Expert Speak Atlantic Files
Published on Jul 21, 2016
The #Brexit, and after

Now that Brexit has happened, some problems are arising in the European Union (EU) which may threaten its cohesion. The same reasons of immigration and economic slowdown which caused the Brexit are cropping up in the member countries to further break up the EU.

Many economists and political commentators have pointed out that Brexit happened not because people were unhappy of being with the EU, but because of the growing domestic problems. Similar situations can be seen in all the economically weaker members of the EU today. According to the The Financial Times, the Eurozone countries have faced unprecedented problems in the last few years and only Germany seems to have done well and has grown between 2007 and 2016 at the real GDP growth per head of 11%. But between the first quarter of 2008 and 2016, the aggregate Eurozone real GDP rose by only 0.5% while aggregate demand fell by 2.4%. The real GDP growth per head has been stagnant in France and fell by 8% in Spain and 11% in Italy. The Eurozone economy comprising of 11 members of the EU is projected to grow at 1.5% though the growth rate was only 0.6% quarter to quarter in Q1 of 2016.

It is up to the EU now to continue to have a productive relationship with UK because it continues to be a big financial centre, an important export destination and a partner in security. On the other hand, to ward off future exits of other members, the EU has to come out strong and punish UK for leaving. Thus the nature of negotiations post Brexit about the future relationship with UK can be complicated and long.

EU’s immigration policy will be of great importance because as a recent survey by PEW Institute of Washington of 10 EU members show, a median of only 18% believe that racial, ethnic and cultural diversity is a good thing for their country. In eight of the countries, half or more believe that incoming refugees will increase the likelihood of terrorism in their country. Half or more in five other member countries believe that refugees will take away jobs and social benefits. Worst is that six out of 10 countries have an unfavourable view on Muslims. This view probably will get stronger in the post Nice attacks.


Also, one of the main reasons behind the success of Theresa May, who has become the British Prime Minister, is her stern stand against immigration in the past. She has been the longest home secretary in the Tory government and according to a report in  The Guardian once used 60,000 pounds in lawyers’ fees to deport two Muslim immigrants. But, she herself was a votary of ‘Remain’. Her Foreign Minister Boris Johnson however is a controversial figure and an advocate of Leave Campaign.

He has been a Brexit supporter. He has been accused by the French foreign minister as wrongly stating that Britain should leave the EU because it was paying £350 million a week to the EU and this huge amount could have been better used for improving the National Health Services.

Actually, Britain did contribute to the EU budget and in 2014 paid £288.43 per head to the EU budget and a total of £14.7 billion that year. Britain had to follow an austerity strategy while being part of the EU that resulted in slashing public sector spending and raising taxes. But it was a self imposed austerity and not imposed by the EU. The British public complained of low pay and zero hours contracts as a result of austerity measures. Yet on the economic front, there is fear of recession with inflation creeping up as imports get costlier due to the sinking pound, higher borrowing cost to fund the big current account deficit because of Moody’s credit rating downgrade and low consumer spending due to fears of uncertainty. There is likelihood of a fall in investment also because now the British market has shrunk because access to the EU is less. For Britain, the EU with its 500 million consumers is very important and also because most of its exports go to the EU.

In any case, UK remains a part of the EU until Article 50 of the Lisbon treaty which came into force in 2009 is triggered and negotiations with other member states concluded and this could take up to two years. There is also an important question about the fate of 3.3 million EU nationals living in UK and 1.2 million Brits living in 27 EU countries. Their status is one of the major issues facing the government in the aftermath of the EU referendum. There has been no change in the rights and status of EU nationals in the UK so far after the referendum.

Brexit would mean leaving EU’s Common Agricultural Policy and UK could benefit from this change as many restrictions would go, but it would need to give new agricultural subsidies to farmers. UK also has been the third largest recipient of EU research and innovation funding. This would have to be replaced by domestic funding. A transition period is clearly needed to allow workers and companies to adjust to changes in doing business with the EU because it would mean a change in laws and regulations and market access resulting from Brexit.

The EU should focus on economic growth and job creation rather than debt reduction in the future. Restructuring the EU could be centred on the founding members — Belgium, France, Germany, Italy, Luxembourg and the Netherlands. As immigration is a burning issue in Europe also, it has led to the rise of far right parties in France, Germany and Netherlands. The Alternative for Germany party is critical of Angela Merkel’s policy of allowing more than a million refugees from Syria and elsewhere into the country last year. France’s Marine Le Pen and her National Front is gaining ground over France’s governing socialists. The Five Star Movement, a populist party from Italy, has won mayoralty in Rome and Turin. In Netherlands, the right wing anti- immigration Party for Freedom is making inroads with its leader Geert Wilders making inflammatory speeches to halt immigration from non-western countries and opposes the growing presence of Islam in the Netherlands.

The peripheral countries are also in a quandary and had meetings about their future. Hungary may have a referendum next year as immigration has been a burning issue. Other members in central Europe — Poland, the Czech Republic and Slovenia — seem quite happy to remain with the EU because they have been big beneficiaries of EU funding for infrastructure and education.

Unless the EU prospers economically and reforms structurally, it is likely to witness more problems and referendums in the future which may lead others to exit, making it difficult for the EU to continue with business as usual.

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David Rusnok

David Rusnok

David Rusnok Researcher Strengthening National Climate Policy Implementation (SNAPFI) project DIW Germany

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