Whoever ends up becoming Britain’s new prime minister faces a daunting five years in office, with the negotiations of the country’s withdrawal from the European Union topping the list of priorities. According to the authors, the five main challenges ahead consist of Brexit, terrorism and security, the economy, Scotland and Northern Ireland.
Although it might seem theoretically possible to cherry pick a number of sectors and negotiate trade agreements for specific domains, there is considerable linkage between the sectors. It has taken a quarter of a century to negotiate the single market as it exists today and could take nearly as long to renegotiate a new arrangement on a sectoral basis. The practical problems of negotiating agreements that cover the majority of our trade would not only take years but the uncertainty thus generated would hold back investment and damage the economy. Whether the UK is inside or outside the single market, EU regulations cannot be avoided if Britain wishes to trade with the European Union. What can potentially be decided is the form of compliance, either though EEA rules, FTA equivalence or firms individually complying with standards for their exports. The more regulatory independence the UK tries to carve out, the more difficult it is likely to be for British firms to export to the EU without facing trade barriers. The broader economic impact of having more restricted market access also has to consider secondary effects. Industries such as real estate could be affected if the landscape for foreign direct investment changes. Furthermore, foreign investment into key British industries such as manufacturing may also be affected by restricted access if investors end up having less certainty in the ability of their assets to generate income domestically and abroad.
On Wednesday the 28th of September , PubAffairs Bruxelles hosted a debate on the effects of Brexit on the UK and the EU, with Ms Julie Girling MEP (ECR, UK), Mr Frank Engel MEP (EPP, LU) and Mr Seb Dance (S&D, UK). The event was moderated by Graham Bishop, Leading Expert in EU and UK Economic, Financial and Government Affairs.
We are most pleased to invite you to participate in an evening of discussion on the ‘Brexit effect’ in the UK and the EU with our distinguished speakers Ms Julie Girling MEP (ECR/UK), Mr Frank Engel MEP (EPP/LU), Mr Seb Dance MEP (S&D/UK).
The debate will be moderated by Graham Bishop, Leading Expert in EU and UK Economic, Financial and Government Affairs
About the debate
The EU referendum result and the consequences of the finalisation of a UK exit from the European Union have featured high on both the European and global agenda as the stakes of this very process, particularly within the current European and international context, are markedly elevated. For the first time in European history a member state is about to trigger the Lisbon-introduced article 50 of the TEU, which is unarguably the only EU law guideline regulating a member state ending membership of the Union. As far as negotiations are concerned, it will be up to Theresa May, who succeeded David Cameron as Prime Minister after a Cabinet reshuffle, to initiate the procedure and to start the negotiations as, since a relatively short time after the vote, both European Institutions and several high-level European political figures have excluded the possibility to proceed with informal negotiations before the procedure is formally started by the UK itself.
We are delighted to invite you to the debate organised by PubAffairs Bruxelles which will be held on Wednesday the 28th of September at 19.00 at the premises of Science14 Atrium, rue de la Science, 14-B, Brussels. The debate will investigate whether the Brexit process will be a lose-lose game for both the UK and the EU.
Although speakers and event details will be announced in the coming days, we are publishing this event now to make sure you save the date.
About the debate
The EU referendum result and the consequences of the finalisation of a UK exit from the European Union have featured high on both the European and global agenda as the stakes of this very process, particularly within the current European and international context, are markedly elevated. For the first time in European history a member state is about to trigger the Lisbon-introduced article 50 of the TFEU, which is unarguably the only EU law guideline regulating a member state ending membership of the Union. As far as negotiations are concerned, it will be up to Theresa May, who succeeded David Cameron as Prime Minister after a Cabinet reshuffle, to initiate the procedure and to start the negotiations as, since a relatively short time after the vote, both European Institutions and several high-level European political figures have excluded the possibility to proceed with informal negotiations before the procedure is formally started by the UK itself.
Although some commentators have noticed that, according to the British legal system, referendums are not binding and that the juridical void on the timelines for the triggering of article 50 could be problematic, several other observers agree on the fact that the new conservative Prime Minister should start formal negotiations between September and October. Indeed, at the end of July, a UK Cabinet Minister declared that the new Prime Minister ‘is a person who wants to be guided by the evidence’ and that she ‘does not just want to take the Treasury report on alternatives to EU membership off the shelf and pick one’. Even if there is still the remote possibility of reversing this setting, the process of ending the UK EU membership by beginning negotiations seems inevitably the main upcoming item for the autumn agenda. As for the European and the British economy, while the pound sterling had a severe depreciation, current data do not indicate a severe ‘Brexit effect’ in the UK or in the EU; this may be partially explained by the fact that investors are aware that it will take some time to implement a Brexit and they have therefore adopted a ‘wait and see’ attitude.
Three main focal points have clearly emerged in the public, diplomatic and experts’ debate: first of all, the way in which the UK will access the single market, secondly, the question of free movement of people and its consequences for both UK and the citizens and, last but not least, the future of the financial sector in Europe. These three key issues are at the core of the suggested existing models of non-member states’ relationship with the EU, namely the Swiss, the European Economic Area and the Canadian model, as market access, freedom of movement, regulatory convergence and financial services are the classic points of discussion of any meaningful trade agreement.
Furthermore, timing may be a factor of friction as the European Union has so far demonstrated the willingness to settle the British question as soon as possible, while the UK may aim at a long process in order to better adapt and cope with the new situation. In the meantime, and whatever the timing and the results of the negotiations, both the OECD and the IMF have predicted several possible negative repercussions for the global economy as a whole by insisting on the fact that uncertainty will negatively affect exchanges worldwide.
With regards to the so-called ‘Brexit effect’ on both the UK and the EU economic and political settings, although several analyses have already been put forward, the medium and long-term consequences remain unknown. At first, Brexit was claimed as an effective anti-eurosceptics factor for the benefit of traditionally pro-European parties in case the UK is negatively affected by this process. At the same time, the perception of the appropriateness or inappropriateness of the choice of the UK to leave the European Union will mainly depend on the extent to which both the UK and the EU will be able to manage this process both in terms of economic performances and political stability. Will the overall consequences of Brexit lead to a lose-lose game for both the UK and the EU?
This event is held under the Chatham House Rule. Participants are free to use the information received but neither the identity nor the affiliation of the attendees may be revealed. For this reason, unless explicitly authorised by PubAffairs Bruxelles, the filming and/or the recording of the event by any means are strictly forbidden.
The event will commence with a welcome drink at 7h00 pm, followed by a debate at 7h30 pm. After the debate there will be an opportunity for questions and discussions.
We look forward to seeing you at 7h00 pm on the 28th of September at Science14 Atrium, rue de la Science 14-B, Brussels.
All our debates are followed by a drink in a convivial atmosphere.
The United Kingdom is unlikely to try to lure international investment by becoming a tax haven after it leaves the European Union, according to an internal memo prepared by the body responsible for the drafting international tax rules. The head of tax at the Organization for Economic Co-operation and Development, which advises developed nations on policy, said the UK could use its freedom from EU rules to slash corporate tax but the political price would be high. The idea the country may cut tax on multinational companies’ profits, which could also help them avoid tax on profits made elsewhere in the EU, has been raised by some accountants and policy experts since the country voted to leave the bloc.
However, since the referendum result, political and economic realities have made both of these options look increasingly unattractive. There appears to be a growing consensus, uniting almost all pro-Remain politicians and much of the Leave camp, that the UK should seek to maintain as full access to the Single Market as possible. At the same time, as I noted, it is impossible to view the referendum result as anything other than a rejection of free movement in its current form. As a consequence, it looks likely that the UK’s negotiating position (particularly if Theresa May, the current favourite, becomes PM) may coalesce around “EEA-minus”, described by George Osborne’s former Chief of Staff Rupert Harrison as “a bit more immigration control and a bit less single market”. This represents a much more realistic version of Boris Johnson’s desire to have his cake and eat it; perhaps more making our own bed and lying in it.
I will leave it to others to analyse what “a bit less Single Market” might mean; this blog attempts to set out some first thoughts on what, in practice, “a bit more immigration control” might entail, within the limits of administrative and political feasibility. I see two broad types of control:
Under this option, there would be limits to the number of EEA nationals who could legally work here. That sounds simple. In practice it would be anything but, for several reasons:
- It seems likely that EEA nationals who have already exercised free movement rights will retain those in perpetuity (absent this it is difficult to see any negotiation being successful). As a matter of practicality, this is likely to mean that those who have already registered for a UK National Insurance number would not be subject to any future restrictions. But – given the very large increase in short-term migration identified by the Office for National Statistics – this means that there are (conservatively) at least 1.5 million EEA nationals not currently resident in the UK who already have some connection with the UK labour market and who could therefore in future migrate to the UK without being subject to any quota.
- It does not seem likely or feasible that we would restrict EEA nationals right to enter the UK without a visa. We do not have a comprehensive exit or entry database, nor any sort of population register; so we have no way of directly monitoring the movements of EEA nationals in and out of the UK. So it is difficult to see how we would find and remove EEA nationals who were “overstaying”; nor, frankly, to see why this would be priority for an already woefully overstretched Borders Agency.
The obvious way to implement a quota, then, would be to restrict the issuance of new National Insurance numbers to EEA nationals, with a monthly or annual ceiling. Once that ceiling was hit, any further EEA nationals seeking to work in the UK would have to apply through the system that currently applies to non-EU nationals. Even this would be hugely complex. For example, what would be the status of the spouses of “qualifying” EEA national, whether from inside or outside the EU, who did not “qualify” in their own right? Would they be entitled to work? Or to reside, but not work?
Despite the complications, such a system would – given sufficient political and bureaucratic will and effort – be just about feasible. However, for the reasons above, the impact on migration numbers (as measured in the official immigration statistics), will be slow, partial and indirect.
Are there other restrictions which could increase the UK’s control over immigration? At one point in his unsuccessful renegotiation, the Prime Minister suggested that free movement could be restricted to EEA nationals who already had a job offer, and when he failed to deliver this he was much criticised, with the Leave campaign making much of the fact that the latest immigration statistics showed that an estimated 77,000 EEA nationals arrived last year to look for work, but without having a job to come to.
However, this displays a remarkable ignorance of how flexible labour markets actually work in an integrated market. How, in practice, would such a restriction be imposed? As noted above, we won’t be stopping EU migrants at the border. Would we require them to apply for an NI number from abroad – with evidence of a job offer? There would be nothing stopping them from coming to the UK, finding a job, returning home, and then re-entering with their “offer”; the only impact would be on Ryanair’s profits. Alternatively, agencies would no doubt spring up to offer a package deal service. There would be some extra transaction costs for employers and workers, but not much impact on migration.
More plausible would be restrictions not on the basic Treaty principle of free movement but on the various associated rights which various EU directives and the European Court of Justice have created around it. These include the rights to access welfare benefits and public services on a roughly equal basis to citizens; and the rights of non-working spouses and family members, both from within the EU and outside it. Such restrictions were of course what the Prime Minister sought to obtain in his renegotiation, with at best partial success; however, if we are outside the EU itself, there might be considerably more room for manoeuvre. Again, however, the impact on numbers is likely to be indirect and uncertain.
To sum up; given the political will, outside of the EU we could indeed restrict free movement without ending it. There would, however, undoubtedly be a political and economic price to pay in terms of our access to the Single Market. EEA nationals would continue – contrary to the promises of Vote Leave – to maintain a highly privileged access to the UK labour market compared to non-EEA nationals, albeit not to the same extent as at present. And the impact of restricting the currently almost entirely unconstrained rights of EEA nationals to live and work here on migration flows, actual or measured, would be indirect and uncertain; although, as I noted previously, this debate is in any case likely to play out against a background of falling (net) migration from within the EEA.
About the National Institute of Economic and Social Research – NIESR
The National Institute of Economic and Social Research is Britain’s longest established independent research institute, founded in 1938. The vision of our founders was to carry out research to improve understanding of the economic and social forces that affect people’s lives, and the ways in which policy can bring about change. Over seventy-five years later, this remains central to NIESR’s ethos. We continue to apply our expertise in both quantitative and qualitative methods and our understanding of economic and social issues to current debates and to influence policy.
The United Kingdom’s Brexit referendum has shaken equity and financial markets around the world. As in prior episodes of contagious financial turmoil, the victory of the “Leave” vote sent skittish global investors toward the usual safe havens. US Treasury bonds rose, and the dollar, Swiss franc, and yen appreciated, most markedly against sterling.
When it became clear that the “Remain” camp had lost, the pound’s slide seemed to be on track to match the historic 14% depreciation of the 1967 sterling crisis. But the rollercoaster outcomes that we’re now seeing in global capital markets are not unique to the Brexit episode.
What is unique, and particularly far-reaching, is the precedent Brexit sets for other countries (or regions) to “exit” from their respective political and economic arrangements – whether it is Scotland and Northern Ireland in the UK, or Catalonia in Spain. The borders of existing nation-states could be redrawn, or fenced off entirely if disgruntled member states submit to internal nationalist impulses and give up on the multi-decade experiment in European unification. (And, as Donald Trump’s presidential campaign in the United States shows, this impulse extends beyond Europe.)
With its systemic negative effects on finance, trade, and labor mobility, Brexit marks a major setback for globalization. The fallout from Brexit probably won’t spread as quickly as in outright financial crises, such as the 2008 financial meltdown or the 1997 and 1998 Asian episodes. But the aftereffects also won’t subside anytime soon.
The UK’s trade, finance, and immigration arrangements are far too complex and entrenched to be renegotiated quickly. In the meantime, many cross-border transactions in goods, services, and financial assets are likely to be placed on hold. Even if there are no other “exit” moments elsewhere in Europe, a protracted period of uncertainty in global capital markets seems likely.
It’s worth recalling that globalization did not begin with the current generation. The latter part of the nineteenth century, despite its technological limitations, was an era of rising global trade. Major waves of immigration radically diversified the demographic makeup of the US and other parts of North and South America. London was host to a rapidly growing global financial industry, as it had been since the time Britain emerged victorious from the Napoleonic Wars.
World War I ended this earlier wave of globalization; and, even with the return to peace, the world never really recovered. The economic depression of the 1920s in Britain, and of the 1930s in the rest of the world, ushered in a global wave of protectionist, inward-looking policies and beggar-thy-neighbor competitive devaluations. The last nail had been hammered into the coffin of globalization even before the outbreak of World War II. While not the original or singular cause of the worldwide slump, there is widespread agreement among economists and historians that policymakers at the time made a bad situation significantly worse.
After WWII, global integration finally began anew, first in trade and then, since the 1980s, in finance. During this time, London’s financial center awoke from its long slumber and helped the UK become one of the pillars of a new, deeply integrated international political economy. Prior to the 2008-2009 global financial crisis, most indicators of global trade and finance had reached new peaks, and European unification contributed significantly this. But, with the onset of the crisis, cross-border finance in Europe shrank as highly leveraged eurozone economies began to lose access to international capital markets, and concerns about private and public insolvency took center stage.
The financial crisis resulted in the steepest synchronous drop in world trade since the Great Depression of the 1930s. And global trade still has not recovered its earlier trajectory: since 2008, export volumes have risen at only about half the average annual rate of the pre-crisis period (3.1%, see figure below). Europe itself has experienced an even sharper slowdown.
The global financial crisis dealt a significant blow to globalization, especially in terms of trade and finance. Now Brexit has dealt another blow, adding labor mobility to the list.
Financial markets do not handle uncertainty well. With the world already facing anemic growth and low levels of investment, any adequate damage-control plan must include prompt resolution of the new rules of the game for Britain and its relationship with the EU. Any delay will cause further frustration and increase the odds of retaliatory policies from EU members. The last thing anyone needs is a tit-for-tat process of political divorce that only serves to deepen the global economy’s already-widening fault lines.
On June 23, British voters will decide in a referendum whether to remain in the EU or go it alone. Advocates of remaining, including Prime Minister David Cameron, may have the better arguments, but the future of the UK – and of Europe – is unlikely to be determined by reason alone. The long phony war about the United Kingdom’s place in Europe is over. An increasingly vicious domestic “Battle for Britain” has been underway for weeks. In a referendum on June 23, British voters will decide whether the UK remains in the European Union or, after more than four decades of membership, negotiates its withdrawal. Opinion polls are finely balanced. With the EU increasingly seen through the lens of economic crisis, political turmoil, and unwanted migrants, a British exit – or “Brexit” – is a realistic prospect. Indeed, advocates would seem to have the wind at their backs: In an age of widespread anti-establishment rage, their claim that bossy Brussels bureaucrats are to blame for everything wrong with Britain resonates widely, tempting voters to project their personal visions of Utopia onto a post-EU future. The “remain” camp, by contrast, must somehow sell the reality of the EU as it is, warts and all.While Britain’s debate about its relationship with “Europe” is often insular, Project Syndicate’s commentators bring a broader perspective to the question. They examine not only the likely implications of Brexit, but also how the UK arrived at this point and what the referendum – however it turns out – means for Europe’s future.
We are most pleased to invite you to participate in an evening of discussion on the short-term impacts and long term consequences of Britain’s membership renegotiations for the UK and the EU with our distinguished speakers Mr Timothy Kirkhope MEP (ECR/UK), Mr Richard Corbett MEP (S&D/UK), Mrs Danuta Maria Hubner MEP (EPP/PL) and Mr David McAllister MEP (EPP/DE)
The debate will be moderated by Gavin Hewitt, BBC Chief Correspondent
This debate is organised in partnership with
About the debate
Between the 18th and the 19th February, the European Council decided to discuss a series of issues in order to respond to the concerns expressed by David Cameron in a letter addressed to the President of the Council Donald Tusk on the 10th of November 2015 and entitled “a new settlement for the United Kingdom in a reformed European Union”. The main areas of reform requested by the British Prime Minister notably concerned the questions of economic governance, competitiveness, sovereignty and immigration. An institutional response to David Cameron was necessary not only as the British Prime Minister had already in 2013 declared that he would hold a referendum on the EU in the event of victory in the 2015 general elections, but also as, after having gained his second mandate as a Prime Minister, he stated that he would support the UK’s remaining in the EU if his demands for reform were accepted by the other EU member states.