Britain's exit from the European Union(EU), is being termed one of the most catastrophic shots to the global economy. However, the more pressing question of how Brexit impacts ordinary citizens of the UK and the EU, as well as, what the dynamics in the UK post-Brexit look like, are equally as pressing. To gain new insight into these questions and more, we sit down with global economy expert and Claude & Lore Kelly Professor of European Studies at Princeton University, Harold James.
CIGI: What has changed since the vote on June 23th and what do these results really mean for average citizens in the UK?
Harold James: The British political system is currently experiencing a meltdown, with both major parties bitterly divided. The Labour parliamentary party has revolted against the leadership of Jeremy Corbyn. The war between Conservatives over the succession to David Cameron will be very bitter. And in the time being, there is in effect no UK government.
Scotland and Northern Ireland did not vote for Brexit, and there may be a feeling that they are not bound by the vote. It is also entirely possible that UK voters bring forward a petition that demands a new referendum, though I doubt the feasbility of any new British prime minister negotiating a new settlement with the EU. Boris Johnson, a likely successor to David Cameron, at one point indicated that he thought that a negative vote could give Britain a stronger hand in renegotiating. But that argument is frankly delusional. The rest of Europe will be tough because the other member states do not want to encourage member countries to repeat the British maneuver – though in practice it may very well happen again.
CIGI: Is Brexit an economic opportunity for the UK?
James: Fundamentally: No. The immediate effect is what the vote will do to the value of the pound. The substantial depreciation may bring a brief gain for some export industries and for tourism – it will for instance be cheaper to visit London. But imports will be more expensive, and soon that will translate into overall price increases.
In the longer term, when Article 50 of the EU treaties is implemented and the UK (or part of the UK) is no longer in the EU, the most obvious and direct effect will be on financial services. It may well be that London is shut out from Euro clearing operations, and some banks are already now planning to move parts of their operations and staff to continental Europe, or to Ireland.
The hope of the Brexit campaign was that a substantially deregulated Britain would be more dynamic; but that dynamism would be bought at the loss of market access to Europe, and it is not clear that the UK will be able to offer the right products and services to other parts of the world, especially if its advantage in financial services is eroded by the loss of European business.
CIGI: What would a “better deal for the UK” have really looked like / What would have enticed the UK to stay?
James: A great deal of the referendum campaign focused on fears among the British people about migration. Some politicians are arguing that the referendum outcome would be an opportunity for the rest of Europe to restrict the freedom of movement (in part because there is a substantial fear of movements among other countries). That would make the EU more like just a free trade area. But that move would also be massively unpopular in southern and eastern Europe, and is unlikely to find any political acceptance in the EU as a whole.
CIGI: What are three of the most immediate ratifications of the vote for global markets?
James: To name a few, i) There has been an immediate surge in uncertainty and fear, and global stock markets have been impacted because of this, ii) safe haven currencies such as the US dollar and the Swiss franc – are growing stronger. This has made US exports vulnerable and is likely to dampen recovery in the US from the Great Recession, and iii) The consequence may be a further delay in the Fed’s exit from the low interest rate environment.
CIGI: What does the vote mean for Britain’s ability to trade with other nations?
James: There is no impact until the UK actually leaves the EU. When it does, access to the EU market will become more difficult. At this point, the UK would also need to negotiate new trade agreements with many of its partners that are so far covered by EU agreements.