IMPACT OF BREXIT ON EU

Author: TANUJ GUPTA

Love gone bad! No I am not referring to any Bollywood couple’s breakup but Britain’s exit from the European Union (EU). On 23rd June 2016, the people of Britain voted for the most important decision of their life which will impact not only them but also the future generations of Great Britain and EU. BREXIT will surely transform the economic, political and social landscape of EU.

ECONOMIC – Official trade statistics show that EU is the destination for half of British exports. But Britain’s share of intra-EU exports and imports is only 10.1% and 6.0% respectively. This number is also inflated because goods exported by Britain out of Europe are transited through Rotterdam port in The Netherlands. This phenomenon is termed as ROTTERDAM EFFECT.

Foreign investments in EU might dry up as companies use Britain as gateway to Europe because of Zero–tariff environment and free movement of labour and capital. Britain with 28% has the highest foreign investment in EU.

EU will have to find a replacement for London which has long served as the financial nerve centre of EU. Many investment banks having headquarters in London will have to move out of London so as to serve the European market. Germany which imports 14% of financial services will be the biggest loser in EU because of increase in cost of financial services.

POLITICAL – For starters, EU would lose an influential member which would have helped them to crack trade deals and have a say in World politics and economics. There will certainly be a shift in the power of decision-making in EU. Germany and France will want the decision-making power to shift towards them which might create further political frictions.

SOCIAL – Another pressing issue is immigration. The free movement of labour might be restricted in Britain due to BREXIT. This will result in the surge of low-wage migrant labourers from Africa and Middle East to EU. This might add fuel to the existing anti-immigration movements in EU and may lead to further political differences amongst EU members.

SECURITY – With the growing threat of ISIS, security is a key issue for EU. Britain is home to world-class intelligence agencies like MI5 and MI6. BREXIT will put EU at the back foot in counter terrorism and intelligence operations. The plans for building a unified European army will also be hit.

The EU after BREXIT will be an impaired regional and a geopolitical union as compared to the current EU, which already punches far below its economic weight in regards with  the global and regional diplomatic and strategic matters.