The consequences of a UK exit from the EU

The consequences of a UK exit from the EU

by Petros Fassoulas, Secretary General of the European Movement International

With the 23 June British Referendum on EU Membership fast approaching, the battleground is becoming ever clearer, yet the consequences of an exit and the procedure to leave the EU remain matters on which many opine conjecture rather than facts.

One of the dominant narratives in the debate centres on whether or not the UK will be economically better off remaining in or leaving the EU. Clearly, the UK is more economically dependent on the EU than vice versa; 12.6% of UK GDP is linked to exports to the EU, compared to only 3.1% of GDP generated from exports to the UK among the other 27 Member States. Overall, 60% of total UK trade is covered by EU membership and the preferential access it grants to 53 markets outside the EU. If the UK decides to leave the EU, it will still be affected by a significant array of EU legislation, especially if it takes the likely route of wanting substantial access to the EU Single Market, with the important difference being that the UK would not be able to influence legislation.

Despite this, many commentators have suggested that the UK’s open markets and its relationship with the EU in particular, heavily depress its labour market for domestic talent by allowing in apparently unchecked waves of immigrants. Yet, estimates for UK GDP in the case of a ‘Leave’ vote vary between an income loss of 9.5% and an income gain of 1.6% by 2030(in case of full liberalisation of the UK economy, including immigration), with most predicting an income loss of between 2-3% of GDP. In order to avoid the most catastrophic growth estimates, the UK would either have to accept an increased level of freedom of movement within Europe to gain full access to the EU Single Market or, if it decides to have a different relationship with the EU, it would have to substantially increase immigration from non-EU countries.  This trade-off between economic well-being and immigration could thus see the UK forced to once again open up its markets in ways that seem counterintuitive to the narrative of those who wish to leave the European Union.

Regards the oft mooted issue of sovereignty, the EU is the principal source of leverage for Britain in the world. It allows the UK to leverage the world’s biggest single market to secure the UK’s economic interests, to shape policies towards the EU’s Eastern and Southern neighbourhoods, to maximise its ability to shape global policies on climate change and to give it more clout vis-à-vis countries such as the United States. Leaving the EU would accelerate and make more permanent the UK’s diminished influence in the global order, forcing it to fall back on secondary relationships in order to exert influence.

One seldom discussed point is exactly how an exit might be managed. Article 50 of the Lisbon Treaty spells this out. It allows all EU Member States a veto on any part of a renegotiated deal and empowers the EU to set the pace of negotiations. In the case of trying to renegotiate its position with the EU following a vote to leave, the UK would thus be at a clear disadvantage. Moreover, although the UK has a net trade deficit with the EU, it has a net trade surplus in services of £10.3 billion. The EU will thus have far less incentive to conclude a liberal agreement on services than on goods, which would severely hurt the UK economy, where the service sector makes up almost 80% of the economy.

The UK faces a pivotal moment in its history, which carries the possibility of affecting generations to come. A British exit from the EU will bring large economic and political costs. It will also reduce the UK’s standing in the world and its ability to influence the international events that affect it the most. It is also evident that none of the alternative relations with the EU presents itself as more advantageous compared to EU membership.

Leaving the EU will be a historical mistake of paramount proportions, one whose effects will be felt sharply in the short term and have a lasting impact on the UK and the EU for many years to come. A British exit of the EU will only have losers.