Key Points of Brexit
Brexit is a portmanteau
of "British" and "exit. The term Brexit may have first been used
in reference to a possible UK withdrawal from the EU by Peter Wilding in a
Euractiv blog post on 15 May 2012. Brexit is a commonly used term for the
United Kingdom's planned withdrawal from the European Union. Following the 2016
referendum vote to leave, the UK government started the withdrawal process on
29 March 2017, putting the UK on course to leave by April 2019. Britain is the
first country in the EU in more than 60 years to seek a divorce from the union.
In a speech to the
House of Commons on 22 February 2016, Cameron announced a referendum date of 23
June 2016 and commented on the renegotiation settlement.The result was
announced on the morning of 24 June: 51.9% voted in favour of leaving the
European Union and 48.1% voted in favour of remaining a member of the European
Union.
May signs the official
letter to European Council President Donald Tusk invoking Article 50 and
marking the United Kingdom's intention to leave the EU on March 28, 2017, in
London.Prime Minister Teresa May invoked Article 50 on 29 March 2017.
The Treaty of Accession
was signed in January 1972 by the prime minister Edward Heath, leader of the
Conservative party.[16] Parliament's European Communities Act 1972 was enacted
on 17 October and the UK's instrument of ratification was deposited the next
day (18 October),letting the United Kingdom's membership of the EEC, or
"Common Market", come into effect on 1 January 1973. As a result of
the Maastricht Treaty, the European Communities became the European Union on 1
November 1993. The new name reflected the evolution of the organisation from an
economic union into a political union. As a result of the Lisbon Treaty, which
entered into force on 1 December 2009, the Maastricht Treaty is now known, in
updated form as, the Treaty on European Union (2007) or TEU, and the Treaty of
Rome is now known, in updated form, as the Treaty on the Functioning of the
European Union (2007) or TFEU.
Article 50
Since the Lisbon Treaty
came into effect in December 2009, the process of withdrawal from the European
Union has been governed by Article 50 of the Treaty on European Union. No
member state has ever left the EU. Article 50 provides an invocation procedure
whereby a member can notify the European Council and there is a negotiation
period of up to two years, after which the treaties cease to apply – although a
leaving agreement may be agreed by qualified majority voting.In this case, 20 remaining
EU countries with a combined population of 65% must agree to the deal. Unless
the Council of the European Union unanimously agrees to extensions, the timing
for the UK leaving under the article is two years from when the country gives
official notice to the EU.
Impacts of Brexit
1.
The Brexit vote will undoubtedly
embolden other EU skeptic parties, particularly in the Eurozone heart of the
European Union. Other exit referendums may arise in the coming months to years.
The UK itself may face an additional exit referendum from Scotland.
2.
The flight to safety away from the
epicenter of this British-EU divorce will push capital away from the region and
toward key safe-haven markets including the US—especially Treasuries—and to
Japan. This will further lower market interest rates and raise relative
currency values.
3.
The UK is one of the staunchest
supporters of both free trade and multilateralism, alongside the US, even in
the face of mounting popular opposition to both. Cameron’s government, in
particular, was a major supporter of the stalled US-EU Transatlantic Trade and
Investment Partnership (TTIP). Brexit, however, will eject the UK from the TTIP
negotiations, taking it – in US President Barack Obama’s – ‘to the back of
queue’ in US trade negotiations. Cameron also supported the EU-Canada
Comprehensive Economic and Trade Agreement (CETA), which was concluded in 2014
but still requires ratification. Brexit, presumably, will force the UK outside
CETA as well. Finally, Brexit will undermine negotiations between the EU and
the Gulf Cooperation Council (GCC) on a free trade agreement. As for trade with
the EU itself, future UK limits on free movement of people would preclude
membership in the EU Single Market.
4.
The financial market reaction will also
feed into the far-flung macroeconomic consequences of Brexit. For example, a
sharp and sustained rise in the value of the U.S. dollar versus the euro will
put added pressure on the weak U.S. manufacturing sector just as it seemed to
find a new footing. This puts additional downward pressure on historically weak
U.S. growth momentum.
5.
The European Central Bank will be
compelled to raise its level of intervention yet again, as risk premiums across
the region rise. Among the larger Eurozone members, Italy is in a particularly
vulnerable position—now made more vulnerable. Each blow to members of the
Eurozone periphery also further make Germany’s outperformance in the Eurozone
even more unsustainable.
In 2015, the EU is
still feeling the economic effects of the financial crisis, which has also
transformed the political landscape fuelling anti-austerity politics (e.g.
Greece, Spain) and even anti-EU sentiment (e.g. UK, France). Under the
conditions of a UK-EU FTA scenario, the UK could, at best, make a small real
income gain, although this quickly disappears under conditions of higher
assumed trade facilitation costs arising from the loss of single market access,
with the UK recording an upper bound loss of 0.67% of UK per capita real
income. All experiments show that economic consequences will be felt in the
remaining EU-27 Member States. A similar result is obtained in a CGE study of
Brexit by Ottaviano et al. (2014), where UK welfare losses range between 1.13%
(‘optimistic scenario’) and 3.09% (‘pessimistic scenario’).18 The relatively
large UK loss reported in their ‘pessimistic’ experiment is, at least in part,
explained by the imposition of Most Favoured Nation tariffs on UK/EU trade,
which is not contemplated in our scenarios.
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