Having spent ten years of my life in England, I keenly followed the political ruckus surrounding Brexit. Colourful rhetoric clouded both sides of the debate, with Remainers warning of WWIII, and Leavers forecasting a United States of Europe. The truth is perhaps more nuanced, as it often is: from an economic perspective, provided that sound policy is followed, Brexit will have little to no impact on the UK in the long term.
The current wailing in financial and foreign exchange markets reflects trepidation and uncertainty, nothing more. Until we know, for certain, what Article 50 negotiations will yield, and whether the pound will stabilize, London-based corporations will be frantically scratching their heads, wondering whether to move to Paris or Frankfurt. Paul Krugman has already eloquently expressed this point, although his overall opinion on Brexit differs from mine.
In the long term, whether or not the UK sustains its economic drive depends heavily on its continued common market membership. The loss of guaranteed EU market access may harm some investment, but London’s agglomeration economies limit this, much like Zurich’s or New York’s; the fact that everyone is already in London lowers the costs of business.
I haven’t seen any good predictions of Brexit’s effect on small-to-medium enterprises, in particular, but I suspect that SMEs will benefit from reductions in EU red tape.
Immigration is not central to my argument. If the UK desires common market benefits, then it will have to retain free movement, in all likelihood. Otherwise, it can follow a points-based system, like Canada’s, which does not discriminate against non-EU workers. Nothing is gained by favouring mostly white Europeans over Africans and Asians.
What is crucial is that we treat the EU as a dynamic entity, and frankly, I can only envision the union going downhill, through a steep declivity of dust and decay. The eurozone crisis, whereby French and German banks pillaged Greek coffers, reveals fundamental flaws in EU institutions, particularly a lack of coordination between fiscal and monetary policy. Either Brussels strengthens its political and fiscal powers, which will weaken national self-determination, and hence hasten anti-EU sentiment, or the EU will continue as usual, vulnerable to another crisis.
Of course, my analysis is hopelessly optimistic (or pessimistic, if you like), and is predicated upon the UK getting a good deal, but economic soothsaying is hardly a refined art. We lack historical precedents for Brexit – cities’ exits from the Hanseatic League are somewhat similar, but not precisely so. I can therefore only leave you with the warnings of Mervyn King, former Governor of the Bank of England:
‘One should be very cautious of precise, numerical estimates of what the consequences would be… I’m old enough to remember the referendum in Britain in 1975 on exactly the same issue. The one thing that both sides of the argument then were wrong about was that it would make a dramatic difference. It didn’t.”