Brexit – What it is and Why it Matters
By now, most of us have heard of ‘Brexit’, the U.K.’s exit from the European Union (EU). While we know it’s a big deal, we may not know why – and we are not alone. In fact, only hours after the polls closed on the vote, Google started to show an interesting fact regarding the confusion.
The polls closed at 10 p.m. Late that same night, Google trends showed that U.K. searches for “What is the EU?” began climbing. By the next morning it was the second top U.K. question on the EU, according to Google Trends. This means that residents didn’t even know what they had chosen to leave.
Even now, after the vote, many in Britain and around the world aren’t exactly sure what the consequences will be, what happens now, or even what the EU is.
So, let’s break it down.
What is the EU?
The European Union, also known as the EU, according to an article by the BBC, is, “an economic and political partnership involving 28 European countries.” It came together after World War II in order to encourage trade. Also, the hope was that countries who work so closely with, and are dependent on, one another, would avoid going to war with each other.
This essentially means that the individual countries in the union act as one large country, allowing goods and people to move across borders easily. They have their own parliament and make their own rules.
EU countries pay a certain percentage into the Union, their residents are free to work in any EU country and EU funds go to support farmers, boost jobs, support poorer areas and fund university research.
So, given these benefits, why would the U.K. want to leave?
Why the Exit?
As far back as the first days of Britain’s entrance into the European Economic Community, and then the EU, some groups have been skeptical of its integration with Europe. The U.K. has always refused to eliminate internal border control and never adopted the EU’s currency. And, these skeptics grew even louder after the 2008 financial crisis. The distrust created by the financial crises was one of the main reasons given for wanting to leave.
While these skeptics have been throwing the idea around since the beginning, things escalated after the recession. The Eurozone was hit harder initially than the U.S. and rather than expand the money supply to support economic activity, the European Central Bank raised interest rates, causing the country to dip into a double recession. While the near collapse didn’t directly affect Britain, it did give some the idea that being a part of the EU was risky. Would it happen to them next? Would they face pressure to bail out others? These questions and concerns were some of the driving motivations behind the final vote.
Other reasons stated for wanting to leave the EU were:
Because of poor economic performance in other EU companies, the U.K. has experienced a surge of workers from places like Poland and Portugal looking for work. And, due to the EU’s open immigration guidelines (the law requires members to admit an unlimited number of migrants from other EU companies), there is nothing Britain can do to regulate this flow of new residents. Many Brits are worried that the constant influx of residents coming into the U.K. looking for work and support will overwhelm the employment market.
More Give Than Get
Members of the EU contribute a percentage of their funds to support the goals of the union. Each country then receives money back from the EU to support various projects. While it’s not the largest contributor, Britain certainly represents a large chunk of the EU’s incoming budget and, as of late, it does not feel as though it is getting enough back compared to what they have put in. Many politicians have argued that, according to a CNBC article by Everett Rosenfeld, “the EU’s strong regulatory regime and its required contributions actually depress the U.K.’s growth potential.”
While these are merely a few of the large scope of reasons the U.K. would want to leave the EU, the fact remains that they have left and now must face the question of what happens now.
They May Be Out, But They Haven’t Left
While the vote established that Britain wants to leave the EU, they may not actually be able to make their exit for another few years.
In order to leave, David Cameron, or his successor, must invoke Article 50 of the London Treaty. This will begin the legal process of an exit and gives the U.K. two years to negotiate their withdrawal. The catch? This process has never occurred and it is yet unknown how it will work. The entire process could take up to three years, leaving Britain in a type of limbo where the laws they were trying to escape still apply and they can no longer make decisions that affect the EU.
This, possibly unexpected, consequence of an exit could lead to an “it will get worse before it gets better,” type of situation for both Britain and possibly the rest of the world. Right now, depending on how you look at it, the EU could qualify as the first to the third largest economy in the world. The lengthy and unknown process of an exit could affect not only trade within the bloc of the union (which, before the exit, topped both the U.S. and China in imports and exports) but also business with other countries, including the U.S.
According to the European Commission, in 2014, American direct investment into the EU totaled about 1.81 trillion euros, and about 1.99 trillion euros flowed in the opposite direction. Any disruptions to this flow of funds could have massive consequences across the globe.
While it’s still uncertain what will happen to Britain, and the rest of the EU, one thing that Brexit makes clear is how important it is to remain educated on the events and state of your country, and the countries you do business with.