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Marlon García

00135579
Final Paper
In 2016, Europe and the world suffered one of the biggest commotions of

history as Great Britain decided to leave the European Union. This departure (usually

called Brexit) has been one of the most polemic process of the century and has reasons

to be so. To Europe, Brexit will carry major drawbacks, given the fact that members of

this organization doesn’t only depend from each other politically, but economically and

socially too, and that Britain has been one of the wealthiest and most important

members of this integration almost since the rise of the organization. However, the

remaining members are not as helpless as it seems, and still counting with the major

advantage of the international integration as a lifesaver when the tides of the predicted

economic and political instability rise.

The one who called the tides was Great Britain, whose electors chose to leave

the European Union three years ago in a questioned referendum. The option of leaving

won by the minimum margin of 51,9 to 48,1 percent, and the authorities have proved

that handling the reality of the Brexit is far more complex that it seemed at first. Britain

is now in a complicated spot, when turning back is not an option and the process to get

an agreement with the European Union is far from reaching to an end. Therefore, on the

contrary of what its supporters may say, the departure of Britain from the European

Union soon will prove to be far more damaging to the English country than to the

remaining members of the organization, bringing negative consequences in what

concerns to economics, social welfare of the citizens and politics, as will be analyzed in

this research paper.

When evaluating Brexit effects on British economy, a strong, categorical

affirmation can be done: “Under all plausible scenarios, Brexit will male Britain poorer
compared with remaining in the European Union” (Van Reenen, 2016 ). Since 2016, the

economic effects of Brexit have already shown in British economy with a

deacceleration of its growth. This is not so rare considering the fact that companies and

investors take politics as a sort of weather vane pointing towards the direction that their

money should follow. When winds of instability blow in any country, great portions of

the economy tend to restrain their movements, causing a general slowdown that can

grow into a recession. British economy started this process right when the results of the

referendum where announced, and even though the most optimistic may say this was a

cyclical movement of the economy, statistics show that this reaction of the economy

was an initial response towards the uncertainty that this event provoked. We may say

that this uncertainty was caused by the fact that nobody saw Brexit coming, so, it were

not taken any anticipation measures.

A proof of this is the collapse of the Sterling from $1.50 to $1.33, within the

hours following the results of Brexit. As shown in attachment 1, the initial reaction of

the markets after knowing the results was negative, shown in the drop of the equity

markets, which mean “the buying and selling of shares” (Oxford, 2019). Also, the bond

interest rates rose considerably, which often is a matter of concerning, considering the

fact that this is a measure that rises with the risk of a country. However, the initial

reaction of the markets somehow stabilized with time but letting us see what the littlest

perception of instability can carry. However, instability was not just a problem of the

first days of Brexit, this issue being prolonged by the several extensions of the

negotiation process for a leaving agreement, a process which will be key in shaping

Europe’s future economy. The sole decision of leaving has created uncertainty, and

economics does not go along with uncertainty. The economy of Great Britain was also

damaged by the fact that several international companies had their headquarters inside
its borders, taking the English country the doorstep to the rest of Europe. Now that this

is not true anymore, companies have shown their discontent about Brexit by moving

their European headquarters somewhere else. An example of this is Sony, which

executives decided to move to Amsterdam. While Brexit keeps on tracks, we can expect

more and more of these migrations, especially if the departure of Britain happens

without an agreement.

Now is time to get into the possibilities that Britain and the remaining members

of the European Union may take to lessen the effect of Brexit, that is to say the option

between a Brexit with or without an agreement, specifically concerning for determining

the trade costs that leaving will imply to Great Britain. The leaving with an agreement

(often called Soft Brexit) will leave Britain in a similar trading stance to what Norway

shares with the European Union. Norway, as part of the European Economic Area

trades freely with the European Union with no tariffs to any transaction. However, its

status of non-member of the European Union’s Customs Union makes Norway trade

with the handicap of the non-tariff barriers, “such as rules-of-origin requirement and

antidumping duties” (Van Reenen, 2016 ).

By leaving European Union with an agreement Great Britain will maintain

some of the benefits that always held, but also, will lose some, inevitably rising the

trade costs with Europe, but not as high as an exit without a deal. However, it is

important to take in account that any agreement that Britain can get with the European

Union has been planned as temporary, just as a transition between the current and the

new status, what ever it might be, so it can be assumed that, gradually, a total Brexit

may happen, as a total rupture between Britain and the European Union.

Another fact that is important to take in consideration is that European Union

often has the requirement of allowing free movement of labor with the countries that
hold free trade with them. They did so with Switzerland, even when they maintain free

trade in goods, but not in banking or other similar services. Considering the fact that one

of the main arguments for the leaving was the immigration, a Hard Brexit is what seems

more likely, and its implications might be worse for the country. Under a Hard Brexit,

Great Britain will see its trade costs risen much higher than in a soft scenario. A Hard

Brexit would certainly imply an English departure not only from the European Union,

but from the European Union’s Custom and Single Market, both entities that assure free

trade. Without the free trade agreement, Great Britain will face the same tariffs and

barriers that any other country who does not have any agreement with the European

Union.

Some Brexit supporters declare that a Brexit without an agreement still being

more beneficial for the country. It is important to take in account that one of the main

arguments for the leave was the inability of the country to decide over their trade policy.

Within the European Union, Great Britain was not able to negotiate its own trade

agreements and their own rules of market. Even when Britain had the Sterling as their

own money, Brexit supporters claimed that the country was negated the possibility to

trade by their own, given the fact that European Union always trade as a block.

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