Ten ways a Leave vote would reshape the U.K.
Millions of Britons will head to the polls on Thursday to vote in one of the world’s most important referendums in decades. The question, as phrased, is a simple one: Should the United Kingdom remain a member of the European Union or leave the European Union?
The outcome could have massive economic implications. No nation has ever left the European Union. The 28-member bloc is the world’s largest economic-political unit, boasting a combined US$16.2-trillion economy. EU President Donald Tusk has said an exit by the U.K. could lead to the end of “western political civilization itself.”
That kind of language has fuelled what has been an emotionally charged campaign by both sides. The Leave camp argues that membership offers few benefits, while forcing the U.K. to adopt unwanted EU laws and a flood of migrants. The Remain camp points to the economic damage an exit would create and the loss of Britain’s influence on the European mainland.
For international observers, the focus has been on what a departure will do to the global economy and financial markets, with many leaning toward more harm than good. Here, we look at the potential economic fallout from a Brexit.
PUMMELLING THE POUND
Most analysts expect the pound sterling to drop in the immediate aftermath of a Leave vote. The worstcase scenario has the pound declining for a prolonged period against major international currencies, which could force the Bank of England to act. With the buying power of the currency greatly diminished, there could be a sudden spike in the cost of goods across the country. That would require the central bank to increase its benchmark interest rate in an effort to stabilize prices (the country’s interest rate has been 0.5 per cent since 2009). Brexit campaigners have pushed back against this claim, arguing the pound would not be weakened and inflation wouldn’t be an issue.
LONDON FALLING
The City of London is considered one of the world’s most important financial hubs, but analysts warn that a withdrawal from the EU could put that status in jeopardy. Goldman Sachs is one top bank that has said they will shift its European headquarters out of London if the country leaves. There are also already signs that London is losing its desirability as a top destination for real estate investment. A recent KPMG survey found that property investors have been hesitant to invest in U.K. housing and real estate companies in the lead-up to the vote. George Osborne, Chancellor of the Exchequer, has warned that house prices could fall by nearly one-fifth following a Brexit. The current situation mirrors the 2014 Scotland’s referendum to leave the U.K. Supply and demand both fell prior to that vote.
GREAT MIGRATIONS
One of the biggest benefits for citizens of EU countries is the ease of travelling and settling in member states. Nearly three million EU citizens are living in the U.K. and a Leave vote would put their residency status in murky territory. The Leave camp has heavily campaigned on the idea that current EU rules mean the country is being flooded with far more immigrants than it can handle. Net EU migration to the U.K. has been rising and totalled 184,000 in 2015, an increase of 10,000 over the year before. Meanwhile, more than 1.2 million British expats live in EU countries. In the event of a Brexit, many expect there will be a grace period as U.K. politicians negotiate what will happen to their citizen’s existing rights. Some point to the potential for Britain to be part of the European Economic Area, the same as Norway and Switzerland, which has allowed them to have the migrant benefits of EU membership without the influence of voting on policies. But until such a deal, the residency status of millions will hang in limbo.
POLITICAL UPHEAVAL
Prime Minister David Cameron has strongly campaigned for Britons to remain in the EU, and a repudiation of that stance will result in pressure on Cameron to step down immediately. This scenario would probably be most advantageous for Boris Johnson, the former mayor of London who has advocated for the Leavers from within Cameron’s divided Conservative party, and who could be elevated to the post of prime minister without facing a general election. Brexit could also embolden other anti-EU politicians in Europe — both Germany and France set for federal and presidential elections in 2017 — and produce a wave of political and economic instability. Perhaps one of the biggest political aftershocks could take place with the U.K. itself, where the question of Scottish independence could be reignited. The Scots are some of the strongest supporters of the EU, with 59 to 75 per cent in a recent poll saying they would like to remain part of the bloc.
CARNEY’S FATE
Cameron is not the only person likely to face scrutiny in the event of a Brexit. Bank of England governor Mark Carney has ramped up his warnings in the past month about the damage the Brexit campaign is doing to Britain’s economy, noting consumers are delaying purchases of houses and cars, and businesses are waiting to make investments. His warnings have drawn the ire of Leavers, including Conservative MP Bernard Jenkin, who sent Carney a tersely-worded letter about the issue. But the governor hasn’t kept quiet. He made clear that the central bank currently views Brexit as ‘‘the biggest domestic risk to financial stability” in the country. Carney still has another two years left in the five-year term he committed to in 2013, so his job won’t necessarily be in jeopardy. But guiding the central bank through a Brexit with a new government that sees him as a hostile entity would be his greatest challenge to date.
FOOTBALL FAILURE
The potential consequences of Brexit extend to the cultural realm as well. Many of Britain’s Premier League teams fill their rosters with foreign players, including a good chunk who are from other European Union countries. Under EU rules, they can play in Britain without visas or work permits, but a Brexit could change that. “Leaving the EU would hurt our leagues, create uncertainty for European transfers and be a step back for the next generation of footballers,” West Ham chief executive Karren Brady warned earlier this year. The BBC notes that about 400 footballers in the Premier League are from other EU countries and its analysis suggests that up to 322 of them would fail to qualify under Home Office criteria to remain in the country if existing rules are not kept in the event of a Brexit. Player agent Simon Bayliff told the BBC, however, that one benefit of fewer EU nationals in the league would be that more homegrown players would likely be scouted.
SOBERING THOUGHTS
The U.K benefits significantly from the 35 free trade deals the EU has set up with different countries, and the alcohol industry is a key example. Britain currently exports some 1.8 billion euros worth of wine and spirits to the European Union. Prime Minister Cameron has warned that liquor businesses, which employ about 600,000 people directly or indirectly in the country, will suffer as Britain stands to lose access to those free trade deals. Brits who currently bring back duty-free alcohol during trips outside the country could also find themselves out of luck.
LABOUR PAINS
EU laws set minimum requirements on everything from holiday pay to maternity/paternity leave. The Remain camp has warned some of the generous workers’ rights benefits could be clawed back if Britain leaves. The Leave camp has shot back that the laws would unlikely be changed in an exit, particularly because some — such as those that prevent discrimination against sex, race and age — have become common in all countries in the Western world. Britain also has separate laws that protect workers in other ways, including minimum wage and unfair dismissal laws.
ARRESTING DEVELOPMENTS
EU policy-makers have simplified a wide variety of social and criminal laws, including easier divorce proceedings and the ability for British nationals to challenge parental child abductions. Britain also participates in a number of criminal justice treaties under the EU, including the European Arrest Warrant. The EAW means that any member state can issue an arrest warrant for a person to all member states and have that person extradited. These would have to be renegotiated if Britain were to leave the current EU framework.
YEARS OF UNCERTAINTY
If the Leave camp wins, legal and political changes will take the rest of the decade to finalize. Brexit supporters have noted that a formal withdrawal would likely not occur until 2020. The referendum merely gauges the nation’s sentiment, requiring politicians to formally enter into separation discussions. This allows plenty of time for its citizens and rest of the world to absorb the news. “This means that there would be plenty of time for negotiations to clear up some of the most important uncertainties about the wider impact, notably the arrangements which would govern U.K. trade with the remainder of the EU and the rest of the world,” notes Capital Economics. But that would also mean that the political uncertainty of a Brexit could stretch on for decades — making the vote on June 23 all the more important.