For many years, Great Britain was a satisfied member of the European Union, but political unrest resulted in a national referendum to leave the EU. The end result was that 52% of Britain’s population was in favor of exiting the EU. According to EU treaty terms, the UK government will start the formal withdrawal process in March of this year and be completely withdrawn by 2019. This so-called “Brexit” will greatly disrupt international trade and economics.
Hard Brexit Strategy Has Concerning Financial Implications
As soon as the results of the Brexit referendum were revealed, people began worrying about how it would effect the British economy. Without the free travel between EU nations and the many trade deals in place, Britain could end up in a very bad situation. Attempts to alleviate these concerns suggested that the Brexit might not end up changing the nation’s relationship with the EU much, but this appears to be unlikely.
In her opening speech at a conference, British Prime Minister Theresa May confirmed her plans for leaving the European Union. She stated,
We are not leaving the European Union only to give up control of immigration again. And we are not leaving only to return to the jurisdiction of the European Court of Justice.
Many are referring to this stance as a “hard” Brexit that will completely sever ties with the EU instead of retaining the nations’ close relationship.
Most of these financial issues will occur in London, where citizens overwhelmingly voted to remain the EU. This city does a lot of international business, particularly in its clearing houses. Each day, almost 440 billion euros are cleared through London, but many places are talking about moving clearing operations to New York and other European areas.
Major banks will also be affected because they were only able to operate in London through an EU license. Many London banks already have contingency plans in place to move their business elsewhere. For example, the main British bank, HSBC, has already said they will move their operations to pre-existing branches in the Netherlands and Luxembourg.
Major financial centers will not be the only way that Brexit affects the economy. Trade between EU members is encouraged, so most nations within the EU have very favorable tariff levels. If tariffs for Britain rise sharply, it might become difficult for the country to import and export items with its closest neighbors.
A major part of the reason for leaving the EU was due to concerns of refugee immigration, but this will also result in other immigration changes that could harm the economy. Property values in London are already dropping because many people who lived in London were actually EU members without British citizenship. Deals between Britain and other EU nations, such as the Nissan plans to create a factory in Sunderland, are also starting to falter.
Due to all the financial implications of Brexit, politicians, especially those in London, are calling for a longer transition period. Financial experts believe that at least three to five years would be necessary to exit from the EU without causing financial problems.
An Uncertain Future for European Finance
Brexit can cause disruptions on a global scale by interfering with finances and trade. All of the potential issues with leaving the EU have combined to create a state of worry and uncertainty in Europe. This further contributes to lowered stock values and economic depression, so the European market may end up having difficulties even if the direct consequences of Britain leaving the EU are not as bad as predicted. Overall, this climate of skepticism surely doesn’t help any economic initiative.
Image source: flickr.com/photos/bankenverband/28246711066/