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Federico Mannoni

The economic side of Brexit


Source: actionforex


The historical relevance of Brexit

Brexit unquestionably represents a turning point in the history of the European Union, and possibly of the contemporary world as well. The result of the United Kingdom’s EU membership referendum is indeed a very evident proof of the increasing feeling of Euroscepticism by the citizens, which has significantly grown in several nations over the last years, and that requires appropriate and tangible responses both at the national and European level.


The United Kingdom joined the European Economic Community, having then evolved into the European Union with the Treaty of Maastricht, in 1973, after years of hostility with France, which was reluctant to accept a member state that was considered too close to the interests of the U.S.A.. Its permanence was always marked by a certain degree of distrust against the European institutions, reaching its peak during the early phases of Margaret Thatcher’s government, and by the refusal to take part in some fundamental steps of European integration, such as the Schengen Agreement and the adoption of a common currency. The British government’s decision to announce a referendum for the country’s membership hence came after decades of proposals to renegotiate its position in the Union, and also following the results of the general election of 2015, where the Conservative Party earned the majority and where a newly predominant role was assumed by the United Kingdom Independence Party as well.

The necessity to ensure a smooth transition to national independence has led the European and

British institutions to engage in complex and long-lasting negotiations, resulting in a withdrawal agreement which was ratified by the European Parliament in January 2020. Despite the detailed provisions that this document encompasses, analysts and experts in different fields have expressed their concerns about the eventual political, economic and social repercussions of this historical event, which will likely shift the equilibrium of the Union towards a new direction.


The economic impact of the withdrawal

The effects of Brexit on the economy of the United Kingdom constitute a major concern for the national institutions, since the withdrawal from the European single market could have a negative impact on a wide variety of sectors, even though their long-term dynamics are difficult to assess at the moment, also considering their slowdown due to the COVID pandemic. First of all, the country will most likely reduce its trade relationships with the Union due to the mutual imposition of duties on imported and exported products, which could create occasional shortages. Secondly, the uncertainty caused by this decision will probably lead several companies to move their activities elsewhere and reduce foreign investments, with negative effects on the aggregate production and on the value of the British currency, which could undergo a strong depreciation. Furthermore, the tighter controls against migration flows will prevent lots of foreign seasonal workers from accessing the country, which could thus create a reduction in the labor force. Lastly, the United Kingdom’s lack of access to the European funding programs could potentially exert a detrimental long-run effect on its economy in terms of scientific research and technological development.

The situation is naturally much more complex: indeed, the proximity in time of the United Kingdom’s withdrawal, the apparent presence of some positive counterparts for the main concerns raised by the experts, and the worldwide impact of the COVID pandemic suggest us not to draw premature conclusions on the long-term economic dynamics of the nation. In addition to this, the awareness of the European and British institutions in this domain has led them right away to adopt adequate provisions defining the new economic scenario and protecting the citizens of both parties, such as the recent EU-UK Trade and Cooperation Agreement, which became effective in May and which has set arrangements in different areas to ensure the continuation of close and cooperative relationships.

However, it is generally acknowledged that the political and social uncertainty caused by Brexit and the new status quo of the United Kingdom will likely harm its economy in the long-run, which could also imply a new centrality of the European Union in the international scenario. Indeed, several studies conducted by esteemed scholars have all agreed that the country may experience a significant reduction in its GDP (up to 4%) in the next decades, widely exceeding for instance the negative impact of the COVID recession. Besides, some significant related events have already occurred in the past months.


The 2021 supply shortage in the United Kingdom: a tangible consequence


In the Autumn of 2021, the United Kingdom experienced an extended supply shortage of different consumer goods and products, a situation which can largely be attributed to the changes entailed by Brexit, and which has been worsened by the COVID restrictions. Indeed, the migration of lots of foreign workers towards continental Europe after Brexit, a phenomenon caused by the subsequent more severe immigration policy, led to a significant lack of truck drivers at the beginning of September, which affected in turn the availability of products in the supermarkets, where prices increased by 1.3% on average. As already mentioned, the concurrence of this event with the sanitary emergency has exerted a devastating and potentially long-lasting effect on the supply chain of the United Kingdom, which could have strong negative repercussions on the families’ habits for Christmas holidays. Furthermore, this crisis also extended to the fuel sector, where the price of gasoline significantly rose, not because of its scarce availability, but mainly due to the delays in supplying the petrol stations.

The British government reacted by demanding the Army to intervene to meet the high demand and by issuing an unprecedented number of temporary visas for truck drivers, thus loosening the tight restrictions to migration flows entailed by its withdrawal from the European Union. However, despite the Prime Minister’s reassurances on the effectiveness of the implemented solutions, even in a long-term perspective, most experts reckon such crisis could occur on a regular basis, even after the full restoration of international trade and, considering the high dependence of the national economy on foreign workers, have recommended to enact more exhaustive provisions to avoid future detrimental effects.


The necessity of a unity of intents

The recent supply shortage in the United Kingdom is just one of the numerous issues that the country may face in the future, due to the unpredictable long-term outcomes of its withdrawal from the European Union. Its institutions are thus called to act for a smooth adaptation to the country’s new status, in order to contain eventual political, economic and social consequences.

On the other hand, international litigations such as the recent one between France and the United Kingdom about fishing licenses do not require European institutions to react strongly and to pursue a unilateral strategy, which would just unnecessarily escalate the tension with the former member state, just as a matter of principle, but to identify instead shared views and agree on common policy objectives and legal instruments to maintain close relationships, a process which would definitely be beneficial for both parties and which could ultimately help to foster the process of European integration between its remaining states.



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