Impact of the Brexit

The upcoming Brexit vote as set by David Cameron on 23 March could be the most crucial event the UK parliament and Europe in general will have experienced in decades. Not only will this vote determine the future of Britain in the EU, but additionally the future of the British Prime Minister as it is hard to see him staying in office if Britain leaves the EU. A no vote may see that Scot’s vote on independence and a destabilise the future of the European Union.

The referendum was called by Cameron following the renegotiation of the terms of British membership in the EU at the summit in Brussels in February. Cameron won concessions in all areas that he requested change.

If the UK leaves the EU, there would be a substantial impact for the British economy and London’s role as a financial center. If the U.K. leaves the EU it would not only have implications for the union as one of the stronger members leaves, but it could also set a precedent that the anti-EU and anti-EMU forces in Germany would happily jump on. With the debate over the immigration crisis and its costs in full swing, the exit of one of the stronger EU members may also strengthen the arguments of net contributors to the budget elsewhere. Especially as two of countries that argue the most vehemently against refugees arriving at the EU’s borders, Hungary and Poland, are also among the biggest net-recipients of the EU.

The EU’s east expansion has shifted budgets quite substantially over the last decade with the accession of poorer countries leading to more drastic redistribution and substantially larger contributions for core European countries. There are a number of ways to calculate net contributions to the budget. Taking the Commission’s list, which uses contributions in the form of own resources such as VAT and GNI as the basis, shows that net contributions from Germany, France, Italy and the U.K. rose markedly in the period from 2006 to 2013.

Germany’s net contributions amounted to 0.49% of Gross National Income in 2013, compared to just 0.27% in 2006. The French contribution rose to 0.40% of GNI from 0.17% and the U.K. net contribution to 0.46% from just 0.11% in 2006.

At the same time, the share of the net recipients jumped markedly. Poland’s net receipts amounted to 3.29 of GNI in 2013, compared to just 1.13% of GNI in 2006. The GNI share in Hungary is even higher at a staggering 5.33%. The departure of one of the net-contributor countries would not only lift the burden for the remaining countries, but could also set a dangerous precedent elsewhere.

Nationalist forces are strengthening in many countries in Europe and while it has become popular to blame Germany for Greece’s woes and the problems in bailout countries, German voters in turn feel growing resentment against rising costs of EU and EMU membership and the perceived lack of influence.

The Brexit debate is gaining additional momentum. Recent polls of strategists and economists showed that the overwhelming majority said the economy would suffer if the “out” campaigns win. Those pushing for an exit argue that it would give the U.K. the opportunity to negotiate better terms, but these negotiations are likely to drag on for a long time, leaving considerable uncertainty hanging over the U.K.

One of the most robust arguments for a Brexit is it is needed for Britain to restore sovereignty. It is needed for parliament to extricate itself from the Jurisdiction of the European Court of Justice. Cameron has a plant which will allow parliament to escape this jurisdiction with an act, but this will not convince voters as the European Court of Justice will stand be the supreme body.

Although there is no certainty to a Brexit it provides the basis for a number of argument that allow Britain to regain some notion of sovereignty. It appears that the risks outweigh the rewards of leaving yet the outcome appears to be uncertain.

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