Effect of Brexit of the European Union - Research Proposal Example

EFFECT OF BREXIT ON THE EUROPEAN UNION By Name Course Instructor Institution City/State Date Table of Contents Effect of Brexit on the European Union 1.0 Introduction: After the United Kingdom voted to leave the European Union (EU), many believe that it will present an enormous challenge to the EU. The UK’s referendum outcome on the EU membership has shaped the country’s future in terms of how it relates with the EU, which is its largest trade partner. The EU membership helped reduce trade costs between the United Kingdom and other countries across Europe. The UK will start experiencing tariff barriers that had been removed by the EU. As it will be demonstrated in this piece, Brexit will destabilise the EU forces favouring the greater integration. Many EU members’ states, especially Germany will become more preponderant. In the meantime, the British are facing a difficult as well as lengthy negotiation for a new relationship. Many pundits hold that UK’s withdrawal from the EU will lead to numerous consequences for the EU stability, both in the short-term as well as the long-term. Furthermore, Brexit could reduce trade integration between the UK and the EU through indirect and direct trade effects. The increased political uncertainty and ambiguity concerning the negotiations’ outcome with regard to the new institutional setup between the UK and the EU is e expected to intensify the undesirable effects of trade disintegration. In the long-term, Brexit would result in deeper issues with the European Union, particularly the reputation of the euro area. Still, Brexit, as well as the ongoing distrust of EU institutions, creates opportunity to largely re-think the euro area institutional structure from the initial principles. The European Union can be defined as a political as well as economic union between nearly 28 countries in Europe. Initially, the EU started as an entirely economic union but has progressively evolved to become an institution that focuses on different policy areas such as health, environment and climate as well as security, external relations, and migration. More importantly, the EU is anchored in the rule of law: all its activities are based on treaties, democratically and voluntarily approved by all the member states. Brexit is a term commonly utilised to refer to UK’s withdrawal from EU after people voted for a British exit in a historic referendum that happened 23rd June 2016. After the referendum, the government of UK started the process of withdrawal on 29th March 2017 and will eventually leave by mid-2019. 2.0 Aim To examine the effect of Brexit on the European Union To determine the uncertainty regarding the economic prospects of the EU and the UK To determine the impact of the uncertainty shock from the Brexit vote and political consequence in EU 3.0 Methodology: The study utilises the systematic literature review method to determine the effect on Brexit on the EU. Given that a huge amount of research has been produced regarding Brexit, the study will utilise systematic review to produce reliable information regarding the effect of Brexit. The systematic review is utilised to address the issue through identification and critical evaluation of the findings of every high-quality and relevant individual studies. The systematic review is used to establish the progress of research towards clarifying the Brexit issue. More importantly, the systematic review is used to identify the inconsistencies, contradictions, relations, and gaps in the existing literature. The systematic review has a crucial characteristic, which includes the results synthesis, which in this study, are results from previous conducted studies and opinions from the experts. The most vital part of the synthesis process will be the assessment of the studies’ quality before their utilisation. The assessment will help in assigning different weights to the findings of the selected studies. Those deemed to have poor quality or less important will be excluded from this study. The crucial effect of the assessment is to make sure that the research could influence review positively and ensure the research findings are sound. The synthesis will be utilised to formulate recommendations and conclusions. The systematic review is utilised to illuminate the connections between the studies’ detail found as well as the conclusions made by the studies. In this case, search terms will be utilised for the literature search (Brexit, European Union, economic impact, and political impact). The search terms are focused in order to make them adequately broad in scope to get hold of every important data yet narrow as much as necessary to reduce the capture of irrelevant literature which could lead to needless effort and time being spent examining extraneous articles. While carrying out the reviews’ systematic review, individual studies will be utilised to strengthen the study findings. 4.0 Main Body: In their study, Patel and Reh (2016) established that Brexit could change how the European Union institutions operate. It would possibly influence the power balance between member states and the policies being pursued by EU. Brexit would as well change the resources drawn by the EU and would affect the EU’s outlook change and strategic direction. Britain contributed enormously to trade liberalisation in the EU; therefore, its exit could increase EU protectionism. As mentioned by Patel and Reh (2016), a legal process has been outlined by the Treaty of Lisbon (article 50) through which a member state can withdraw from the European Union. After the Britons voted to leave the EU, the United Kingdom government must make a decision on when to bring Article 50 into play. After doing so, a twenty-four month period would be initiated, through which the EU and UK would negotiate an agreement for withdrawal. As a result of Brexit, Patel and Reh (2016) posit that both Germany and France could immediately push for deeper integration. With the view to Article 50, the Brexit process could offer the EU advantage over the United Kingdom since the two-year period set aside for negotiation can unanimously be extended by the European Council decision. With the view to the present trading levels, the UK would become the EU’s biggest market for exports (16 per cent of EU goods are exported to the UK (Patel & Reh, 2016). In economic terms, the EU must look for a comprehensive, generous and quick free trade agreement with the United Kingdom. In terms of EU’s political interests, the ‘contagion’ risk is exacerbated, since Eurosceptics across Europe could consider a generous deal as a provocation to depress the special status of their own countries. Politically, Patel and Reh (2016) suggest that the EU have to avoid the easy withdrawal precedent. The Brexit effect, as mentioned by Dhingra et al. (2016), will be dependent on the policies that will be adopted by UK. The authors further mention that the increasing of trade costs between the EU as well as UK after Brexit could be grouped into: (1) higher non-tariff hurdles to trade (because of border controls, various regulations, and so forth); (2) higher imports’ tariffs; and (iii) the UK cannot take part in future steps carried out by the European Union towards promoting deeper integration as well as non-tariff barriers’ reduction in the EU. Dhingra et al. (2016) are optimistic that the EU and UK will continue enjoying a free trade agreement and that the withdrawal would not result in a change in the tariff barriers. Still, the authors are pessimistic that the UK economy will be affected where the trade is governed by World Trade Organisation’s rules since the most-favoured-nation (MFN) tariffs will be imposed on the UK-EU goods trade. With the view to the non-tariff barriers, Dhingra et al. (2016) assume that UK-EU trade will experience 25% of the non-tariff barriers (reducible) which are evident in the trade between the EU as well as the United States. The trade costs between the EU member states, according to Dhingra et al. (2016), have been plummeting roughly 40 per cent faster as compared to the trade costs between other countries in OECD. Because of Brexit, it is unlikely that the UK would gain from any future intra-EU trade costs reductions. Still, reduced integration with members’ states of EU would lower trade leading to negative effects on UK’s economy. According to Irwin (2015), Brexit now will enormously affect the British businesses, the economy of the UK and the interests of the people. The new relationship between Britain and the rest of the EU is not clear. The policy and investment interests, supply chain, and the export of many companies will be affected adversely. Brexit will increase the cost of raising finance across Europe and would also have a wider political impact on the European Union. Irwin (2015) argues that the direct impact on other members’ states of EU would be considerable. The political impact on the EU attributed to Brexit would be enormous since the internal political dynamics would be disrupted and political contagion risk would be possible if the ‘proof of concept’ of Brexit promotes disintegrative forces amongst the remaining members. Irwin (2015) asserts that the Europe would likely lose the influence as well as esteem across the globe. The EU members’ states would be influenced differently and to different levels. More likely, Brexit would influence the way through which the member states are prepared to accommodate and engage the UK at the time of pre-referendum negotiation. According to Payne (2016), Brexit has plunged the nationwide household wealth by £1.2 trillion while Sterling value has dropped by 15 per cent. Besides that, the national debt has piling up and economic growth has enormously been affected. Brinded (2016) argues that Brexit has left Britain divided and the ensuing political contagion put EU at risk since it could spread globally. The OECD, UK treasury, IMF, and other independent research houses, as cited by Brinded (2016), believe that Brexit will wreck the country’s economy and would put Britain's AAA rating at a risk. When the rating is lower, it will become more expensive for the UK to borrow money (Brinded, 2016). As demonstrated by OECD report, Smith (2016) maintains that by 2030, the GDP of Britain would become 5 per cent lower because of withdrawing from EU. A 34 countries’ trade alliance believe that Brexit could negatively influence the entire world by bringing about ‘economic uncertainty’ as well as obstructing trade growth. Smith (2016) posits that Brexit would make the global effects and would trigger financial markets’ volatility. In addition, Brexit will lead to a 1 per cent drop in EU GDP by 2020 and European economies would be affected significantly by 2018, particularly those having strong economic connections with the UK. Smith (2016) further maintains that Brexit ramifications would be felt beyond EU since many European countries would experience a drop in output because of Europe’s weaker demand. Martin (2016) holds the view that Brexit would lead to a voter backlash against international institutions and established political parties. For instance, some days after the Brexit vote, Spain was heading to the polls following the botched election in 2015 to elect a new government. Some months later, the Brexit vote effect was felt across the globe, especially in the US presidential election while other countries like Italy was holding a referendum with the aim of making crucial changes to the constitution. In other countries like Germany and France, populist protest parties have been making major progress, and many people as cited by Martin (2016), believe that they would gain more support after Brexit. The popularity of right-wing Dutch Freedom Party, in the Netherlands, has been increasing tremendously and experts believe that France’s National Front is expected to reap big in the upcoming presidential elections. Furthermore, the Alternative for Germany party (AfD) in Germany is also becoming more popular while the 5 Star party in Italy continues making a major breakthrough as demonstrated by the party’s win in Rome mayoral election. Therefore, it is clear that Brexit would lead to prolonged political uncertainty for Europe and for the UK. Although more experts believe that Brexit will negatively affect UK’s economy, Office for National Statistics (ONS) findings contradicts the opinion held by many, by mentioning that the UK’s GDP improved by 0.7 per cent (Bowler, 2017). This is mainly attributed to the fact that the manufacturing industry has been performing better than expected. In early 2017, the UK imports and exports increased by £300m and £400m respectively; thus, leaving the goods and services trade deficit unchanged and steady from late 2016. The UK successful withdrawal from the EU, according to Foster (2017), sent economic shockwaves across the global markets; thus, making the UK loses its top AAA credit rating. Brexit forced the Bank of England to reduce the interest rates and espoused a number of emergency measures with the aim of stopping the UK from going into a recession still, there is some uncertainty regarding what will take place once UK withdraws completely from the EU since it must craft new trade agreements with other countries across the globe. When Britain finally leaves the EU's single market with the aim of ending the EU workers’ free movement, the Europhiles are distressed that the multinational companies would unlikely to invest in the UK and may move their headquarters to other continents. Barber (2016) argues that Brexit will not only cause a sharp, short-term hit to the UK’s economy but would also lead to a government crisis as evidenced by the resignation of David Cameron. If not managed carefully, Barber (2016) posits that the withdrawal process could damage the relations between London as well as other capitals of EU member states. 5.0 Conclusion: In conclusion, the paper has demonstrated the effect on Brexit on EU, and it has been argued that it will weaken EU and discourage integration. The trading relationship between EU and Britain will be affected enormously and many companies across Europe will be affected. Brexit would not just transform the internal political environment, but would lead to political consequences in the EU and how it would relate to other countries in the European Community. Brexit would damage UK’s relations with other EU countries. Many EU countries consider Brexit as a hammer blow to the unity of Europe; therefore, no EU member state would be ready to offer Britain generous deals. The systematic literature view demonstrates that Brexit will make financial markets vulnerable and would affect the integration and cooperation of EU countries. Recommendations Given that the political circumstances are changing constantly, it is imperative for the UK to reboot education as well as training in order to offer the young people the much-needed skills since Brexit will lead to employee shortage. The country should create an immigration system that would allow the UK to access to world-class talent from other countries across the globe. More importantly, the UK should carry out an audit of the existing EU funding to the country’s creative sector with the aim of identifying the streams which have to be replaced by Britain. The UK should ensure that the intellectual property rights should be upheld, which includes trade deals copyright, particularly with new markets that have appalling violation records, and make sure it remains proactive in Digital Single Market negotiations. The UK should also try to improve its trade relations with other members’ states of EU so as to ensure that economic activities are enormously affected by Brexit. References Barber, T., 2016. Five consequences of the UK’s exit from the EU. [Online] Available at: HYPERLINK "https://www.ft.com/content/b1a2d66e-3715-11e6-9a05-82a9b15a8ee7" https://www.ft.com/content/b1a2d66e-3715-11e6-9a05-82a9b15a8ee7 [Accessed 20 April 2017]. Bowler, T., 2017. How has the economy fared since the Brexit vote? [Online] Available at: HYPERLINK "http://www.bbc.com/news/business-36956418" http://www.bbc.com/news/business-36956418 [Accessed 20 April 2017]. Brinded, L., 2016. Britain is broken beyond repair — and the worst is yet to come. [Online] Available at: HYPERLINK "http://www.businessinsider.com/brexit-eu-referendum-result-political-economic-and-social-analysis-and-whats-next-2016-6?IR=T" http://www.businessinsider.com/brexit-eu-referendum-result-political-economic-and-social-analysis-and-whats-next-2016-6?IR=T [Accessed 13 April 2017]. Dhingra, S., Ottaviano, G., Sampson, T. & Reenen, J.V., 2016. The consequences of Brexit for UK trade and living standards. London: CEP Centre for Economic Performance. Foster, A., 2017. What is Brexit and what is going to happen now that Britain has voted to LEAVE the EU? [Online] Available at: HYPERLINK "http://www.express.co.uk/news/politics/645667/Brexit-EU-European-Union-Referendum-David-Cameron-Economic-Impact-UK-EU-exit-leave" http://www.express.co.uk/news/politics/645667/Brexit-EU-European-Union-Referendum-David-Cameron-Economic-Impact-UK-EU-exit-leave [Accessed 20 April 2017]. Irwin, G., 2015. BREXIT:the impact on the UK and the EU. London: Global Counsel. Martin, W., 2016. Morgan Stanley just nailed one of the most ignored impacts of a Brexit. [Online] Available at: HYPERLINK "http://uk.businessinsider.com/morgan-stanley-eu-referendum-research-political-impacts-of-a-brexit-2016-6?IR=T" http://uk.businessinsider.com/morgan-stanley-eu-referendum-research-political-impacts-of-a-brexit-2016-6?IR=T [Accessed 20 April 2017]. Patel, O. & Reh, C., 2016. Brexit: The Consequences for the EU’s Political System. Briefing Paper. London: UCL Constitution Unit. Payne, A., 2016. Brexit has put the government in an economic battle it cannot win. [Online] Available at: HYPERLINK "http://www.businessinsider.com/autumn-statement-2016-analysis-political-impact-brexit-uk-economy-2016-11?IR=T" http://www.businessinsider.com/autumn-statement-2016-analysis-political-impact-brexit-uk-economy-2016-11?IR=T [Accessed 13 April 2017]. Smith, M.N., 2016. OECD: A Brexit would wreck the UK economy — and take Europe down with it. [Online] Available at: HYPERLINK "http://uk.businessinsider.com/brexit-destroy-uk-economy-hurt-world-oecd-2016-6?IR=T" http://uk.businessinsider.com/brexit-destroy-uk-economy-hurt-world-oecd-2016-6?IR=T [Accessed 20 April 2017]. Read More