Brexit means Brexit means…?

By Matthew Mennell,  Class of 2017

By Matthew Mennell, Class of 2017

Britain, Britain, Britain… What have you done!? While the whole world was taken aback by the vote to leave the EU, what does it actually mean? If Brexit means Brexit, then what is Brexit?

This author, like others, believes that Brexit will not be the economic and political apocalypse that many predicted.  Britain will almost certainly retreat to a position within the single market, outside the EU, under a EEA*/EFTA** style arrangement.  Here are five reasons why:

1. There is no democratic mandate for a ‘hard Brexit’, meaning an exit from both the EU and the single market: while 51.9% of Britons voted to leave the EU, it is highly unlikely that 96% of these voters believed Brexit meant leaving the single market.  Many campaigners for Leave - including outspoken MEP Daniel Hannan and the Adam Smith Institute - explicitly argued to remain in the single market prior to the vote.

2. Assuming Britain triggers Article 50 (to commence formal negotiations) at the beginning of 2017, elections in France and Germany will delay any serious talks until the end of the year.  This will not provide sufficient time to negotiate any serious alternative trade agreement. As a consequence, Britain will have to accept an off-the-shelf arrangement at the end of the 2-year negotiation period, which will either be EEA/EFTA or WTO rules.

‘Brexit means Brexit' and will be 'a success' says Theresa May, UK Prime Minister.

‘Brexit means Brexit' and will be 'a success' says Theresa May, UK Prime Minister.

3. Despite key figures in the Conservative party claiming Britain would be just fine under WTO rules (a so-called ‘hard Brexit’), this is nothing more than a negotiation stance.  Britain must maintain a credible threat of a ‘hard Brexit’ to secure any concessions on free movement of labor.  As David Cameron discovered to his peril, these concessions aren’t exactly forthcoming.

4. The financial services sector will almost certainly lose its ‘passport’ if Britain leaves the single market. 1.1 million people are employed by this sector, which contributed 11% of total government tax receipts in 2015.  If just one-third of banking jobs move out of the UK, it will be devastating to the economy.

5. Theresa May needs to call a general election by May 2020, a year after Britain has left the EU.  If she lands a ‘hard Brexit’, the Conservatives will face intense opposition from Labour and the Liberal Democrats who have made it clear that they will fight for single market access. Under a ‘soft Brexit’, her only opposition will come from the UK Independence Party, who struggles to win seats in elections under the first-past-the-post system.

So, was it all worth it?  Will Britain regain lost sovereignty under a single-market ‘soft Brexit’ or will it be bound by the same EU laws and regulations it contended?  Will other countries join Britain and create a two-tiered system of European integration, one static free-trade agreement and one ever-closer monetary and fiscal union?  The next few years will be a fascinating time in European politics

*EEA = European Economic Area, the agreement Norway, Liechtenstein and Iceland have with the EU.

**EFTA = European Free Trade Association, the free trade organization under which Switzerland, Norway, Liechtenstein and Iceland operate, outside of the EU.

Matt is a second year MBA, currently negotiating his departure from the European Business Group

Brexit: the UK, Sovereignty and Immigration

By Matthew Mennell, Class of 2017.

By Matthew Mennell, Class of 2017.

On June 23, Britain, the ginger stepchild of Europe, will decide whether to emancipate itself from the rest of the European Union (EU) family in what has become known as the “Brexit” referendum.  On the pro-Brexit side is the mayor of London, Boris Johnston, whose policy on cake is “pro having it and pro eating it". He would like Britain to enjoy all the benefits of free trade while reestablishing sovereignty of parliament and control of immigration.  On the other side, David Cameron and the leaders of the mainstream political parties are in favor of staying in the EU.  First Minister and leader of the Scottish National Party (SNP), Nicola Sturgeon, has even suggested that a result in favor of a Brexit will spark a second independence vote for Scotland.

The stakes are high. Either outcome will impact Britain’s relationship with both its European neighbors and other major trading partners.  I personally find it difficult to believe that Britain – the world’s fifth largest economy, predicted to overtake Germany and Japan in the next 20 years – would be unable to negotiate favorable terms of trade with the rest of the world.  I assume that any new deals will look very similar to existing EU trade deals. Moreover, like Norway and Switzerland, Britain will continue to contribute to the EU budget and be bound by EU legislation to gain access to European markets.  To me, the EU debate is fundamentally about the issue of immigration; this is what concerns the average Briton and will swing the vote either way.

Free movement of labor is key to operating an effective free trade area like the EU.  It enables the labor supply to adjust dynamically across Europe, and be allocated where specific human capital is required to boost production. This helps to achieve the objectives of the common market, to make efficient gains from comparative advantage. Furthermore, free movement of labor helps to improve the living standards of the individual and reduces social pressures in Europe’s poorest regions.  

For example, London has benefited significantly from the influx of young migrants from Greece and Spain, where youth unemployment figures lie either side of 50%.  The capital has gained a pool of labor to fill jobs that few locals would be willing to undertake, while the migrants have gained valuable experience and improved their English language skills, making them more employable wherever they next choose to work.  

Boris Johnson (left) and David Cameron (right) representing the two sides of the debate. Courtesy of AFP

Boris Johnson (left) and David Cameron (right) representing the two sides of the debate.
Courtesy of AFP

So why is it that people are anti-immigration? My feeling is that pro-Brexit sentiment is akin to protectionism.  I am reminded of the open to letter to French parliament by economist, Frédéric Bastiat, who satirically puts forward the case to ban sunlight, for it is “flooding the domestic market with it at an incredibly low price”. Bastiat goes on to make reference to “that haughty island” (Britain) not being burdened by the power of sunlight as much as France, an ironic metaphor for feelings toward immigration in Britain versus the rest of Europe.  Satire aside, the reluctance of the few to adapt to market conditions can significantly limit the benefits of free trade and immigration to society as a whole.  Anti-immigration policy is a negative-sums game where no “infant industry” arguments can be credibly advanced.

As a first generation immigrant to Britain, and someone who is exercising my free movement of labor this summer (I plan to intern in Amsterdam), I would encourage my fellow Boothies to work overseas and embrace other cultures. Immigration is an opportunity not a threat; it creates diversity, improves adaptability, and enhances competitiveness.  I shall be voting to remain in the EU this June.

Matt is a first year who will be representing the United Kingdom in the Eurovision song contest this year.