursue a grander ambition (Nugent). This success demonstrated that international order would exercise a great deal of pressure to push along the process of European unification.

Following the failure of other attempts of Europe to form a cooperation was the formation of the European Coal and Steel Community (ECSC). On 1951, based on the Schuman Plan of May 1950, the treaty set up to establish the European Coal and Steel Community was signed. The establishment of the ECSC was the first time Europe had agreed to delegate part of their sovereignty to external institution. The original idea came from the Head of French Nation Planning Institute Jean Monnet (Weidenfeld & Wessel, 2010, p. 7). This was the first of the European communities. ECSC was designed to allow free trade, safe guard goods, create market for coal and steel and allow common exploitation of raw materials and product (Nugent). The membership of this new cooperation was six European countries which did not include Britain who emerged as part of the victorious power allied powers. UK’s non membership was as a result of incidences such as: On 11th November, 1944, Winston Churchill paid a symbolic “Armistice Day” visit to Charles de Gaulle in Paris. The General suggested that, although France and the UK had had very different experiences in the war, they were nevertheless, as it neared its end, objectively in exactly the same situation: former empires and robust civilizations, yet medium powers and financially bankrupt. Why not, de Gaulle urged, join forces and jointly lead a European superpower? Churchill agreed with de Gaulle’s analysis but noted that the UK, unlike France, had an alternative - the Atlantic connection (Howorth & Schmidt, 2016). In the mid-1950s, a high level committee was established to design the embryonic European Economic Community (EEC). The UK sent a mid- career official, Russell Bretherton, an economist, to represent her majesty among the foreign ministers of the founding six members. Bretherton, on realizing that the discussions were intensely political and in no way restricted to economics or trade, is reported to have left his last meeting of the committee with the words: “Gentleman, you are trying to negotiate something that cannot be negotiated. If negotiated, it will not be ratified. And if ratified, it will not work.” The aim was to give the impression that Churchill was opposed to joining the European project (Young, 1999). Due to these, UK missed the boat and continued to miss it ever since.

However, as a result of the foreclosing alternative options in the early 1960 which involved decolonization which was in full swing, Britain’s loss of investment in the Suez Canal and the Commonwealth increasingly became a powerless framework for Britain’s global ambition, the conservative government of Herold Macmillan applied for membership of the burgeoning EEC for the first time (Howorth & Schmidt). Macmillan was also responding to intense pressure from Washington, where President Kennedy sought a strong European player. The UK’s ambivalence about Europe was highlighted in December 1962 when, in parallel with the European application, Macmillan signed the Nassau Agreement with the US, tying the UK to the American Polaris nuclear missile system when UK’s first European gambit was vetoed by de Gaulle in 1963 on the grounds that Britain had no interest in creating an European political project (de la Serre, 1992, pp. 192- 202). De Gaulle died and Prime Minister Edward Heath took Britain into Europe in 1973 as part of a great market opportunity (Heath, 1998). However, as the European Union progressed, it drew more sovereignty from member states and example was in the 1980s when Margaret Thatcher gave more of Britain’s sovereignty in order to have a larger liberalized market and this was the first time a Prime Minister of Britain had ever given so much state sovereignty to a non-state entity (Thatcher, 1993). Britain never embraced the political posture the EU took as it progressed and so rejected most of it political policies such as single currency and a close political integration and cultural integration (Blair, 1999). In to Howorth and Schmidt’s work Brexit: what happened? What is going to happen, UK is described as the “Awkward Partner” in the European Union. This is usually seen in the EU’s decision making where the culture of compromise and consensus was needed but becomes far removed from the cultures of British politics. Consequently, the UK approach to the European project is more detached, less emotional, and more pragmatic (Howorth & Schmidt). Another aspect of the British psyche, which is important to understand, is that UK politics is confrontational. There is always a winner and a loser, while continental politics tends to be conciliatory, always trying to compromise and bring people together. This was a difficult lesson for British politicians to learn when they first entered the European Parliament. Some can never lose their confrontational attitude, and as result, make little practical impact on the Parliament. This is important because any negotiations about the future will be accompanied by the constant drumbeat of accusations of betrayal. Every compromise will be painted as a defeat (Chochia, Keedus & Kerikmäe, 2018). This circumstances of Britain’s divided Britain into two camps (Labor and Liberal) where we had the liberal camp that wanted to continue to stay in the EU and the labor camp wanted to leave.

The main legacies of the UK’S 43-year membership of the European Union were active resistance to any quasi-federal ambition; energetic pursuit of neo-liberal deregulation, faith in market forces and enthusiastic support for enlargement to the east which was for further market opportunities. That is, since joining in 1973, the UK has continued to be an influential voice in global affairs. It has retained its special relationship with the USA, which receives 17% of UK exports. The UK remains one of the most competitive economies in the world. It is true that by being in the Customs Union, the UK’s trade is governed by the rules of the Union, but those rules have given the UK easier access to one third of the world’s markets by value, and access to more markets than countries like Canada and Switzerland. This practically painted the picture that UK was turning the European Union into a force for supply-side economics and minimal political authority. This did not go on well with the other member states (Howorth & Schmidt). The EU came up with a constitutional treaty which took neo-liberal posture and would benefit Britain but Britain saw this treaty as state- heavy and more protectionist as it suggested a notion of “Ever closer Union” which was explicitly rejected by the UK (Howorth & Schmidt). And as a result there were debates among the two camps in Britain about whether to stay in the EU or leave. However, recent events such as: EU’s overpowering influence on the UK’s sovereignty, some Brussels regulations perceived as expensive to follow, EU’s poorly regulated migration policy affecting employment, deleterious impact of globalization and neo-liberal policies on large swathes of population, mainly unskilled, unemployed and pensioners, and crisis of English national identity education and health care system in Britain heightened the British populace about their sovereignty. This take of a closer union by the EU which affects the sovereignty of Britain made Britain invoke article 50 of the EU constitution which allows Britain to file for a divorce from the European Union (BBC, 2016). Hence the coined term ‘Brexit’.

Brexit, as the name indicates, is about “Britain exit” from the European Union following the referendum of 2nd June, 2016 when about 52 per cent of those who vote supported to redraw Britain from the European Union. The official withdrawal process began when Article 50 was triggered on 29th March, 2017, giving the UK until 29th March, 2019 to negotiate an exit deal. The term Brexit was coined by Peter Wilding and first used on May 15, 2012, in his Euractive blogpost. The term is believed to have been invented because of “Grexit” which occurred earlier in the year in reference to Greece leaving the Eurozone (BBC. 2016). The EU referendum was organized because the Prime Minister of UK, David Cameron (Party & Britain, 2010 ), had stated during 2015 general election that he would work on renegotiating the terms of Britain’s membership to the EU and there would be an in- and-out public poll conducted to take into consideration people’s choice. So on 23rd June, 2016, Britain voted on the matter and an overall 52% voted to exit the European Union and 48% voted to stay (Morozova, 2018). A range of concerns about sovereignty have been exhibited by various actors in the UK before, during and after the 2016 referendum (Gordon, 2016). A majority of English and Welsh voters rejected the argument of the Remain camp, whereas Scotland and Northern Ireland favored Remain. The Conservative government’s strategy was focused on instilling fear about the deleterious consequences to the economy of a vote to leave the EU. This negative approach failed to mention any of the good reasons the British voters might have to stay in the EU, and also failed to convince. Although economic experts were in agreement that leaving the EU would be a disaster for the UK, the “City” itself saw a few of its most prominent members publicly declare in favor of leaving the EU-despite the concern about the loss of “pass porting” rights to continue to do business in the EU. One argument often heard was that if Cameron really thought a vote to leave would be such a disaster, why did he declare during his negotiations with the EU, that if he did not get what he wanted, he would himself campaign for the leave vote. Another argument was that if this would be bad for Britain, why did he call the referendum in the first place. The answer that can be deduced is that Cameron’s call for the referendum was his attempt to heal the internal division between the Eurosceptic members and the Europhiles in the conservative party (Clarke, Goodwin, Goodwin & Whiteley, 2017). But sovereignty concerns had filled one of the four negotiating baskets and the final deal-rejected by the electorate and generally overlooked during the referendum campaign itself-included concessions for the UK (European Council Donald, 2015). National parliaments, acting in sufficient numbers, would have been given ‘red card’ powers to veto EU legislative proposals, and perhaps less substantially, yet symbolically more significant the EU Treaties would be amended to provide the UK with a clear exemption from provisions charting ‘ever closer union’ between the Member States (Gordon).

The recurrence of this theme provides a clear indication that the attempted reconciliation of national ideas of sovereignty with membership of the EU has been a source of enduring angst in parts of the UK’s political establishment and perhaps the referendum result suggests that in a substantial section of the electorate. In the years before the referendum, under the previous Conservative-Liberal Democrat coalition government, there was the enactment of the European Union Act 2011. The 2011 Act sought not only to establish a series of direct democratic ‘locks’ on the transfer of further power or competence from the UK to the EU, but also to reaffirm in statute that the sovereignty of the UK Parliament was retained during membership of the Union (Craig & Búrca, 2011). Scholars like Chochia, Keedus and Kerikmäe concluded that the UK simply did not “get” the EU. It does not comprehend the EU’s very nature. In particular, it has never really understood that the EU is not just an economic project, but also a political one (Chochia, Keedus & Kerikmäe). The failure to understand that the EU is a political project, as much as an economic one, explains some of the delusional statements made by politicians in the UK.

The impact of the vote to leave the EU is likely to be one of the largest potential economic impacts on both the London and the UK economies, in both the short and long-run. However, the magnitude of these effects remains unknown as they depend on the eventual form of Brexit, and knowledge of the post-Brexit UK economic environment across a range of dimensions such as trade, migration, and regulation (Ebell & Warren, 2016). For London in particular, which has greatly benefited from the prevailing economic environment and a large international labor force, the consequences could be especially challenging. It is hard to exaggerate the importance of public opinion when it comes to Brexit. The decision to leave the EU was itself, of course, the result of a public vote. And as the Brexit process rolls on, both sides anxiously parse every survey for evidence of what the public now thinks. Some people continue to believe that a significant shift in public opinion might allow the decision made in June 2016 to be reconsidered. In what follows, a team of experts on public opinion considers not only what happened in the referendum itself, but also what has taken place in terms of public attitudes subsequently. Britain is changing. Not only has Brexit crashed on the political agenda, but the referendum that produced it has disturbed numerous other aspects. So what most scholars say is that ‘what will happen in the coming months with regards to negotiations on Brexit is unclear’ (Howorth & Schmidt). This is because Theresa May has boxed herself into a corner by saying “Brexit means Brexit” but at the same time has created a rhetorical tool that can be used to justify about any course of action the government chooses to take (Mason & Asthana, 2016). The outcome of Brexit, whether good or bad, is dependent on the form the Brexit takes. Different forms should be envisaged as a spectrum with ‘Soft’ and ‘Hard’ being two possible points. That is if it takes Soft Brexit or Hard Brexit posture. Hard Brexit is favored by ardent Brexiteers. A Hard Brexit refers to the scenario where either no withdrawal agreement is reached and therefore the implementation period agreed in principle as part of the withdrawal agreement on March 2018 does not come into effect or a withdrawal agreement is reached but is deemed insufficient to trigger the implementation period (Kaufmann, 2016). Hard Brexit is urged by members to leave campaign including conservative party leadership. A Hard Brexit, also known as ‘Clean’ Brexit, would likely see UK give up full access to the single market and full access of the customs union along with the EU. The arrangement would prioritize giving Britain full control over its border, making new trade deals and applying laws within its own territory (Alexandra Sims, BBC, 2018). Soft Brexit, on the other hand, would leave the UK’s relationship with the EU as a close possible to the existing arrangements that is preferred by many Remainers. That is, Britain will no longer be part of the EU and would not be part of the European Council but would keep unfretted access to the European market (BBC). Some pundits have suggested that UK could have a reasonably Soft Brexit by following the examples of Norway or Switzerland in the Single Market paying for everything, doing everything but having no right to vote (Howorth & Schmidt). But it is not likely for this to happen as the executives in charge of the Brexit are conservative and have been talking about leaving EU entirely and set up trade deals with the rest of the world.

The UK could decide on taking on several models stapled out in order not to be badly affected. The UK could decide to have a Norwegian/EEA-style relationship. The Norway model includes two key European organizations: The European Free Trade Association (EFTA) and European Economic Area (EEA). With this model, Britain will get trade with the EU the group and still get to have free trade deals with numerous non-EU countries (Johnson, Gustafsson, Andreassen, Lervik, & Cha, 2001). The EEA, on the other hand, is a collaboration of all EU member states plus three EFTA states: Norway, Lichtenstein, and Iceland. All EEA members including the EFTA countries enjoy full access to the European single market (Moravcsik, 1993). There is also the Swiss-style bilateral trade agreement. The Switzerland's free trade policy will improve the framework conditions for economic relations with relevant economic partners. The objective will be to provide Britain companies with an unobstructed, stable and non-discriminatory market access in these countries compared to their main competitors (Rodriguez & Rodrik, 2000). Foreign trade policy measures will aim at further opening export markets of great importance and in accordance with the stabilization policy pursued by the Federal Council. There is also the Canada-style bilateral trade agreement. The model ranges from single markets to customs unions, to association agreements, to free trade agreements (FTAs) and beyond (Treasury, 2016). There is also WTO (World Trade Organization) style managed relationship or a uniquely negotiated relationship with the Single Market. Under the first two models the UK would have to pay for Single Market access and accept almost all EU regulation without having a voice at the table. The WTO style relationship, absent of significant domestic reforms, is the “worst case scenario” and would bring substantial economic costs. Overall, no free trade deal with the EU will offset the loss of access to the Single Market and EU customs union (The Guild News). If the UK decided to have an EEA-type relationship where it pays for full access to the Single Market, most EU regulation would continue to apply to the UK, including the five pieces of EU derived legislation considered to be the most costly (Nugent, 2017). There is also the Turkish style custom Union model. With this model, internal tariff barriers are avoided, with the UK adopting many EU product market regulations, but sector coverage of the customs union is incomplete. The UK is required to implement EU external tariffs, without influence or guaranteed access to third markets. This model is likely to be a bad compromise for the UK (Irwin, 2015). There is also the MFN-based approach model. With this model, the is no need to agree to common standards and regulation, but at the expense of facing the EU’s common external tariff, which damages UK trade with the EU in goods as well as services. Non-tariff barriers may emerge over time to damage trade in services in particular. This model is inconsistent with the UK’s liberal approach to trade (Irwin). The only plausible model for a relationship where the UK could gain substantial access to the Single Market without requiring freedom of movement is the bilateral EU-Canada Comprehensive Economic and Trade Agreement (CETA). However, according to the UK Treasury, such an agreement would result in a 6.2% smaller UK GDP in 2031, a £4,300 decrease in household income and an annual £36 billion “black hole” in tax receipts, equivalent to a little more than one third of the NHS budget (Treasury). None of these existing models would carry much appeal for the UK and if the UK were to negotiate a unique agreement, it would probably take more than two years to do so. One Eurosceptic think tank concludes that their most favorable alternative relationship model would be the hardest option to negotiate, and it may actually be easier to achieve a model along these lines by renegotiating from inside the EU (Tekin, 2016).


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Effect of Brexit on the European Union and the UK
University of Cape Coast
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effect, brexit, european, union
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Esther Onomah (Author), 2018, Effect of Brexit on the European Union and the UK, Munich, GRIN Verlag, https://www.grin.com/document/509721


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