Brexit Effect Analysis

Following the calls by Europhiles to leave the EU, one may ask why the EU was created in the first place. The formation of the EU was after World War II when countries came together as a means of enhancing economic cooperation and interdependence. The creation of European Economic munity (EEC), was as a result of this effort; it led to the creation of the single market, allowed free movement of EU citizens within the EU and saw the formulation of favourable trade policies. The economic objectives of all these efforts were to reduce trade costs within the EU and to bring about mobility, growth, stability and a single currency. Having noted the foregoing, the questions to be asked are: what would b e of the UK once it left the EU? Is the UK willing to throw away all the benefits that are dependent on its membership in the EU? The statement on page 2 of the article shows the reluctance towards the idea of the UK leaving the EU. There is uncertainty on what would be the aftermath of Brexit. There are arguments that the UK economy will most likely deteriorate given the volatile trade environment whereby the UK will no longer have access to the single market, in addition, to losing of EU regional funding and other subsidies such as funding for various innovative programs. The Brexit referendum has taken the UK into uncharted waters, and it is pletely unprecedented. Calls in support of the referendum caused a lot of political turmoil which has threatened the economy adversely, yet the economy’s prosperity is dependent on political stability (Grixti, 2016). Various studies conducted by various institutions inter alia the National Institute of Economic and Social Research and also the Centre for Economic Performance suggest that the economy of the UK will likely suffer a permanent plunge upon Brexit. The studies are informed by the fact that it is contemplated that foreign investments in the UK will reduce substantially. Further, and more importantly, various researchers have put forth arguments that once out of the EU, the UK will no more enjoy the benefits accruing from the FTA and will cede access to the EU’s single market that offers a consumer market of up to 500 million consumers. The pertinent question that ought to have been deliberated upon is: what would be the consequences of staying out of the EU? Though this question can evoke different responses, Campos et. al. (2015) caution that leaving the EU would not be the best of options in the world that is characterized by the globalization of economies. Further, Bootle (2015) states that from analyses conducted, the projected differences in the UK’s GDP while in the EU and when out are too marginal to base the decision of leaving the EU on the same. Taking into consideration the ideas behind the creation of the EU (which include inter alia creating the single market, allowing free movement of EU citizens within the EU and formulating favourable trade policies), it is not u mon for the authors to be hesitant about leaving the EU and to consider the event a gamble because it would amount to throwing all the EU’s achievements so far into the gutter and the effects on the economy are unpredictable. The question whether the UK will cooperate with the EU is entirely dependent on a number of factors. For a fact, as has been stated hereinabove, once out of the EU, the UK will no more benefit from the Free Trade Agreement and will lose access to the single market. There will no longer be free movement of goods, services or capital. The EU being the UK’s biggest trade partner, it is estimated that the UK will suffer substantial losses. Further, arguments have been fronted that UK citizens in EU states will be subjected to more stringent immigration requirements (Ottaviano et. al, 2014). UK citizens living within the EU states have been advised not assume that rights guaranteed under the application of the free movement rules would still hold post-Brexit. However, in my considered opinion and going by the provisions of international law, and more particularly, the Convention of Vienna on the Law of Treaties 1969, the effect of a state withdrawing from a treaty is to release the parties thereto from future obligations to one another. But, the obligations or rights that arose prior to the withdrawal will continue to exist.   Further, the EU’s Charter of Fundamental Rights forbids collective expulsion of foreigners under Article 19. This is the similar position under protocol four of the European Convention on Human Rights, Article 4 which states that â€Å"collective expulsion of aliens is prohibited.† Therefore, the post-Brexit effect shall (if at all) negatively impact on future migrations from the UK into the EU. Dhingra and Sampson 92016) argue that among the UK’s options post-Brexit would be to maintain ties with the EU or start new relations with the rest of the world. In the first option, the UK would engage the EU in negotiations to join the European Economic Area which would give UK access to the single market. However, the challenge with this option is that the UK will be required to implement EU trade policies. This will be a major hurdle to cross taking into consideration the fact that one of the reasons for exiting the EU was to â€Å"subvert the damage that the excessive and misguided regulations [was] doing to Britain† (Congdon, 2016). The other option would be for the UK to independently negotiate its trade deals with the rest of the world and look away from the EU. The UK may join the World Trade Organization and negotiate trade deals without having to adopt the EU regulations or paying into the EU budget. However, with a market of just over 65 million consumers, the EU is by default considered a favourable trade partner with its 500 million consumers and may push the UK out of the negotiating table. New Keynesian Economics School believes that policymakers have the capacity to advance economic stability through policies calculated to the battle of market failures. In conclusion, therefore, it is for the EU leaders to decide the best approach to this issue, taking into consideration the economic benefits of cooperating with the EU instead of the political interests. A report by the Council of Financial Regulators (CFR) on the implications of Brexit revealed that globally, the immediate impact of Brexit was heightened market instability and associated uncertainties which saw declines in bond yields. The report states further that the short-term impact on the economy is mainly concentrated in the UK. Globally, however, there are reports of dampened investments with various market players opting not to invest their resources, while the market is so volatile and wait for the Brexit effects to cool off. This may ultimately lower the global GDP to some trifling extent. Be that as it may, the period around the Brexit referendum negatively affected the countries in the Eurozone whereby the strength of the Euro currency against the US dollar plummeted by a whopping 7.6% due to the uncertainties surrounding the Brexit (Irwin, 2016). This dollar surge is associated with the fact that due to the Brexit uncertainties, investors in forex trade opted to dump or withdraw from investing in the Euro (or the pound for that matter) which is right in the epicenter of the seismic Brexit event and chose the dollar currency. The problem with this dollar surge is that those states that are dollar debtor will face more financial challenges in offsetting the debts. On another limp, Irwin (2016) notes that whatever economic ties and trade links there are between the UK and other states shall determine the direct impact that Brexit shall have on those states’ economies. Further, according to the CFR report, the fact that the UK contributes only about 2% of the global GDP, in the long run, there will be relatively little impact on the economy of the world at large. The CFR report further reveals that the Australian banks had taken advance measures to improve their resilience by obtaining stronger funding in the event that the Euro’s viability escalated, which would have in turn affected funding and operations. This way, the Australian dollar would maintain its liquidity regardless of the post-Brexit impact. Therefore, the effect on Australia’s economy will be minor, if at all. This demonstrates that various governments had anticipated the post-Brexit effect and in response thereto, had taken precautionary measures to ensure that the economy of their states will not be affected adversely by the Brexit referendum. This approach adopted by demonstrates that there good fiscal policies are capable of countering any economic crises as fronted by the modern monetary theory. In the end, we must remain alive to the fact that this leaving the EU will most likely take considerate time since there have to be lengthy negotiations on the modalities to be adopted by the UK and the EU once Article 50 of the Lisbon Treaty is invoked. The long-term effects of Brexit are anchored on the ou e of these negotiations. Bootle, R., 2015.  The Trouble with Europe: Why the EU isn't Working, how it can be Reformed, What Could Take its Place. Nicholas Brealey Publishing. Campos, N.F., Coricelli, F. and Moretti, L., 2015. Norwegian rhapsody? The political economy benefits of regional integration. Available at: https://papers.ssrn /sol3/papers.cfm?abstract_id=2619188 [Accessed 3 Sep. 2016]. Congdon, T., Too Much Regulation.  The Economy after Brexit, p.11. Available at: https://static1.squarespace /static/570a10a460b5e93378a26ac5/t/573182efcf80a12bea55ab12/1462862605164/Economists+for+Brexit+The+Economy+after+Brexit.pdf [Accessed 3 Sep. 2016]. Council of Financial Regulators: Report on the Implications of Brexit. (2016). [pdf] Available at: https://www.treasury.gov.au/~/media/Treasury/Publications%20and%20Media/Publications/2016 Dhingra, S. and Sampson, T., 2016. Life after Brexit: what are the UK’s options outside the European Union? [Online] Available at: https://eprints.lse.ac.uk/66143/ [Accessed 3 Sep. 2016]. Ec.europa.eu. (2016).  The EU Single Market - European mission. [Online] Available at: https://ec.europa.eu/internal_market/index_en.htm [Accessed 3 Sep. 2016]. Grixti, I. (2016).  Post-Brexit Uncertainties. [Online] Times of Malta. Available at: https://www.timesofmalta /articles/view/20160720/opinion/Post-Brexit-uncertainties.619402 [Accessed 3 Sep. 2016]. Ho, T. H., Lim, N. and Camerer, C.F., 2006. Modeling the psychology of consumer and firm behavior with behavioral economics.  Journal of marketing Research,  43(3), pp.307-331. Irwin, N. (2016). How ‘Brexit’ Will Affect the Global Economy, Now and Later. [Online] Nytimes . Available at: https://www.nytimes /2016/06/25/upshot/how-brexit-will-affect-the-global-economy-now-and-later.html?r=0  Ã‚   [Accessed 3 Sep. 2016]. Ottaviano, G., J. P. Pessoa, T. Sampson and J. Van Reenen (2014) ‘The Costs and Benefits of Leaving the EU’, Centre for Economic Performance Policy Analysis Available at: https://cep.lse.ac.uk/pubs/download/pa016.pdf [Accessed 3 Sep. 2016]. Parker, G. (2015). ‘Tories Shun Brexit Contingency Plans’, Financial Times. Available at: https://www.ft /cms/s/0/208fdf8c-9846-11e5-95c7-d47aa298f769.html#axzz3xSEYNfkq [Accessed 3 Sep. 2016]. /Report%20on%20the%20implications%20of%20Brexit/Downloads/PDF/CFR_Brexit.ashx [Accessed 3 Sep. 2016].