The British voters have decisively spoken in the June 23 referendum that they want their country out of the European Union. While 48 percent favored to stay, 52 percent supported Brexit, or Britain’s exit. The decision has thrown the United Kingdom, Europe and the world into a vortex of political and economic uncertainty, which is likely to be worse before it gets better.
In Britain, the Conservative Prime Minister David Cameron, who had led the campaign to stay, announced that he would stand down in the wake of the referendum result. Jeremy Corbyn, the Labor leader, is facing a revolt, as he is accused of campaigning half-hearted in favor of remaining within the EU. He has sacked one shadow cabinet leader and one cabinet leader has already resigned. More upheaval is expected in the next few days.
Brexit has rattled the very existence of Britain, as we know it. Nicola Sturgeon, the first minister and leader of the Scottish Nationalist Party, has said the second referendum for Scottish independence is on the table and that she would lobby EU to keep Scotland in it, in view that Scottish voters overwhelmingly favored staying in the EU. For the same reason, Deputy First Minister Martin McGuiness has demanded a referendum for Northern Ireland’s unification with Ireland.
It is hard to predict how all these proposals and demands will play out in the coming days and months. However, even though at the end it could remain intact or lose Scotland and Northern Ireland, the result of the referendum has thrown the United Kingdom into a whirlpool of uncertainties.
The immediate economic impact of the Brexit vote in Britain has been swift and sharp while the long-term impact will emerge more gradually. The sterling hit 31-year low against the US dollar and the FTSE 100 and FTSE 250 also declined sharply. Though the pound and stocks regained some ground, billions of pounds were wiped out by the market volatility.
The long-term impact will be felt in the price, investment and GDP of the United Kingdom. The fall of the sterling’s value may trigger inflation, as imports will be more expensive. Moody’s has downgraded the UK’s credit rating. Investors planning to invest in Great Britain to supply products and services throughout the single market of 28 EU countries will invest within the EU, if the UK fails to join the single market.
All this will have a negative impact on British GPD. Economists have predicted that the United Kingdom could go into recession and suffer lower growth for a considerable period. The British economy will have difficulty finding a stable footing until it knows what kind of trade deals British politicians will be able to clench from the European Union and from other countries across the world.
The European Union faces its own economic and political challenges due to the Brexit. The Brexit vote sent Europeans bourses on a tailspin. It has encouraged nationalist parties across EU to imitate Britain in the next few months and years, imperiling the very survival of the European Project. After Britain leaves within two years, the EU’s economic and political influence in the world would have diminished proportionately, if not more. The EU-Britain trade negotiations may bring rupture among the remaining 27 members of the Union.
In the United States, Brexit sent the Dow Jones, S&P and NASDAQ down. It has also undermined America’s strategic and economic architecture in Europe, which stands on two pillars — North Atlantic Treaty Organization and European Union. While NATO stands to protect its members from non-members in Europe and elsewhere, the EU has been the bulwark of internal/regional security and the spread of democracy and prosperity in Europe.
Once Britain is out, the EU’s expansion will to a grinding halt. Candidate and aspiring countries that have American backing might be cooling their heels forever outside the EU’s boundaries. A weakened EU will also weaken NATO. For instance, the EU without Britain would not have been as strident in imposing economic sanctions on Russia in the wake of its involvement in destabilizing Ukraine.
What is more, Britain’s exit from the EU, made possible by the angry populist-nationalist combine, might make Donald Trump’s election as president palatable to the American people in November this year. Examples matter.
The rest of the world will also suffer from Brexit and the EU’s weakening. Both of them will have less political and economic clout to project across the world. If Britain falls into a prolonged recession and if the nationalist-led government decides to slash its development assistance, developing countries will suffer from it. Trade between Britain and other countries will face the wall of tariffs allowed under the WTO rules, until specific trade agreements are signed.
The EU has already sent out indications that its development assistance may decline after Britain leaves. A weakened EU will be less effective in supporting new democracies and pro-democracy movements around the world.
For a country and people, sovereignty and independence are as important as economic well-being. When Britain held a referendum in 1975, the British voted in favor of economic well-being and joined the European Common Market, the forerunner of the EU. Now the sovereignty has trumped economic well-being. And its repercussions will be felt for some time in Britain, in EU, in America, and the rest of the world. Britain will eventually do well outside the EU, though not as well as in it.