World mulls the economic implications of Brexit

Onlookers anticipate significant economic consequences both at home and abroad in the years ahead if the people of the UK choose to leave the European Union on Thursday,

Photo by: Reuters
Photo by: Reuters

An EU flag is seen through a British Union flag during a pro-EU referendum event at Parliament Square in London. (Reuters)


On Thursday June 23 the people of the United Kingdom will answer the question: “should the United Kingdom remain a member of the European Union or leave the European Union?”

The choice on whether to leave the 28-member political and economic bloc – “Brexit” – is not a simple one. Whether the UK stays or goes, there will likely be consequences for many years to come.

Britain has been part of the European Union, and its predecessor the European Economic Community, for 41 years.

Both sides of the Brexit debate decided to temporarily suspend campaigning after 41-year-old UK Member of Parliament Jo Cox was shot dead last Thursday. Campaigning resume on S

Cox was well respected. She voiced support for Syrian migrants and campaigned in favour of the UK remaining in the EU. Her sudden death has shocked everyone.

Investors concerned

The UK is the fifth largest economy in the world, so whether it decides to leave or stay in the EU will have a substantial economic impact both domestically and internationally.

There have reportedly been capital outflows in the last few months in anticipation over the vote, with investors either taking their capital out of the UK or converting it into other currencies.

"Around £65bn left the UK or was converted into other currencies in March and April, the largest amount since the economic crash. In the six months to the end of April, £77bn was pulled out of British pounds, compared to just £2bn in the six months to the end of last October," The Independent reported.

The Bank of England has also issued warnings that the pound might fall in value if Brexit takes place.The US Federal Reserve, Bank of England, Swiss National Bank and the Bank of Japan are all expected to hold monetary policy steady against a backdrop of caution heightened by the possibility of Brexit.

"We're in uncharted territory in front of the Brexit vote, and then there's also the Fed this week. So the wall of worry is quite high at the moment. All the banks are a little bit lower, and they're to ones which are likely to get hit," said Zeg Choudhry, managing director at LONTRAD.

"For the next two weeks, you've got to be slightly mad if you've not got your money in defensive stocks."

Why Brexit?

Public opinion is divided within the UK on whether the country should  leave the EU.

UK Prime Minister David Cameron pledged during his general election campaign last year that he would hold a referendum on whether to stay or leave.

Supporters of Brexit say Britain has ceded its sovereignty to the EU and leaving is the only way to take it back.

Brexit supporters also say the EU is costing the UK billions of pounds in fees and due to bureaucratic regulations. They argue that the UK should be free to separately make agreements with different countries and blocs.

However, the UK Treasury has recently issued a report warning that leaving the EU would have a negative impact on the UK.

The report suggests that there could be 6 percent drop in the UK’s gross-domestic product, or GDP, if it leaves the bloc. The value of pound sterling may plunge compared to the euro and other foreign currencies in the months after Brexit.

But the most alarming part of the report is what it says the likely effect on employment could be. Some 800,000 people may lose their jobs in the next two years.

However, supporters of the leave campaign have rejected the report, saying it attempts to mislead the public.         

Global opinion

The world is watching the build-up to the June 23 Brexit referendum.

The leaders of the group of seven (G-7) major developed countries met for a 2-day summit last month, in which they briefly touched on the Brexit. "A British exit from the European Union would be a serious risk to global economic growth," Group of Seven leaders said in a summit 32 page summit declaration.

A family photo of leaders of the group of seven or G7 last month. (Reuters)

"A UK exit from the EU would reverse the trend towards greater global trade and investment, and the jobs they create, and is a further serious risk to growth," the declaration added.

German Foreign Minister Frank-Walter Steinmeier said it would be a major blow to the EU if the Britain decides to to leave the bloc, after meeting his French counterpart in the German city of Brandenburg last Wednesday.

"Things wouldn't just carry on as 28 minus one the following day," he said.

A EU Commission official, speaking on condition of anonymity as he was not authorised to talk to media, told TRT World:

"Concerning the outcome of the UK Referendum, the Commission has made clear our belief that the UK is stronger as a member of the EU, and that the EU is stronger with the UK as a member. The Commission does not speculate on hypothetical scenarios."

German Finance Minister Wolfgang Schaeuble said last week Britain would not be able to continue benefiting from the single market unless it keeps following EU rules.

"The country would need to stick to the rules of the club that it now wants to quit," Schaeuble told Germany's Der Spiegel. "In is in, out is out."

TRTWorld and agencies