What Brexit Means for the European Economy

By June 23, 2016, British voters will choose to stay within the European Union, or EU, or leave the system. Investopedia confirms that this action is what’s known as a Brexit. For years, the country’s citizens have been doubtful about the benefits of being a part of the EU, which is a political and economic partnership between 28 different nations. Despite the skepticism, the nation’s doubts have not been strong enough to cause the country to depart from the association. Some economists believe that a break would be bad for the British economy as well as for Europe while others predict that a Brexit would have little effect.

How Would a Brexit Affect the EU?

If a Brexit occurs, then some experts anticipate that its impact on the EU would be extensive and lengthy. When it comes to the actual process of the United Kingdom extricating itself from the EU, it’s predicted that it will take about 10 years.

According to the Heraldscotland, the EU’s key contribution to Britain’s economy is competitiveness due to more trade options. Reports show that companies that complete international trades see greater productivity increases. Because of this, the Brexit would cause many of Europe’s businesses to face uncertainties.

Alan Matthews, a Trinity College professor, said, “The EU as an institution has many flaws, but the EU as the embodiment of a collective action to achieve common goals more effectively than any one nation can do on its own, remains a powerful force.”

Forging New Relationships

In the EU Treaty under Article 50, an exit clause gives the U.K. two years to determine its departure terms. If the country’s citizens do vote to leave the EU, then it will take time for the nation to establish new relationships with the consortium’s remaining nations. While the new associations could follow several different models, economists predict that it would be similar to the one used by Switzerland.

Those who are advocating for the Brexit have put forth a few options in an attempt to alleviate the uncertainty. Their list includes supporting a second vote to determine which path the nation’s citizens would prefer, or they would establish the country’s trade deals upon exiting the EU according to a compromise.

Would a Split Affect the U.K.?

The World Economic Forum wrote an article about the split. According to the news source, the International Monetary Fund has cautioned the U.K. that if it leaves the EU, then it may delay the global recovery. Many economists admit that it’s tough to assess the economic impact on the U.K. as well as on the rest of Europe.

If the country decides to leave, then it will likely face a time of great domestic turmoil. The Confederation of British Industry, or CBI, released a report stating that if the country exits, then Britain’s unemployment rate could rise by 2 percent to 3 percent by 2020. In addition, the country’s Gross Domestic Product, or GDP, per household may decrease by as much as £3,700 annually. However, the Vote Leave campaign disagrees with this assessment. Jonathan Portes, a representative from UK in a Changing Europe, said, “The CBI figure of £3,700 is not a credible estimate.”

Price Waterhouse Coopers commissioned an assessment to determine the Brexit’s economic impact, and it found that the action could decrease the U.K.’s GDP by 5 percent. This study also determined that even if Britain were able to bargain its way into a free trade agreement with the EU, the country’s economy would still be 3 percent lower by the year 2020. Those who want the U.K. to leave the EU point out that the country would save money. Carolyn Fairbairn, the director general of the CBI, said, “The savings from reduced EU budget contributions and regulation are greatly outweighed by the negative impact on trade and investment. Even in the best case this would cause a serious shock to the UK economy.”

Is Now the Time for Change?

If the U.K. decides to complete the Brexit, the country will be facing the challenge of renegotiating its trade agreements with other countries within the EU. Some economists predict that this will have a greater impact on Europe in general than it will on the U.K. Either way, the world will be waiting to see what the country decides to do. To read more about this situation and others, head to the PersonalMoneyStore.com.

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