United Europe until now regarded itself the world’s largest economic-trade hub, with a more vibrant and powerful market than that of the US, but it is now pondering how to manage the aftershocks of Britain’s exit on its security, economic and political pillars.
When former Prime Minister David Cameron on 23rd June 2016, was trying to dissuade the people of his country from leaving the European Union, he listed the consequences of a Brexit as undermining the British economy, diminishing its global influence and providing grounds for the disintegration of the British monarchy.
All of this, to the dismay of many analysts, was the annihilation of the great achievements Britain had made in the wake of the great economic, political and security pacts: Treaties it had gained after decades of bloody wars in Europe and tough negotiations with the leaders of the continent, but these gains today sound insignificant to the people of the country.
British officials have been bargaining over an exit from the European Union for more than three years, and the EU law requires them to leave the union by October 31, 2019, with or without a deal.
Today that Boris Johnson has become the inheritor of the Brexit crisis the only tool he has been using is a tough tone and a language of threat in trying to intimidate the EU with a no-deal exit and compel internal opponents to lower their expectations on the mechanisms of the withdrawal.
While many considered a no-deal exit just a bluff given its detrimental consequences for the EU and UK hopes for any deal would diminish as the deadline drew to a close.
British Prime Minister Boris Johnson appears to be insisting on a no-deal exit as he finds himself unable to move forward with any plan that could result in a soft exit from the current deadlock. He said he would pull Britain out of the EU “do or die” by the end of October defending a no-deal exit as a “great opportunity” to change the economic course and “make Britain the greatest place on earth.”
Certainly, the role played by Brexit in bringing Johnson to power as the prime minister is significant. British media have reported that Johnson, who is a staunch supporter of Brexit today, adopted a passive reaction to the plan initially. The media have called him “Britain’s Trump” on several occasions accusing him of taking advantage of the Brexit affair.
British public opinion has so far played down Boris Johnson’s moral scandals and controversies. He has been forced to apologize several times for his inappropriate statements against the people and officials in other countries
Before his premiership, many scholars believed that by coming to power he would push the United Kingdom out of the EU without a deal because it wanted closer ties between Britain and the United States. Johnson faces many challenges today: Challenges that threaten his place in British political society and his party, as the UK is unwilling to bear the unfortunate consequences of leaving the EU without a deal.
Now that Johnson is preparing Britain to leave the European Union completely without a deal by the end of October, it is difficult for Europe to face the heavy economic consequences of the decision and this break will have a profound effect on Britain’s future relations with the European Union. It is certainly not an easy task to review the economy, politics, border and customs affairs between Britain and the European Union and unravel their intertwined roots.
Although Britain’s biggest concern over a no-deal Brexit is the risk of its disintegration, the economic consequences of the issue have attracted the most attention from international analysts in recent months, and since 2016 there have been new studies on the consequences of Britain’s exit from the EU.
From the Economist’s point of view, a no-deal Brexit will not only harm the British economy but will isolate it diplomatically.
The Bank of England predicted that if the UK leaves the EU without an agreement, its economy could shrink by 8% to 9% in a year, slowing the economic growth of the European Union and countries that have extensive trade with Britain.
A no-deal Brexit could send the pound plunging and trigger a worse recession than the financial crisis, said Mark Carney, head of the Bank of England.
In an assessment of the impact of Britain leaving the EU without a deal at the end of October, the Office for Budget Responsibility said the result would be a year-long downturn that would increase borrowing by £30bn a year.
A no-deal Brexit would plunge Britain into a recession that would shrink the economy by 2%, push unemployment above 5% and send house prices tumbling by around 10%, according to the government’s independent forecasting body.
Under these conditions and to overcome the budget deficit, the Office for Budget Responsibility said, the government has to resort to borrowing through the issuance and sale of bonds which would add to the national debts of the UK.
According to the Independent newspaper, based on research conducted in 2016, a no-deal Brexit would cost the British economy about £252 billion.
The International Monetary Fund also said in a report that a no-deal Brexit would be the worst possible scenario and would hit the UK economy hardest. It said the move would bring instability to Europe and Britain and its economic growth would drop by 2% in 2020.
Part of this decline will be due to tariffs to be imposed on export and import of goods after Brexit. In this case, uncertainty and loss of confidence in the business will lead to lower investment and higher commodity prices and overall economic downturn and a sharp decline in the value of the pound.
According to statistics, the UK imports nearly $48 billion of foodstuff annually, most of which from the European Union. Brexit implications have led the country to stockpile food and medicine so that it will not see a price shock and a shortage of food and medicine after the EU exit process.
The Bank of England has also predicted that the level of investment will drop by about 25% by 2020.
According to European financial institutions, the value of the pound will decline by 15% after Brexit. Meantime, depreciation of the pound will boost tourism and help the UK become a more affordable and attractive holiday destination. In contrast, the loss in the value of the British pound will be compensated by the British households for lack of purchasing power. In the trading market, the weakening of the pound has led to cheaper export costs for British producers and multinationals based in the country.
With no-deal exit and absence of management of the pound’s decline, imported goods will become more expensive for the citizens and inflation will rise.
On the other hand, with the continuing uncertainties and instabilities caused by Brexit and the implementation of a hard Brexit becoming more likely, media reports speak of migration of large corporations, financial and banking institutions, layoffs and closure of their headquarters in the UK. They can avoid many of the economic risks by relocating, but this is not possible for food distributors and the ultimate losers are the people of Britain.
Former Treasury Secretary Philip Hammond has said he will never agree to Brexit without a deal: It will cost £90 billion (114 billion pounds) and anyone elected prime minister would lead England to a disaster in case of no-deal Brexit.
Former British Secretary of State for Justice David Guake had also said a no-deal Brexit would be accompanied by “national humiliation.”
According to financial reports released, the UK’s net payment to the EU Treasury is around £9 billion (€10 billion) a year, which after Brexit, either the other members have to pay more or the EU has to cut spending and projects.
Johnson’s finance minister, Sajid Javid, has said he will allocate huge and extra funds for the complete withdrawal of the UK from the European Union on October 31. He has got the go-ahead to hire 500 new Border Force officials to tackle a no-deal Brexit.
A new study conducted by Bertelsman Foundation of Germany said that the British would have to shoulder the biggest income losses. But in export-oriented countries like Germany and France, Brexit would cost citizens billions of euros. The US, China, and Russia, on the other hand, could even benefit from the British withdrawal, it said.
The study said the British themselves would be hit hardest by a “No-Deal-Brexit”: UK citizens would suffer income losses of 57 billion euros per year (around 900 euros per capita). In Germany, too, the loss of income due to a hard Brexit would be high at around 10 billion euros per year. This would make the loss of income in Germany the highest in Europe, after the UK. France and Italy would also see significant income losses amounting to billions of euros.
With the financial backing of renowned billionaire George Soros shared by the Independent newspaper, extensive research has been conducted on the consequences of a hard Brexit. According to the research, the move will cost the British economy £252 billion, indicating a devastating risk for Brexit opponents and even Brexit supporters who took part in the June 23, 2016 polls, regardless of the implications and forecasts.
The research has looked at the implications and effects of Brexit within 15 years on three major indicators, namely GDP, economic growth and tax revenues.
- Gross Domestic Product
According to the research, a no-deal Brexit would reduce Britain’s GDP by more than three trillion pounds over the next 15 years.
- Economic Growth
In case of a no-deal Brexit, Britain would have to resort to WTO rules for trade with the European Union, which would cut its economic growth by eight percent over 15 years.
- Tax Revenues
UK tax revenues would drop by £82.4 billion over 15 years in case of a no-deal Brexit.
While a significant number of House of Representatives are opposed to no-deal Brexit it is unclear what Johnson’s next move will be if the Parliament disapproves?
Brexit and America
In the presence of Boris Johnson, a far-right British populist politician, those who considered him their type found the situation more in their favor. In case UK is out of EU, Donald Trump would make sure there will be no more talk of united Europe and specific trade laws against the United States and will show the highest degree of satisfaction compared to the political officials in other countries. Unable to hide his pleasure over Brexit Trump repeatedly censured Theresa May, the former British prime minister who sought a slow the exit with fewer implications from the EU.
Republicans and Democrats have taken quite different stances towards Brexit. On the days a referendum was being held on Brexit, former US President Barack Obama said the move was to the disadvantage of Washington and London. He said Britain’s exit from the European Union would put London at the bottom of the list of countries seeking economic ties with Washington. He added that for implementation of trade agreements 10 years would possibly be needed. Britain’s exit from the European Union has been welcomed by the Republicans, and White House National Security Adviser John Bolton has said, “Those in Britain who are worried about leaving the European Union without agreement will know that they are joining the US.” “We in the US are waiting to sign trade agreements with independent England.”
The United States will certainly be Britain’s biggest trading partner in the future, and according to a report by Germany’s Bertelsmann Foundation, US profits from a no-deal Brexit would be 13 billion euros, and those of China and Russia would be five billion euros and 260 million euros respectively. Britain’s trade with Europe will become more expensive but trade with other countries will be cheaper as Brexit will make Europe’s value chain more expensive.
In other words, the harder Brexit becomes and the more limited Britain’s relationship with the European Union after Brexit, the country will have more room to open its markets to American products.
Implications of Brexit for EU Economies
European heads of state, however, have never welcomed a no-deal Brexit and have taken tough positions in negotiations with Britain. Johnson also threatened that he would not execute the £39 billion set by Teresa May if he chose to leave the European Union.
Certainly, the harmful consequences of Brexit are not limited to the British economy and the EU states will also be affected. However, the damage to member states that have a larger economy and maintain their economic market share will be much lower.
The departure of Britain from the EU and growing concerns have forced producers and economic activists to rethink their economic policies because European economic policies had not predicted such developments.
Consequences of Hard Brexit on French Economy
The first consequences of Britain’s exit from the European Union emerged with a decline in French foreign trade and a cut in exports to Britain. According to research conducted, the rate of decline in French exports to the UK has been estimated to be twice as high as in other EU member states, and as the UK’s hard exit from the EU has become more serious, French industries have shown a more conservative approach towards Britain. The automotive sector in France, among other manufacturers, has suffered the most from the decline in exports to the UK followed by food–agriculture sector taking the second place.
Brexit Effects on the German Economy
Germany too has had its share of suffering from the negative consequences of Brexit. Britain’s abrupt exit from the EU has negative consequences for the German economic market. Earlier, Joachim Lang, Chief Executive of the Federation of German Industries (BDI) had said that if Britain left the European Union on March 29 without a clear agreement with the EU, at least 0.5% of German economic growth would drop.
Although Germany’s economic growth is much higher than those in the Eurozone, especially France and Italy, the BDI chief said that the damage, which would amount to €17 billion, could exacerbate the problems of the German economy.
President of the Federation of German Wholesale, Foreign Trade and Services Holger Bingmann also believe that the risk of leaving the EU without a final agreement with the European Union will benefit no one.
Eric Schweitzer, President of the Association of German Chambers of Commerce and Industry (DIHK) also warned that Britain and the European Union should think of a solution to the current problems rather than worsen the situation.
According to the German Federal Bureau of Statistics, Britain imported nearly €90 billion from Germany in 2017, the third and most important export market for Berlin.
German Chamber of Commerce and Industry officials say Britain’s exit from the European Union will hurt German companies and the main reason for this is the devaluation of the British pound against the euro.
This is causing inflation and rising prices of German commodities in the UK, thereby reducing commodity sales and money in circulation. According to German media, there are currently more than 2,500 German companies with branches in the United Kingdom, with an estimated total value of around 130 billion euros and 400,000 employees.
Brexit and Workforce
Another important outcome of Brexit is its impact on the immigration trend, which will slow down in the UK and double the problem of employers in need of labor.
Statistics show that in the second half of 2016, UK employers’ access to qualifications for different jobs recorded the fastest downturn, increasing the number of vacancies needed by British society. As a result, employers were faced with a shortage of labor in at least 60 job categories. If Britain exits the EU with no-deal the terms of trade between the United Kingdom and other EU countries will be distorted and will prompt serious concern to British and non-British businessmen and citizens. Because they do not know what will happen to the UK and the European Union when Brexit is implemented.
Citizens of EU member states are currently freely migrating to the UK for work without the need for a visa, but all of these equations will certainly be disrupted after Brexit.
If anyone outside the EU wishes to travel to the UK for work they must have a job offer of at least £6,000 a year, with the London government announcing that it will apply these stricter rules from 2021 against EU citizens.
Impacts on Non-European Economy
Among other declared implications of a no-deal exit is the collapse of stock markets, a drop in world prices for products such as oil, a rise in world gold prices and more. However, global markets have also been looking at how to continue trading with the UK since the advent of Brexit.
On April 9, the UN Trade and Development Summit report outlined the heavy economic consequences for the various countries.
Leaving without a deal would mean canceling an existing trade agreement between Britain and other countries, where other non-EU countries exporting goods and services to the UK would face double tariffs, which would endanger export balance in the world.
The study cites the benefits and disadvantages of a no-deal Brexit for various countries in the world and countries with less than a million dollars in exports to the United Kingdom are not taken into account.
Accordingly, various countries will benefit from no-deal Brexit with the following five countries standing first:
China: $10.2 billion increase in exports to the UK
US: $5.3 billion increase in exports
Japan: $4.9 billion export increase
Thailand: $2.3 billion in export growth
South Africa: $3 billion increase in exports
Other countries will also suffer enormous losses with the first five countries cited below:
EU countries record a cut of $3.6 billion in exports to Britain
Turkey with $2.4 billion in export cuts
South Korea with $714 million in export cuts
Pakistan with $497 million in export cuts
Norway with $209 million in export decline
Ultimately, whatever way Britain chooses it will affect not just the country and the European Union significantly but the world’s political and economic equations.
In any case, after leaving the EU, Britain’s bargaining power will diminish and those seeking autonomy in enacting the laws and independence in the economy must first establish the frameworks of the identity of the British economy and its national sovereignty in the chaos created by the hard exit from the European Union.
Britain will be able to control the migration flow to its homeland without an agreement and the EU will reciprocate in other respects. The imposition of tariffs on imports and exports of goods from the UK and the European Union and vice versa is another issue that should be considered as a consequence of an exit without agreement. When agricultural tariffs are set to 60%, Britain will exit the EU commodities and agricultural products market.
Difficulties in providing food and merchandise in ports, the decline in the price of housing, trade problems, changing immigration laws, long lines at borders and disruption in air and land travel are other consequences of leaving the EU without agreement.
With a no-deal Brexit, all its obligations to abide by the EU economic, social and commercial laws and regulations will be waived overnight without a new system immediately replacing it, bringing a new round of tensions to the long-established Green Continent.