BREXIT: a knot hard to loosen

Brexit appeared in the foggy horizon of the European path, after the concerns for a Euro meltdown or the strong efforts (and high social costs) to avoid a Grexit.

No mystery that the euro-enthusiasm has always been far away the British shores, since the EU join in 1973 after a deep evaluation of costs and benefits. Feelings about costs and benefit that have already deeply mutated, with growing pressure on top MPs and cabinet members to let the Britons vote in a EU referendum whether break up or not.

The Economist issued last week a meaningful cover, with a focus on the possible costs and benefits of a sudden Brexit. A structured analysis on the different possible scenarios for the following months, considering the ongoing European negotiations on crucial issues and the growing pressure of euro-skepticism (UKIP increasing success, for example).


 Meanwhile Ed Milibrand, leader of the opposition, claims Mr. Cameron and the Tories are drifting towards the Brexit, just minutes after the report at the House of Commons on the seventh European Council summit held in Brussels, where the PM obtained several safeguards on the planned banking union, especially regarding an explicit clause in the agreements that says no action by the European Central Bank should directly or indirectly discriminate against those countries outside of banking union or the single currency.

But the public opinion pressure will play a more important role soon: the 2011 European Act dictates that a referendum must be held on any new EU treaty that shifts powers from Westminster to Brussels. A treaty change very clear at the horizon in 2015 or 2016, that will be at the top of Mr. Cameron agenda (if re-elected, of course). But the call for an earlier referendum from the public opinion could also become irresistible, as many of the recent polls show (see graph below).

Credit Observer poll

Credit Observer poll

The benefits of Brexit for Britain are mainly short-term sized:

  • No more funds transfer, saving £8 bilion every year;

  • Benefits for the food market (no more binding directives on agricultural trade, but WTO looser ties) and for the labour market as well (no more labour caps, or temporary workers tight rules);

  • A great boost for the premier financial position of London. A new free financial hub for the emerging countries (Economist writes “Singapore with steroids”);

But the immediate gain would soon be followed by the high costs of such a drastic choice:

  • A negative impact for export-oriented companies of textile and agricultural/food markets, facing new tariff trade barriers (55% on dairy products and over 200% on several other goods);

  • Forced delocalization for the British car industry, facing a new 4% duty for components and spare parts, in an extremely suffering market, with no profits and wild competitiveness;

  • Longer supply chain would be easy to deal with not only for SMEs but also for bigger players (Airbus for example) that have always been opting for a short chain;

  • High negotiation cost: UK should negotiate bilateral agreements with dozens of countries, to set up a brand new commercial policies structure;

  • A political cost not so cheap: UK would be the first company leaving EU, in a outsider new position with high political and diplomatic costs. Even the relationship with the US would suffer a balancer change, considering the previous position of a close Washington ally in the European institutions.

Also financial benefits are not so sure: The Economist mentions a study by TheCityUK showing interesting results on 147 siting choices from 2006 to 2012:

It found that more than two-fifths of finance firms gave access to European markets as a core reason for choosing London. Although the single market in financial services is still a work in progress, “passporting rights” entitle investment firms, banks and insurers based in Britain to establish branches or provide services throughout the EEA.

A positive attitude on the EU future cannot be limited to a simple costs/benefits analysis. The growing debate on Brexit should warn European leaders: crucial issues as legitimation and sovereignty are not less important than the financial balance or the fiscal/monetary policies. The legitimation crisis shaking EU institutions it’s a chance that cannot be missed.

It’s time to raise our joint bet, otherwise there won’t be any top player seat at the global green table. For any European country, UK included.

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