Impact of Brexit on the EU Economy

12 Key excerpts on "Impact of Brexit on the EU Economy"

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  eBook - ePub

  Brexit and the Future of the European Union

  Firm-Level Perspectives

  • Marian Gorynia, Barbara Jankowska, Katarzyna Mroczek-Dąbrowska, Marian Gorynia, Barbara Jankowksa, Katarzyna Mroczek-Dąbrowska, Barbara Jankowska, Marian Gorynia, Barbara Jankowksa, Katarzyna Mroczek-Dąbrowska(Authors)
  • 2021(Publication Date)
  • Routledge

    (Publisher)

  The projected effects of Brexit on the EU and the UK1

  Marian Gorynia, Aleksandra Kania, Ewa Mińska-Struzik

  Introduction

  The origins of Brexit presented in Chapter 2 lead to a broader reflection, which boils down to the following questions:

  • What were the tendencies in international economic relations in the second half of the twentieth century and in the twenty-first century?
  • Do these tendencies continue and are likely to continue, or do we face a period of re-evaluations and peculiar twists and turns?
  • What are the fundamental challenges for humanity due to globalization regardless of Brexit and what impact can Brexit have on them?
  • In what sense do contemporary processes form the Brexit’s basis and context? What does Brexit change in these tendencies?

  This subchapter attempts to answer these questions.

  The UK’s decision to leave the EU was a landmark moment for European integration. The British electorate voted to leave the EU by a 51.9% majority. The result of the referendum on Brexit organized on June 23, 2016, surprised many observers and started a series of attempts to anticipate what the consequences would be for both the British and European economies. Several institutions published model-based forecasts on the economic consequences of Brexit, including the OECD, Oxford Economics, the Centre for Economic Performance, PricewaterhouseCoopers (PwC) and HM Treasury. Some experts, such as those from PwC, predict a slight negative impact of Brexit on British GDP, which equals 1.3% in the short term. Others, such as the researchers from the Centre for Economic Performance, predict a significant fall in British GDP in the long run, which equals 9.3%. All these institutions adopted two assumptions for the UK’s relations with the EU after Brexit. First, the UK would make a zero or lower contribution to the EU budget, depending on the state’s access to markets. Second, trade relations between the UK and the EU would change (Armstrong, 2016).

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  Small Business Management and Control of the Uncertain External Environment

  • Konstantinos Biginas, Stavros Sindakis, Antonia Koumproglou, Vlasios Sarantinos, Peter Wyer, Konstantinos Biginas, Stavros Sindakis, Antonia Koumproglou, Vlasios Sarantinos, Peter Wyer(Authors)
  • 2022(Publication Date)
  • Emerald Publishing Limited

    (Publisher)

  Sampson, 2017 ). This may cause long-lasting damage to the British financial sector in that it might set off a dangerous process of brain drain that would undermine one of the principal reasons London rose to prominence. Clearly, this needs to be given serious consideration when assessing the overall impact of Brexit on the UK’s knowledge economy. A main concern involves an effect on the whole trading system and fluctuating currency values. One early effect was higher inflation in the UK market in 2018.

  A key objective of this chapter is to understand the plight of small businesses and how entrepreneurship will be affected through working under different EU–UK relationships and UK relationships with other economies. Associate issues include relevance and impact of small business operational culture, financial needs and strategic management tools and skills (Druker, 2009 ; Eshima & Anderson, 2017 ). The Brexit threat is also unfolding in the context of the new start-up culture and emerging platform of E-business setups, with associate shift of business model and leadership style in the business. Hence, let us first understand the two main aspects of these topics, that is, Brexit and the state of small businesses in the EU (McCann & Ortega-Argilés, 2016 ). Though Brexit was initiated by the UK Prime Minister, the main sticking point why even after two years Brexit was not completed was the issues of backstop for which the Conservative MP’s and the Democratic Unionist Party were battling. However, the key potential implications for small business trade of a fully implemented Brexit could be identified at an early stage, including:

  • Trade cost will increase.
  • Transfer pricing may be impacted.
  • Non-benefit of Free trade agreements (FTA) of the EU countries to non-EU countries.
  • High impact over the gross domestic product (GDP) ratio of the UK’s economy.
  • Political implications.

  Given that the majority of the UK enterprises fall under the category of SMEs, with small businesses playing a vital role in the economy (Pryce, Nielsen, & McCabe, 2019), Brexit impacts such as those outlined above are likely to have high significance in economic, business and social development terms.

  2. Literature Review

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  The Economics of Brexit

  A Cost-Benefit Analysis of the UK's Economic Relationship with the EU

  • Philip B. Whyman, Alina I. Petrescu(Authors)
  • 2017(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  The economic impact upon trade was the primary concern expressed by the opponents of Brexit during the recent referendum campaign. The CBI (2013: 11) argued that access to European markets has delivered the largest positive benefit from UK membership of the EU. This is not surprising, because the early EU initiatives were focused upon the pro- motion of trade integration amongst member states through lowering barriers to trade, with the anticipated result that trade would increase, thereby promoting faster economic growth. Hence, reversing this logic would infer that withdrawal from the EU might reduce trade and hence lower UK GDP. This chapter, therefore, seeks to examine this issue. The Economic Theory of Trade Long established theories of international trade tend to explain the flow of goods and services between countries in terms of comparative advantage derived from differences in the opportunity costs of produc- tion. This could arise because of differences in productivity, which is often termed ‘Ricardian’ comparative advantage, or due to differences in factor abundance and/or intensity, known as ‘Heckschler-Ohlin’ 3 Brexit and Trade © The Author(s) 2017 P.B. Whyman and A.I. Petrescu, The Economics of Brexit, DOI 10.1007/978-3-319-58283-2_3 77 78 P.B. Whyman and A.I. Petrescu comparative advantage. The hypothesis is that countries will possess a relative advantage in one industry, from which it will export, and be less competitive in another, from which it will import. To the extent that these competitive advantages exist, and are relatively evenly distributed between nations, then the potential benefits from specialisation and trade between these nations is self-evident (Portes 2013: F9). The theory of international trade is, however, complicated by three factors.

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  Brexit

  Why Britain Voted to Leave the European Union

  • Harold D. Clarke, Matthew Goodwin, Paul Whiteley(Authors)
  • 2017(Publication Date)
  • Cambridge University Press

    (Publisher)

  Source: Penn World Tables. The Consequences of Brexit 190 1 9 0 Economic growth has many determinants and so it would be mis- leading to argue that EU membership had the effect of slowing growth in most EU member states after they became members. But the impor- tant inference that can be made from available evidence is that EU membership did not boost economic growth and prosperity in a way that many people thought might happen when their countries applied to join. The fact that the accession of different countries varied over time means that the slowing of growth was not the product of period effects, that is, events such as the oil-price crisis of the 1970s that might explain such a slowdown across many countries at the same time. If it is hard to make the case that EU membership stimulated eco- nomic growth, it may be different for the other big issue that domi- nated the 2016 referendum, namely immigration. In Chapter 7 we saw that concerns about immigration had strong effects on the referendum vote, so it is important to assess the implications of Brexit for immi- gration to Britain in the future. We consider this topic next. Brexit and Immigration As we have seen, immigration was a key issue in the 2016 referendum campaign and was also central to explaining why the country eventu- ally voted for Brexit. Claims and counter-claims surrounded this issue, with Leavers in particular arguing that Brexit would enable the UK to curb immigration levels that have been a source of anxiety among voters for many years. But how might Brexit influence immigration? If economic forecasting is difficult, it is even more difficult to forecast patterns of migration. In their recent review of the literature on migra- tion forecasting, Disney and his colleagues conclude that: [T]here are many social, economic and political drivers which can impact migration flows, making forecasting migration an extremely difficult task.

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  An Accidental Brexit

  New EU and Transatlantic Economic Perspectives

  • Paul J.J. Welfens(Author)
  • 2017(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  Some Reflections on the Economist’s Role in the Brexit Debate An economist’s analysis of Brexit is not convincing if the key mecha- nisms which led to the referendum outcome are not understood or if the main consequences of the Brexit vote are over- or underestimated. The Bank of England and indeed some other skeptical forecasters—who 128 P.J.J. Welfens emphasized a quick deterioration of the British economy in 2016— have lost credibility because there was an overestimation of the short- term effects of the Brexit vote. However, it was the Bank of England itself that cut the interest rate within a few weeks of the referendum and this has helped to stabilize the economy as did the US Trump stock market rally which has raised stock price indices everywhere in the EU. The negative effects of Brexit will become noticeable in the British economy only gradually and the strong Pound depreciation of 2016/17 could even raise employment through higher non-anticipated inflation in the medium term—the decline of real wage rates will stimulate hir- ing on the side of firms. Eventually, the rise of the inflation rate will undermine the real income of workers unless trade unions could get off- setting nominal wage increases which, however, is not very likely. Hence the growth of consumer demand will decline in the medium term in the UK, but given the expansionary impulses from the US, there will not be an immediate recession that would possibly shock many people—and the later a possible recession comes, the less voters will associate this with the referendum’s outcome. As long as there are at least modest growth rates in the UK, few Brexiteers would have doubts about the historical vote to leave the European Union—and most of them would probably deny that their vote would have been any differ- ent if credible economists or a well-organized government had informed them prior to June 23, 2016, that the long-term economic costs of Brexit will be about 10% of income.

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  The European Union and the Eurozone under Stress

  Challenges and Solutions for Repairing Fault Lines in the European Project

  • John Theodore, Jonathan Theodore, Dimitrios Syrrakos(Authors)
  • 2017(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  The eventual outcome of this collision was the British Referendum. Overall, Brexit is potentially damaging to all parties. To start with, most European capital markets are located in London. Thus, raising capital in London for European countries is subject to Pound–Euro exchange rate volatility. As a result, financial integration in the EU is far from complete. Sterling also depreciated by 30% in 1931 and in 1947–1949, 14.7% in 1967, 25% in 1975–1976, 15% in 1992–1993 and 30% in 2008–2009. The latter improved markedly the UK econ- omy’s competitive position against the Eurozone nations. That is not to say, of course, that exchange rate fluctuations in the Pound-to-Euro exchange rate are the only reason to explain the number of EU workers to the UK – rigid labour markets in many Eurozone countries, especially France, and differences in tax systems are also exerting major influences. But the exchange rate plays a central role. For example, in the extreme case the value of the pound drops below 1 Euro; this will provide a major disincentive to European workers to move to the UK. On the other hand, the substantial appreciation in the value of the pound during 2014 and 2015, leading to a ratio of 1:1.4 Euros per pound by December 2015, has had adverse effects on UK exports to the Eurozone. As a consequence of all this, the absence of exchange rate arrangements between the UK and the Eurozone reflects the incomplete nature of both the Euro currency and the Customs Union. 7 A Review of the UK Economy, June 2010 to June 2016 Before assessing the impact of the Referendum on the UK economy, it is important to review the UK economic performance from July 2010 to July 2016. This is vital in order to identify the trends established in 7 The Customs Union Market accounts still for less than 40% of all economic activity in the EU. 136 6 Brexit and the Economy

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  Origins and Consequences of European Crises: Global Views on Brexit

  • Birte Wassenberg, Noriko Suzuki, Birte Wassenberg, Noriko Suzuki(Authors)
  • 2020(Publication Date)
  • Peter Lang Group

    (Publisher)

  PART 3 THE ECONOMIC AND LEGAL CONSEQUENCES OF BREXIT The “Real” Costs of Brexit Emmanuel Brunet-Jailly On 23 June 2016, Britain decided to leave the European Union (EU) in a referendum vote. Since then, the results have remained controversial for several reasons. First of all, the referendum revealed deep regional cleavages in opinions with regards to EU membership, as evidenced by the defeat of Brexit ideas in Scotland and Northern Ireland. Those were confirmed by the results of the last parliamentary elections in December 2019. Secondly, since the referendum, there is emerging evidence that several misleading claims were made by the Brexit campaign. As a result, many have asked for a second referendum or an election; a new election was held on 12 December 2019 and brought a large majority to the conservatives. Key misrepresentations of a number of important determining issues, including the cost of being in the EU and the cost of leaving the EU, remained under-explored. These form the core elements of this paper, which focuses on the costs of leaving the EU with a specific focus on the implementation of border infrastructures, staff, and necessary reforms across government offices necessary to implement UK custom borders. Costs, obviously are varied and thus assessing costs is complex. Also, as discussed in this chapter polarized opinions on the overall Brexit costs led to toxic debates; There is however consensus among experts which guides our assessment; for instance at the end of 2019, it is important to acknowledge that all international financial institutions were predicting that Brexit will have (variable) but negative impacts on the British economy. 1 The estimates were “an output loss of between 5 and 8 percent in the World Trade Organization (WTO) scenario compared 1 Arregui, N., Chen, J., “United Kingdom”, Washington, International Monetary Fund, Country Report 18/317, 25.10.2018.

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  How Referendums Challenge European Democracy

  Brexit and Beyond

  • Richard Rose(Author)
  • 2020(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  Brexit: Why Britain Voted to Leave the European Union . Cambridge: Cambridge University Press.Crossref
• Coutts, K., G. Gudgin, and J. Buchanan. 2018. How the Economics Profession Got It Wrong on Brexit. Working Paper 493, Cambridge Centre for Business Research.
• Gudgin, G., K. Coutts, and N. Gibson. 2017. The Macro-Economic Impact of Brexit Using the CBR Macro-Economic Model of the UK Economy. Working Paper 483, Cambridge Centre for Business Research.
• HM Government. 2016a. HM Treasury Analysis: The Long-Term Economic Impact of EU Membership and the Alternatives . CMND 9250, April, London, https://​www.​gov.​uk/​government/​publications .
• HM Government. 2016b. HM Treasury Analysis: The Immediate Economic Impact of Leaving the EU . CMND 9292, May, London, https://​www.​gov.​uk/​government/​publications .
• King, M. 2017. The End of Alchemy: Money, Banking and the Future of the Global Economy . London: Abacus.
• Knight, F.H. 1921. Risk, Uncertainty and Profits . Boston, MA: Hart, Schaffner & Marx and Houghton Mifflin Company.
• Minsky, H.P. 1982. Can ‘It’ Happen Again? . Armonk, NY: M. E. Sharpe.
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• Offer, A., and G. Söderberg. 2016. The Nobel Factor: The Prize in Economics, Social Democracy and the Market Turn . Princeton, NJ: Princeton University Press.Crossref
• Office for Budget Responsibility. 2018. Brexit and the OBR’s Forecasts. Discussion Paper No. 3.
• Phillips, A.W. 1958. The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom. Economica 25 (100) (November): 283–299.
• Taleb, N. 2007. The Black Swan: The Impact of the Highly Improbable . London: Penguin.
• Tett, G. 2009. Fool’s Gold: How Unrestrained Greed Corrupted a Dream, Shattered Global Market and Unleashed a Catastrophe . London: Little Brown.
• Wray, L.R. 2016. Why Minsky Matters: An Introduction to the Work of a Maverick Economist