The Implications of Brexit on EU - Case Study Example

Brexit Name Instructor Date Brexit Introduction Brexit is a word that is usually utilized to mean the fact that Britain is leaving the European Union (EU). Britain exited EU following a referendum which was held for the people to decide whether or not UK should remain in EU and following this referendum, the Britons decided to exit the Union (Dhingra et al., 2016). The citizens of the UK have for a while been skeptical the EU in general, and this is the distrust that significantly grew to prompt it to leave the union. There were a lot of frustrations and uncertainties which were expressed by different parties including lawmakers, voters, as well as the other countries that in one way or the other would be affected by Brexit (Dhingra et al., 2016). Among the numerous organizations that were affected by Brexit, is the supra-national body itself, the EU (Dhingra et al., 2016). It is evident that EU will be affected in various aspects following this Brexit in different aspects including the labor market, the capital market, globalization, politically, among other aspects. The paper will, therefore, discuss the implications of Brexit on EU. It will also evaluate some of the options which exist for EU following the withdrawal of the UK. Implications of Brexit on EU Labor Market Following Brexit, there have been some effects which have already started being felt regarding the labor market. Following the shortage that is experienced in the EU migrant labor that is continuously growing, the labor market is reducing with shortages being felt in the accountancy, IT, cleaning, as well as nursing among other sectors of the labor market (Boulanger and Philippidis, 2015). The number of vacancies kept rising steadily in the EU, and the recruiters had to flag the increasing shortage of the applicants in the more than about sixty roles. Some of the Brexit analysts have denoted that there is evidently an increasing tightness regarding the labor market. This is partly attributed to the fact that there was a growing unwillingness of the Britons to work in the EU and on the other hand the EU citizens were not willing to work in the UK (Boulanger and Philippidis, 2015). Additionally, there had already been low employment rates since the year 2005, and following the Brexit uncertainties, more people are becoming hesitant to work either in the EU countries or Britain (Oliver and Williams, 2016). Also, the lack of clarity as well as the weakening pound regarding the future immigration rules is continuing to putt off UK citizens from working in the EU countries and the EU nationals to work in the UK. Capital Market The EU has been continuously trying to encourage more efficient, and development of efficient capital markets as well as minimize the dependence of the EU economy on the bank lending (Crafts, 2016). These efforts were disrupted massively after Brexit. The most significant effects regarding this issue will be on the UK economy, investors, market participants, as well as the issuers (Crafts, 2016). Although it is typical to criticize the financial regulation of the EU, it is very unlikely that there would be any form of bonfire regarding the regulations of EU in the UK as an impact of Brexit. Therefore, for EU to manage to retain its unlimited access to the ‘single market’ while being regarded as a ‘third country,' then there would be the need to maintain a lot more regulations on EU’s side (Crafts, 2016). However, there are constant fears that over a specified duration, then the EU and UK will end up diverging completely which would, in turn, increase the costs that would jeopardize the performance of both the EU and UK financially. Globalization Among the primary factors which led to the UK exiting the EU are issues concerning immigration and trade. Brexit is regarded as a significant drawback when it comes to globalization, labor movements, as well as trade openness. Regarding globalization, there is a significant backlash that is felt more so in the EU nationals (Dhingra et al., 2016). There is an increasing gap between the less skilled and skilled, old and young, rich and the less rich, as well as the rural and urban. Following the Brexit, the gaps are continuously increasing that is detrimentally impacting the EU nationals as well as the UK itself (Dhingra et al., 2016). During the present globalization age, the aims of EU were to integrate Europe such that it could act as the bulwark which the countries could not provide any more following Brexit. Balance of Power The departure of Britain could have a significant probability of upsetting the complex relationships which existed with the EU. This is more so the relationships which existed between the South and North, the large and small members, west and east, as well as the states that were inclined to protectionism and the liberal free-trading nations (Ottaviano et al., 2014). The institutions in the EU would probably lose the influences that they previously had in Britain, and they will have to negotiate. Additionally, EU will evidently miss out on the budgetary contribution of the UK which was about 8.5 billion pounds in the year 2015 (Ottaviano et al., 2014). Therefore, the outcome of Brexit on EU will be weakening, dividing, and confusing the entire EU organization. Political Economy Various surveys have been carried out regarding what it would mean after Brexit regarding the EU’s economic costs. In the economic area of EU, the UK constituted approximately 14.8%, and the UK population represented about 12.5% (Oliver, 2016). This represented about 19.4% of the entire exports of EU while excluding the trade within EU. Therefore, following Brexit, the EU will experience a trade deficit which could probably range between 28 billion pounds and 61.6 billion pounds. In an aim of addressing this trade deficit, there have been numerous proposals for the post-withdrawal relationship between the EU and the UK which had its primary focus in the maintenance of some close relationships between the two (Oliver, 2016). However, the concerns are not just the trading figures but also include the Britain losing its AngloSaxon influence economically. This also entails Britain’s significant support for free trade that could possibly result in an inward-looking EU protectionist; the EU will be forced to be significantly protectionists and inward looking without the Britain’s Anglo-Saxon support (Oliver, 2016). Following this, the pressure that is experienced from China and USA among other international negotiations regarding trade may mean that the EU continues to adopt the economic agenda that was outward looking. This, the EU will be forced to integrate even more and start feeling more confident so that it may be in a position to espouse its individual model which it could utilize to manage globalization (Oliver, 2016). EU relationship with the UK Both EU and UK will evidently be compelled by the demographic links, law, economics, and geography more so by sheer realpolitik (Sapir, Schoenmaker and Véron, 2017). This compellation will enable the UK and EU to establish a working relationship which will allow them to manage some of the common problems that they may undergo following Brexit. EU has had numerous trade proposal deals as well as proposals to be members of EEA as well as in EFTA. The best deal for EU is rarely evaluated despite the fact that also EU has to agree with them (Sapir, Schoenmaker and Véron, 2017). Whether or not the EU will agree to take on these proposals is dependent on the interests of the nations which are remaining in EU which will be in turn, be shaped by its outlook following Brexit. Regarding the UK, it may choose to make use of its position to redraw both the political and economic relationships of Europe while moving away from the existing supra-national political links that it had with the EU (Sapir, Schoenmaker and Véron, 2017). The UK may choose to move towards intergovernmental arrangements where it will focus primarily on the trade links. Also, the UK may also have an expectation to be treated in a particular way to reflect that during the time that they are no longer in the EU (Oliver and Williams, 2016). Although UK may not be a power in the EU, it estimates that it will still be a European power and that by the year 2050, it estimates that it could have an economy and a population which is larger than any of the EU’s members. When the UK moves from being a decision maker to being a decision shaper, then it will be placed in a position where it could shape the decisions multilaterally, bilaterally, in civil societies, businesses, as well as other avenues (Oliver and Williams, 2016). On the other hand, the EU will be undergoing a significant test on whether it can manage to present a united front before the UK or whether or not it will manage its relationships through some particular forums like the EU plus one arrangement. If the EU decides to be united, its attitude towards the UK will probably be similar to that of the USA which is a ‘special relationship that is one sided (Oliver and Williams, 2016). Life after Brexit It is evident that Brexit will impact both the UK and EU. However, there are several options that exist for the EU even after Britain’s exit from it. After Brexit, it is apparent that EU would still be ranked as the largest market in the UK and it will be the biggest trading partner with the UK as well. However, a primary and critical concern is regarding what will happen to the about three million citizens of the EU who live in the UK and the two million citizens of the UK who live in EU nations (Dhingra et al., 2016). There are several economic benefits that may be obtained from the European integration. However, these benefits will have to come at a political cost where EU will have to surrender some levels of sovereignty. The most important aspect here it to ensure that the economic thriving of the EU and in ensuring this, the political aspect will have to come in whereby the EU will have to give up some of its powers to obtain this economic advantage which is like an economic-political tradeoff (Dhingra et al., 2016). With the aim of reducing the Brexit trade costs, the EU could join EEA. However, doing this would then mean that they will have to pay about 83% into the budget of the EU and they will also need to preserve their present EU regulations (Dhingra et al., 2016). Another option for the EU would be to integrate its states to be integrated at different speeds where the like-minded nations would come together and cooperate closely in some areas like defense as well as the euro currency (Crafts, 2016). The EU could also decide to maintain the status quo where the countries in the EU stay unified. The disadvantage of this is that it may result in arguments arising concerning some issues like migration issues. All of these are options that the EU has to mitigate the impacts of Brexit so that it can be cushioned the significant role that the UK played when it was an EU member (Crafts, 2016). Conclusion In 2016, the Britons voted against being a member of the EU following the distrust that they had regarding issues to do with trade among other issues. Brexit resulted in some levels of frustration in some of the voters, the lawmakers, as well as some other organizations including the supranational organization, the EU. Brexit significantly impacted both the EU and the UK. Some of the sectors or aspects of the EU that were and will continue to be affected with UK leaving the EU to include issues to do with the labor market, capital market, globalization, the balance of power, and the political economy. Additionally, the relationships between the EU and UK will also affect in the ways that have been discussed in the paper. On the other hand, following Brexit, various options exist for the EU where it can manage to still be at a balanced place following the withdrawal of a component which played a significant role in its operations. Some of these options have also been discussed in the paper. References Boulanger, P and Philippidis, G 2015, The End of a Romance? A Note on the Quantitative Impacts of a ‘Brexit’from the EU. Journal of Agricultural Economics, 66(3), pp.832-842. Crafts, N 2016, The Growth Effects of EU Membership for the UK: a Review of the Evidence. University of Warwick CAGE Working Paper, (280). Dhingra, S., Huang, H., Ottaviano, G., Pessoa, J.P., Sampson, T. and Van Reenen, J 2016, The Costs and Benefits of Leaving the EU: Trade Effects. Centre for Economic Performance Technical Report. Dhingra, S., Ottaviano, G.I., Sampson, T. and Reenen, J.V 2016, The consequences of Brexit for UK trade and living standards, Center of economic performance, London. Retrieved 18th May 2017 from http://cep.lse.ac.uk/pubs/download/brexit02.pdf Oliver, T. and Williams, M.J 2016, Special relationships in flux: Brexit and the future of the US–EU and US–UK relationships. International Affairs, 92(3), pp.547-567. Oliver, T 2016, European and international views of Brexit. Journal of European Public Policy, 23(9), pp.1321-1328. Ottaviano, G.I.P., Pessoa, J.P., Sampson, T. and Van Reenen, J 2014, Brexit or Fixit? The trade and welfare effects of leaving the European Union. Center of economic performance, London. Retrieved 18th May 2017 from http://cep.lse.ac.uk/pubs/download/pa016.pdf Sapir, A., Schoenmaker, D. and Véron, N., 2017. Making the Best of Brexit for the EU-27 Financial System (No. PB17-8). Read More