Introduction
For the majority of corporate houses and other businesses in Britain the possibility the UK might leave the European Union – Brexit – is a major source of concern. Uncertainty related with the Brexit and the break in the EU would be a negative aspect for the business and UK economy. A plethora of material is available on the economic consequences of Brexit on the UK but very little has been written on the consequences for the rest of the EU.
This report aims at addressing the gap by meticulously assessing the evidence on the impact of Brexit on both the UK and the rest of EU. Ten perceptible channels of impact are at the heart of this analysis. For every channel the author has considered in turn the impact on the UK and on the rest of the EU. The author also assessed the specific ways in which different EU members are exposed through these vast channels.
The author concludes that while the biggest impact of Brexit would be on the UK, there can be a mere doubt that there will also be a significant impact on the rest of the EU.
Review of literature
Europe is collection of countries that used to fight a lot. For example , in world war 2 countries within Europe fought against one another , and it greatly hurt the continent. So after WW2 , many countries felt it was important to integrate European countries – starting with the coal and steel industries and then expanding to a broader set go trade issues. Western Europe has dozens of countries , each with its own trade, immigration and economic policies. Trying to navigate these rules was very inefficient. The European Union ( EU ) essentially started from a question : What if each country had the same rules? What if all the barriers came down? And that’s wha EU did.
Almost every Western European country joined the group to merge their economic rules in 1993. They did this by allowing people, goods , services , and capital to move freely between member countries .It’s a kind of like how states in the US work.The EU has helped foster long periods of economic prosperity, and it’s helped keep the region at peace.But as with any union, cooperation means weathering downturns together which is not so easy. Like 2008 Financial Crisis and also EU expanded to include post-communist countries in the mid- 2000s , and in those countries were poorer . Many of their citizens immigrated to wealthier countries like United Kingdom.
Significance and Brexit Models
Brexit, however, does introduce a significant level of political, economic, and financial instability to Britain, to Europe and to the rest of the world. It would be very interesting to see how European leaders ultimately respond to Brexit and whether other European countries will choose to hold their own referendums about remaining in the European Union. It is also going to be interesting to see if Brexit triggers a long-term, negative economic and financial chain reaction in Europe and in the rest of the world.
However, Brexit appears to be an event of major significance because it is an event that could potentially lead to a further series of events that alters the economic, financial, and political landscape of Britain, Europe, and the rest of the world.
The brunt of Brexit serve on the relationship with the EU that imitate. Five distinguished models are regulate out below. What is most beneficial politicly, in limit of wisdom independence, is also the most damaging economically. This is the Brexit contradiction. The most probable models are the Swiss or the FTA-based approaches. The following are the Brexit Models
Norwegian-Style EEA agreement
The UK joins the European Economic Area and maintains full access to the single market, but must adopt EU standards and regulations with little influence over these. The UK still makes a substantial contribution to the EU budget and is unable to impose immigration restrictions. Member of European Economic Area, full access to single market, obliged to make a financial contribution and accept majority of EU laws, free movement applies as it does in the EU
Norway is a member of the European Economic Area (EEA) – the single market – along with the 28 current EU members, Liechtenstein and Iceland.
In return for that access to the single market, it pays a contribution to the EU budget and has to sign up to all the rules of the club – including its common regulations and standards.
People from across the EU are free to live and work in Norway too, but the country is exempt from EU rules on agriculture, fisheries, justice and home affairs. The downside for Norway is that it has no say over how the rules of the single market are created.
Though the UK would continue to have access to the single market but would this be possible while also reducing immigration and cutting costs, as many Leave campaigners want?
Ireland's Finance Minister Michael Noonan has said the UK is unlikely to secure full access to the single market unless it continues to allow free movement of labour.
"The per capita fee of Norway is exactly the same as what Britain is now paying into the EU," "So there won't be any savings."
Turkish-Style customs union
Internal tariff barriers are avoided, with the UK adopting many EU product market regulations, but sector coverage of the customs union is incomplete. The UK is required to implement EU external tariffs, without influence or guaranteed access to third markets.Turkey is not part of the EEA or the European Free Trade Association but does – like tiny Andorra and San Marino – have a customs union with the EU.This means it faces no tariffs (taxes or duties on imports and exports) or quotas on industrial goods it sends to EU countries.The customs union does not apply to agricultural goods, or services.
Turkey also has no say on the tariffs it has to impose on goods it imports from non-EU countries, as it has to apply the EU's common external tariff to those goods (and is not involved in setting it).Customs union with the EU, meaning no tariffs or quotas on industrial goods exported to EU countries, has to apply EU's external tariff on goods imported from outside the EU
FTA-Based approach
The UK is free to agree FTAs independently and the UK’s relationship with the EU is itself governed by an FTA. Tariff barriers are unlikely, but as with all FTAs the UK will need to trade off depth – which means agreeing common standards and regulation – with independence. David Davis MP, Secretary of State for Exiting the European Union, has ‘clarified’ the position that the UK as a whole – not just Northern Ireland – will align its regulation with the EU, stating that: “Alignment … isn’t having exactly the same rules. It is sometimes having mutually recognised rules, mutually recognised inspection – that is what we are aiming at.”It’s a curious word choice: in the recently-concluded EU-Ukraine Association Agreement, ‘regulatory alignment’ means that Ukraine is expected to incorporate the EU acquis, its body of law and regulation, in covered areas. Determining whether it has fulfilled this obligation is down to the EU.This is quite different from mutual recognition, which Davis then advocates. The Mutual Recognition Agreements the EU has concluded are limited in scope and application. They allow companies in a sub-set of sectors to certify that their products meet EU standards at the point of production (mutual recognition of conformity assessment), thus obviating the need for checks to happen twice.This is a far cry from an invisible border. It does nothing to prevent border checks resulting from tariff barriers and rules of origin checks. Davis notes that mutual recognition would only happen ‘sometimes’ such that border infrastructure would need to be in place for non-covered sectors.
Possible outcome, and the option government has indicated it would like, is to negotiate a new bespoke FTA between the UK and the EU. The government is currently examining FTA models used by other countries, such as Canada (CETA), Switzerland, and others, to work out what elements they wish to aim towards in the next phase of negotiations with the EU.
Should a FTA be successfully negotiated, it would likely mean reduced access to the single market (especially in services), compared with EU membership. However, it would mean no need to accept free movement of people, or make financial contributions to the EU budget. A FTA would also allow the UK to make its own trade agreements with non-EU countries.
Swiss-Style bilateral accords
The UK and the EU agree a set of bilateral accords which govern UK access to the single market in specific sectors. Concern in Brussels about cherry picking may limit the sectors. The UK becomes a follower of regulation in the sectors covered, but negotiates FTAs separately If the U.K. decides to copy the Swiss, signing the EFTA will not be enough; the U.K. will also need to sign a bilateral trade agreement with the EU that is tailor-made for British needs.However, “striking an agreement like the one Switzerland has with the EU would take years to negotiate,” Alemanno said.Moreover, if it wanted to follow the Swiss model, the U.K. would also be likely to have to contribute to the EU budget, abide by some internal market laws — and accept the free movement of people.While the Swiss voted for limits on immigration by EU citizens in a referendum in 2014, it is still highly uncertain whether the EU will accept the result.“The more access you want [to the Single Market], the more you need to adjust your regulatory set-up,” said Alexis Lautenberg, chairman of the Swiss Finance Council, which represents the interests of Swiss financial institutions.And again, even though he was “very happy” with the way Swiss organizations can work with EU institutions, Lautenberg observed that Switzerland has no impact on the decision-making process in Brussels.
MFN- based approach
No need to agree common standards and regulation, but at the expense of facing the EU’s common external tariff, which damages UK trade with the EU in goods as well as services. Non-tariff barriers may emerge over time to damage trade in services in particular. There are many factors that influence the potential scope of trade deal between sovereign states – political, legal and technical complexities, not to mention anticipation of the ratification process for its entry into force (i.e. will the negotiating governments be able to “sell” the final deal to their national parliaments and domestic interest groups). Another important factor can be the application of restrictions that apply in deals already done.
The inclusion of the MFN in preferential trade agreements, such as the FTA, however serves a different purpose. Its inclusion is to protect the interests of the parties to the agreement by locking-in the preferential market access and other benefits to avoid the erosion of those benefits through one country subsequently granting more liberalised concessions to other countries. In that way, parties to the original FTA also ensure that they will benefit from any trade concessions that the other party might grant in the future, at least in respect of the areas covered by the prior agreement.
The existence of MFN clauses in existing EU FTAs with third countries might therefore impose limitations as to the degree of liberalisation to be achieved. The EU might be constrained from granting the UK more ambitious concessions than those currently granted to preferential third countries, such as South Korea or Canada.
Trade with in Europe
Post Brexit UK will need a new trade deal with the European Union.
Once the UK’s formal decision to leave the EU is notified to the European council of EU leaders, under article 50 of the Lisbon treaty, the UK will be giving formal notice that it will be leaving the EU. Article 50 sets a two-year window to renegotiate a new legal basis for Britain’s trade relationship with the EU – although it also allows for an extension.
These discussions will need to consider the framework for exporting and importing goods (cars and food) and the basis for continued services trade (such as legal advice on big company takeovers) to and from the EU. In addition, negotiations will have to cover customs procedures, passport controls for business travellers and regulation on issues such as environmental, health and safety standards.
The impact on UK trade with Europe will depend on the relationship between the UK and the EU after Brexit. In the most likely scenarios – either the Swiss model, or an FTA-based relationship – regulatory divergence that adds to the cost of trade is likely to increase over time, damaging bilateral trade volumes and the UK’s position in European supply chains. The costs will be borne by consumers as well as businesses.
§ EU membership is estimated to have boosted British goods trade with other member states by 55%, equal to £130bn in 2013.(1) Overall, the evidence does not suggest this has been at the expense of trade with non-EU states, but this may be a factor in individual protected sectors, such as agriculture, footwear and clothing. Costs for consumers might fall in these sectors, but rise overall.
§ Under either a Swiss-style accord or an FTA-based relationship the UK would negotiate the terms of access for specific sectors, including the standards and regulations that apply in those sectors. The EU tradition of harmonization rather than mutual recognition means the choice for the UK is likely to be either to adopt EU standards or for firms to bear the cost of meeting two sets of standards. The UK would be less able to influence the future development of the single market, particularly in services where regulatory barriers remain significant and where full liberalisation could add 7% to UK GDP.(2)
§ The single market provides opportunities for economies of scale, competition and innovation, which enhance productivity and which would be hard to replicate fully through trade outside Europe. There is a strong relationship between exporting and productivity: between 1996 and 2004 the productivity growth for UK exporters was 1.3%, compared to 0.8% for nonFirms worry Brexit will damage trade
§ Supply chains are becoming more important for competitiveness, but tend to be geographically concentrated. About half of EU imports to the UK are intermediates.(4) The high ratio of trade in gross relative to value-added terms suggests that much UK trade with Europe is connected to supply chains. Post-Brexit outcomes which reduce trade or increase the cost of trade between the UK and the rest of Europe will be damaging for both sides. The EU is a more important trade partner for the UK than the UK is for the EU. But UK demand is very important in macro terms for many EU countries. The UK runs large bilateral deficits against several member states.
§ The UK accounts for just one sixth of the EU economy.(5) One-tenth of EU exports are to the UK, whereas half of UK exports are to the EU. However, the imbalance in the trade relationship is such that the UK is an important source of demand for the rest of the EU. The UK’s trade deficit with the rest of the EU has grown substantially in recent years and was €66bn in 2013, the equivalent of 0.6% of the GDP of the EU27 countries.(6)
§ In value terms the trade surpluses with the UK are concentrated in a small number of countries, notably Germany, which exported €78bn to the UK in 2013 and imported €50bn.(7) However, as a percent of GDP the trade surplus with the UK is important many countries. This exceeds 1% of GDP in the Netherlands, Poland, Czech Republic, Belgium, Hungary, Latvia, Lithuania and Slovakia.(8)
§ Only a few EU countries run a trade deficit with the UK, notably Ireland at 6.2% of GDP in 2013.(9) But the UK is an extremely important bilateral trading partner with many Irish firms exporting into UK supply chains.
§ UK companies are relatively upstream in global supply chains, compared to companies in other European countries. The importance of the UK in international supply chains is particularly concentrated in a small number of sectors. In 2009 the UK exported almost $54bn of business and financial services into the supply chains of other countries, with companies in other EU countries accounting for a large proportion. In the same year the UK exported over $30bn of mining and chemical products and over $20bn in the transport, telecom, and wholesale and retail sectors into international supply chains.(
FDI
The UK is the largest recipient of FDI in the EU. Brexit could reduce the attractiveness of the UK as a gateway to Europe. It could also lead to a reduction in investment from the rest of the EU, which is the biggest source of FDI in the UK. It may become harder to attract corporate HQs.
§ The EU was the source of 46% of the stock of FDI in the UK in 2013. This dependence has fallen somewhat in recent years, with the EU share down from 53% in 2009.(1)
§ The UK has many advantages that would be unaffected by Brexit such as language, light regulation and deep capital markets. Even so, the UK may struggle to attract as much new investment following Brexit. Other locations inside the EU are likely to be more attractive for marginal investment decisions.
§ A poll of British firms suggests the impact of Brexit will be damaging not only to FDI, but also to the investment intentions of UK firms, with 29% more saying it will have a negative than a positive impact.(2) However, the EU features low down the list of important factors according to a separate poll, with fewer than 1% of firms saying the UK needs to focus on access to the European market to remain a major global destination for investment.(3) Opinions are likely to vary across sectors. Investment in vehicle production, for example, appears particularly dependent on the single market, both for sales and due to long European supply chains.
§ Half of all European headquarters of non-EU firms are in the UK, with the UK hosting more HQs than Germany, France, Switzerland and the Netherlands put together.(4) This could become harder following Brexit given the favourable tax treatment available to member states through the Parent-Subsidiary Directive. The UK would either need to negotiate third-country treatment under the directive or a series of new double taxation agreements with member states. That would take a considerable amount of time.
Many large European corporates are heavily invested in the UK and the commercial logic for this investment could be affected by Brexit. The cost of adjustment for European corporates could be considerable. The UK may seek to compete more aggressively for investment by undercutting the EU on taxation and the business environment.
§ FDI in the UK from the EU comes disproportionately from a small number of host countries, including France, Germany, Spain and Ireland, although the picture is distorted by FDI routed through third countries, such as the Netherlands and Luxembourg. The EU share of FDI is much higher in the energy, retail and wholesale trade, transportation and manufacturing sectors than it is in financial and professional services.(5)
§ The success of the UK in attracting FDI projects and jobs creates opportunities and risks for other EU countries if the UK leaves the EU. Whether they can seize the opportunity depends on how they respond to the loss of UK competitiveness that Brexit would likely represent. One particular challenge would be to attract European headquarters for multinationals away from the UK, but this will depend as much on the business environment in individual European countries.
§ The UK would almost certainly seek ways to restore the competitiveness of the FDI offer. The UK might attempt to ‘undercut’ the EU further on social regulation and taxation, but probably not on environmental legislation. The risk to the EU is of the UK acting ‘like Ireland’ but over ten times bigger and largely liberated by the constraints and obligations of EM membership.
§ This could impact in one of two ways in the rest of the EU. It could distort location choices and draw investment away from the rest of Europe over time. Or it could benefit firms elsewhere in the EU to the extent that it puts pressure on their governments to be more liberal and to take steps to improve the environment for investment.
Financial Services
Established advantages and agglomeration effects mean the UK has a strong competitive edge that would be hard to dislodge. However, existing EU regulations would make it harder for London to serve European markets, particularly for retail products and in euro trading. Business could move.
§ Under the Swiss or FTA models the UK must negotiate access to EU markets in financial services. The EU only allows access to countries with equivalent regulations. The approach currently varies across directives. No access is allowed in some areas, such as UCITS (undertakings for collective investment in transferable securities). The logic is that retail consumers need additional protection. By contrast, the EU takes a flexible approach to wholesale banking, where equivalence is defined largely by reference to international standards. This matters for the UK given its dominance in wholesale banking. In many other directives the EU takes an intermediate approach. For example, the EU evaluates the equivalence of insurance regulation ‘line-by-line’ under Solvency II, although the impact is softened by transitional arrangements.
§ The Swiss experience highlights the risks to the UK. They have equivalence under AIFMD, are being assessed under Solvency II and will try under MIFID. But they have failed under EMIR, ostensibly due to capital requirements, but with a suspicion that the real problem is Swiss immigration policy.
§ The UK is the leader in euro-denominated wholesale banking, but Eurozone countries and institutions want this activity to move to the Eurozone and be overseen by the ECB. This would be much more likely following Brexit, as the UK would no longer be protected by ECJ enforcement of single market rules. The UK might also suffer an opportunity cost from being absent from future liberalising initiatives such as Capital Markets Union, which could open up new markets in areas such as securitisation and covered bonds.
§ The impact in the UK would be felt beyond London in financial centres such as Edinburgh, Leeds and Glasgow, as well as in the Crown dependencies. Brexit may impact on the location, liquidity and cost of financial services in Europe if it undermines London’s competitive position. This would be costly for businesses and households across Europe. Most large European banks have major operations in London which would be costly to relocate. Only a small number of financial centres elsewhere may benefit.
§ The UK is highly integrated into the European financial system. Total UK claims on the EU15 alone are $880bn with most of the credit to households and firms, but some also to governments and interbank lending. European bank exposure to the UK is even greater at $1.7tn in total.(2) It would be costly for European banks to relocate wholesale banking activity away from London.
§ London is not just a European financial centre – it is an international centre with a dominant position in many product areas. However, London’s international position could be damaged if large amounts of European business migrate following Brexit. There is a risk that some business, particularly more mobile activity such as derivatives, may leave Europe altogether.
§ The most likely beneficiaries in the EU are Paris, Frankfurt, Amsterdam and Dublin. But they cannot replicate overnight the advantages of the London ‘ecosystem’ supporting financial services, including skilled staff, legal services and market infrastructure. Competition between them borne out of new barriers to trade with London would be disruptive and costly. Businesses in Europe would lose due to higher charges, poorer products and less liquidity. European corporates would, for example, find it more inconvenient and costly to raise capital in London, which currently provides a one-stop shop.
§ Brexit would likely change the balance of financial regulatory debates in Europe. The UK now takes a more interventionist and risk-averse approach to regulation. Even so, the UK largely avoids politically-motivated interventions. Initiatives such as the Financial Transactions Tax and the cap on banker bonuses would have found an easier passage in an EU without the UK.
Trade policy
The UK would be free to set its own trade policy priorities under some Brexit models, but these are unlikely to be much different from the EU’s. The UK would have less leverage and be a lower priority trade partner than the EU for the major economies. The UK would lose the strength in numbers at the WTO when settling disputes with countries like China.
§ The EU has considerable experience negotiating deep and comprehensive trade agreements. The EU is a signatory to over 30 bilateral and regional agreements with over 50 partners. The EU is currently negotiating trade deals with the US, Canada and Japan, which would improve access to markets worth $23tn in total. The EU is negotiating an investment agreement with China.(1)
§ The UK would gain flexibility in negotiating trade deals and in particular be less encumbered by agricultural protectionism. However, economic size matters given trade negotiations are increasingly bilateral or regional, rather than multilateral. The UK gains leverage when addressing irritants or concluding FTAs through the EU. This is particularly important in services, where regulatory obstacles often need resolving to gain meaningful access to markets. Evidence from UK business suggests the UK benefits from the EU’s negotiating weight when concluding bilateral deals on intellectual property.(2)
§ If the focus ever shifts back to the WTO the UK will find it no longer has influence at the top table. Moreover, the UK may find itself more exposed when seeking to settle disputes at the WTO. While many cases are technical some can take on a political dimensions and provoke retaliation.
§ The UK would have to renegotiate EU trade agreements as these would not automatically apply. This would require considerable diplomatic effort before the UK could turn to new deals. The eurosceptic vision of an ‘Anglosphere’ trading bloc is overblown. The EU is already negotiating with the US and Canada. Moreover, the UK would not find it easier to close a deal with India, particularly given concerns over mode IV and migration. The EU has an open, liberalising approach to trade policy, in part due to UK influence. The UK, more than any other state, has put top-level political weight behind trade negotiations. The EU would be a less attractive partner for trade agreements if the UK was no longer part of the deal.
§ The EU’s top trade priorities are the Transatlantic Trade and Investment Partnership (TTIP) with the US and the Economic Partnership Agreement with Japan. But the EU is not the top trade priority for either the US or Japan, who are preoccupied with negotiating the Trans-Pacific Partnership (TPP).
§ EU GDP would be around 15 percent lower without the UK.(3) While the EU will remain an attractive trade partner, its appeal will be reduced. The external trade of the EU 27 would be about 15% of the global total compared to 4.3% for the UK. (4)
§ The UK has championed a liberalising agenda for the EU. The UK was one of the strongest advocates for launching TTIP and wants an investment agreement with China to lead to a full FTA negotiation. The UK was also the strongest supporter of the Doha round. Successive UK Prime Ministers have invested political capital in the completion of trade deals.
§ The EU may, however, turn out to be a tougher negotiating partner that is better able to extract a good deal without the UK. This is arguably most true with China, where the UK has been criticized for rushing to launch negotiations, without obtaining prior commitments. The UK has also used trade as part of its development policy.
§ The UK leaving the EU may shift the balance in favour of more active use of trade remedies. While some industries would welcome this and regard trade remedies as a legitimate means to counter unfair competition, this would disadvantage consumers and firms that rely on imported intermediates, particularly from emerging markets. It also risks a protectionist response.
Budget
The direct financial cost of EU membership is relatively easy to quantify. However, the financial benefit from leaving the EU depends on the Brexit model and the outcome of the negotiation between the UK and the rest of the EU. There would be significant variation in the impact across the UK, with some parts gaining, while others lose.
§ The OBR estimates the UK’s annual net contribution to the EU will be between £8.5bn and £9.5bn from now to 2019, which is equivalent to around 0.5-0.6% of GDP.(1) However, the EU requires budget contributions from countries like Norway and Switzerland. If the UK’s net budget contribution is calculated on a similar basis to Norway it would fall by just 9%. If calculated on a similar basis to Switzerland it would fall by 55%.(2) The UK’s position in a negotiation may be complicated by the loss of the rebate, which reduces the net contribution to the EU by almost a quarter.(3)
§ The aggregate figures mask considerable variation across the different parts of the UK. Two of the largest components of EU spending are agricultural and regional structural funds. Receipts per capita are much higher in Scotland, Wales and Northern Ireland than they are in England. Moreover, within all parts of the UK the benefits are concentrated in agricultural areas and poorer communities. The UK would need to choose whether to substitute in full or in part for this funding. The UK would have more flexibility to determine how this funding is allocated as well as its level. The UK government is, however, likely to come under political pressure to compensate those that lose out, particularly as this might impact on the continuing debates about devolution and independence within the UK.
§ The UK would still need to cooperate with the EU on VAT collection. This cannot be entirely separated from the question of the EU budget, as a proportion of VAT revenues directly fund EU spending. The EU would lose a significant net contributor to the EU budget. This gap would need to be filled either by higher contributions from other states or less spending. There would likely be a shift towards support for higher spending in the European Council, with the loss of a budget disciplinarian, and weaker support for continuing efforts to shift spending towards supporting growth.
§ The UK is currently the second largest net contributor to the operating budget of the EU in absolute terms, behind Germany, and the fourth largest as a percent of GNI, behind Sweden, Denmark and Germany.(4) This is after taking account of the UK’s controversial budget rebate.
§ The extent to which the UK’s net contribution falls outside the EU will depend on the UK’s relationship with the EU and the outcome of financial negotiations. The EU would need to either cut spending or increase contributions by other member states, up to a maximum of 5.8% of current levels, in order to make up the difference.
§ The UK strongly opposed higher spending during the last round of budget negotiations. If the UK left the EU other countries would need to step up their pressure to maintain budget discipline, or accept higher spending and the increased contributions that go with it. The balance of the debate is likely shift towards French, southern and Eastern priorities with Germany and the Netherlands, in particular, losing an ally in budget decisions. § The UK has also championed the reallocation of spending away from administration and supporting agriculture, towards programmes that support innovation and growth, including R&D. That was only partially successful in the last budget round. It would be even harder to move the EU in this direction in the next round, without the UK among those making the case at the negotiating table.
Conclusion
Britain has voted out of the EU. It is scheduled to depart at 11pm UK time on Friday 29 March, 2019.
The impact of Brexit on British businesses, the UK economy and wider British interests will be catastrophically felt across multiple channels. Both the path and the endpoint, in terms of the new relationship between the UK and the rest of the EU, will be uncertain, increasing the costs to the UK. Medicine, food and fuel would become scarce within a fortnight according to the worst-case scenario, with a key port in Dover becoming unworkable on the first day of Brexit, leading to severe shortages across the country.
The direct impact on remaining member states would also be significant. The supply chain, export, investment and other policy interests of many large corporates would be adversely affected, but surely the largest impact will be on the cost of raising finance in Europe which will increase.
Brexit would have a wider political impact on the EU, both by disrupting internal political dynamics and because of the risk of political contagion if the ‘proof of concept’ of leaving the EU encourages disintegrative forces in other member states. Europe would also lose esteem and influence around the world.
Member states would be affected in different ways and to different extents. This will most likely influence ways in which states are willing to engage and accommodate the UK during the pre- referendum negotiation.
All member states would, however, feel the impact of Brexit, both politically and economically.
Bibliography
Trade within Europe
CER, The Economic Consequences of Leaving the EU, June 2014; (2) Aussilloux, Boumellassa, Emlinger and Fontagné, The Economic Consequences for the UK and the EU of Completing the Single Market, BIS Economics Paper, February 2011; (3) Harris and Li, Firm Level Empirical Study of the Contribution of Exporting to UK Productivity Growth, UKTI, 2007; (4) CBI, Our Global Future, November 2013 (using the World Input–Output Database); (5) IMF, WEO database; (6) GC calculations, data from ONS, The Pink Book, 2014; (7) ONS, The Pink Book, 2014; (8) GC calculations, data from ONS, The Pink Book, 2014; (9) GC calculations, data from ONS, The Pink Book, 2014; (10) OECD-WTO Trade in Value Added database
Foreign direct investment
GC calculations, with data from ONS; (2) CBI/YouGov, June-July 2013; (3) EY’s Attractiveness Survey, UK 2014; (4) HM Government, Review of the Balance of Competences between the UK and the EU: The Single Market, July 2013; (5) GC calculations, with data from ONS
Financial services