Graphic by Nate Barton
The word “Brexit” flooded the international news circuit this summer, providing a catchy and enigmatic moniker for a move that rocked the boat of the European Union and spurred worldwide uncertainty.
What it actually means is quite simple: Britain decided to exit the European Union in a successful referendum in June. But while the word “Brexit” is clear in itself, the implications of this unprecedented move are still unfolding on the global stage. This vote effectively sends the U.K. and the EU back to the drawing board on issues of free movement of goods, services and people between the two entities.
Since the vote, Britain has seen the resignation of former Prime Minister David Cameron, the uncontested election of new Prime Minister Theresa May, and an initial plummet and then recent stabilization in the value of the pound. Recent economic data have suggested a more stable Britain, however, and May continues to insist that the government will respect the vote and “Brexit means Brexit,” though she did tell the BBC that Britain’s exit from the EU “may create some difficult times ahead,” according to an article titled “Brexit may bring difficult times, says Theresa May,” published Sept. 4.
The U.K. voted to leave the EU in a referendum on June 23. The vote was a near split: More than 17.4 million voted to leave, amounting to 52 percent, while approximately 48 percent voted to stay, according to the BBC.
Pepperdine School of Law Associate Professor Colleen Graffy said the referendum was the result of former Prime Minister David Cameron’s efforts to consolidate the Conservative party during his bid for re-election in 2008.
Graffy lived in London for approximately 20 years and served as the deputy assistant secretary of state for public diplomacy for Europe and Eurasia at the U.S. State Department from 2005 to 2009.
Cameron thought he could stem the flow of voters leaving the Conservative party for the United Kingdom Independence Party by promising to hold the referendum, Graffy said, noting that Cameron was himself “clearly for remaining in the EU.” Exiting the EU was not an issue that members of the Labor party wanted to address, she said.
“Many lament the fact that it would appear that Britain is leaving the EU based on a conflict within the Conservative party,” Graffy said.
WHY LEAVE?
Arguments to leave the EU centered on immigration and the frustrations that came with EU “red tape” and regulations, Graffy said.
Concerns about immigration focused on the war in Syria and the flood of refugees, as well as on immigrants moving into Britain from newer countries in the EU, Graffy said, adding that many believed that the benefits in Britain, such as housing and healthcare, were more attractive than those offered in other countries, attracting immigrants that did not “put into the system,” but still received these benefits.
Graffy also noted frustrations with the EU’s focus on the stabilization of the euro while Britain, who is not a part of the euro, wanted to spend more time and more energy on strategic decisions about Syria, refugees and President Bashar al-Assad.
“For many in Britain, it wasn’t about immigration,” she said. “It was about the rules and regulations and red tape of the EU that were becoming a hindrance to doing business and getting on with growth and development of industries.”
Graffy said she was surprised at the vote. “Usually people vote for the status quo,” she said. “They’re worried about change and fear of the unknown, and there had been a lot of fear-mongering.”
Media coverage leading up to the referendum highlighted possible consequences of a British exit from the EU, with officials such as Bank of England Governor Mark Carney and President Barack Obama coming forward with positions against it.
“There was a lot of talk about what could go wrong, particularly for the pocketbooks, jobs [and] employment,” Graffy said.
ECONOMIC IMPACT
Global markets took a dive immediately following the vote to leave, according to Peter S. Goodman’s article, titled “Turbulence and Uncertainty for the Market After ‘Brexit,’” published on June 23 by The New York Times. The pound plummeted to its lowest value since 1985, dropping from $1.50 to $1.33 in just one day. It has fluctuated since, falling below $1.30, according to Bloomberg data, eventually ending up at $1.23 as of Oct. 18.
The pound has begun to stabilize and the FTSE 250, an index of some of the largest companies on the London Stock Exchange, has recovered to pre-vote levels, according to an article titled “The economy since the Brexit Referendum, Fact and Fiction,” published on Sept. 3 by The Economist. Consumer spending and retail sales also appear to be healthy.
The International Monetary Fund is also now predicting that the U.K. will be the fastest growing G7 economy this year with a growth rate of 1.8 percent, despite the drop in the value of the pound, according to Larry Elliot’s article, titled “Britain will be fastest growing G7 economy this year, says IMF,” published Oct. 4 by The Guardian. While this growth rate represents a “soft landing” for Britain after withdrawing from the EU, IMF also predicts that this will fall to 1.1 percent in 2017, as the economic shock sinks in, according to the article.
“The immediate aftermath of the vote was that the sky did not fall, and then, once the shock wore off, people did think, yes, we can do this,” Graffy said.
Professor of Economics at Seaver College Andrew Yuengert said he never fully believed the catastrophic predictions put forth by campaigners and media before the vote. Yuengert said that he is skeptical that the European Union would refuse to deal or trade with Britain, one of the world’s largest economies. While economic frictions might make it more difficult to trade, he said he does not expect much economic backlash due to these barriers.
“I’m skeptical that those [frictions] would be so large that they would be disastrous for any of the countries involved, just because everyone has an incentive to maintain a good, strong trading relationship with Great Britain,” he said.
Yuengert also said that the U.K. and EU “were already pretty well integrated, both in movements of goods and movements of investments across borders,” before the U.K. became a part of the EU in 1973.
Yuengert said he does not think a decrease in flow of labor will be detrimental to Britain from an economic standpoint. “If people can’t flow as easily but goods and investment can flow, it doesn’t make a huge difference typically to economic performance,” he said. “The worst has not come to pass, and it doesn’t look like it’s going to.”
POLITICAL IMPACT
Former Prime Minister David Cameron announced his resignation June 24. “He had banked everything on Britain voting to stay in the EU,” Graffy said, but when he lost, he “clearly needed to stand down as prime minister,” as he would be unable to carry out negotiations to exit the EU due to his conflict of interest from very publicly supporting the “stay” movement.
Mayor of London Boris Johnson was thought to be a contender in the election for a new prime minister until he withdrew his candidacy June 30. Johnson had been a strong advocate for remaining in the EU.
Michael Gove, Johnson’s former campaign manager, announced his candidacy for the position on July 1, but his run was short-lived, as Britons generally viewed him as untrustworthy for his perceived betrayal of Johnson, Graffy said.
After Energy Minister Andrea Leadsom withdrew from the race July 11, Theresa May was left as the only contender.
“Before this, no one would have put Theresa May in play for being prime minister,” Graffy said. Though May is not a popular politician like Johnson, she is “seen as a very capable and safe pair of hands” due to her long service as home secretary.
“That was another reason I think that people have a good attitude toward Brexit,” Graffy said. “They have confidence in Theresa May that she’s going to be the right individual to help negotiate these difficult waters ahead.”
May immediately reshuffled her cabinet in a move that Graffy called “clever,” “bold” and “gutsy,” bringing in former contender Johnson as foreign secretary and Liam Fox as minister for international trade. May also brought in David Davis, a prominent Brexiteer, as the secretary of state for exiting the EU.
One of May’s first moves after becoming prime minister was a trip to Germany to visit Chancellor Angela Merkel, who Graffy said will be significant as Britain negotiates its exit.
HATE CRIMES
Reported hate crimes rose in the weeks directly following the vote, according to data from the National Police Chiefs Council, which received more than 6,000 reports from mid-June to mid-July this year. From June 16 to 30, 3,219 hate crimes were reported, up 37 percent from data from the same period last year.
The British government defines hate crime as “any criminal offence which is perceived, by the victim or any other person, to be motivated by hostility or prejudice towards someone based on a personal characteristic.”
The police said the vote likely contributed to the spike in offenses, which included mostly harassment and racist threats against Eastern Europeans and “visible minorities,” according to Alan Travis’ article, titled “Lasting rise in hate crime after EU referendum, figures show,” published on Sept. 7 by The Guardian.
The NPCC began requesting weekly data returns from all U.K. forces after an initial spike following the referendum. “At its peak, these returns showed a 58 percent increase in the reporting of hate crime in comparison to 2015,” according to an article titled “Tackling hate crime remains a priority,” published Sept. 7 on the NPCC’s website.
According to this article, the number of reported hate crimes has since subsided and the NPCC is no longer requiring weekly updates. The latest return, from Aug. 5 to 18, reported 2,718 hate crimes — a 14 percent increase from 2015, but the fourth consecutive week of reduction in the number of reports since the vote.
WHAT HAPPENS NOW?
The official process of the U.K.’s withdrawal from the EU will not begin until May invokes Article 50 of the Lisbon Treaty, which lays out terms for the withdrawal of Member States. May has said that she will not take this step until 2017. Even then, negotiations will likely be lengthy, as the article is vague regarding the particulars of exiting the Union.
The first point of Article 50 simply states, “Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.” The remaining four points, together totaling just 246 words, requires that the Union be informed of the intent to withdraw and provides that the exiting state negotiates arrangements with the Union. Treaties will no longer apply once this process has begun, or two years after the original notification of withdrawal.
Yuengert said that this vagueness was likely designed to make it difficult to leave the EU, a move that is likely meant to discourage the idea of separating to protect the project of the European Union. He said the article essentially prescribes “going back to the drawing board” on all trade agreements with Britain, but he doubts that the EU will renege all of these agreements.
“If they took that seriously, because they were really angry with Great Britain, they would be punishing themselves as well as Great Britain,” Yuengert said.
Graffy said that though this kind of decision may hurt the EU economy, the EU could choose to find a trade substitute for Britain within the union.
“It’s going to be tough for the EU negotiators, because they will be tempted to punish Britain and make it so unattractive to leave the EU that no other country would contemplate that, because there are other countries looking at what Britain has done, thinking, ‘Maybe this would be a better course for us,’” she said.
Concerning the relationship between the United States and Britain, Graffy said that change is unlikely due to continued alliances and Britain’s important role in American history. Going forward, she said she thinks this strong relationship warrants American focus on trade deals with the U.K.
“It would be great if members of Congress worked hard on trying to get a trade deal with Britain,” she said.
The effects of the decision on the U.S. could include lower mortgage rates for U.S. households, an initial (and likely temporary) drop in value of 401(k)s, and significantly cheaper travel from the U.S. to the U.K. thanks to the low value of the pound, according to Ylan Q. Mui’s article, “Three big ways Brexit could affect Americans personally,” published on June 24 by The Washington Post.
Uncertainty in the financial market is one concern of U.S. bankers going forward, according to an article titled “US bankers: ‘Brexit impact global,'” published on Sept. 16 by the BBC. U.S. Bankers sent a letter to British Treasury Secretary Jacob Lew in September requesting transparency as negotiations move forward, as uncertainty could impact millions of U.S. citizens working for U.K. and EU companies as well as the global economy, according to the article.
ISSUES AHEAD
Assistant Professor of Economics Paul Jones said that the most pressing question following Britain’s vote to leave the EU is whether this will encourage other countries to do the same in the future. He said this move was the first major pullback of a move toward European integration that has stretched for more than 50 years.
“I think the biggest question is, is this like the start of something that widens out to other countries?” Jones said. “Because if it [isn’t], I mean I don’t think it’s going to be that big of an issue in the long run. If it [is], then you know, this could have been a turning point that potentially leads to the whole breakup of the European Union.”
The U.K. itself could also change in the wake of this decision, as Scotland may call another referendum to decide whether to remain part of the U.K. The country voted to stay in a previous independence referendum in 2014, but after 68 percent of Scots voted to stay in the EU, this decision may be called back for a second referendum. Scottish First Minister Nicola Sturgeon said in June that a second referendum is “highly likely.”
“She is looking for every opportunity to bring back a referendum for Scotland to try and win that vote,” Graffy said.
The discontinuation of the free movement of goods, services and people is one of the “challenging issues” ahead, Graffy said. There are currently more than 1 million Britons living in EU countries, and just under 3 million EU citizens living in the U.K. The question of whether these people will be able to stay, retain the same rights, and have access to the same benefits has yet to be determined, she added.
This and other issues will have to be sorted out by May and her cabinet, Graffy said, with David Davis and Liam Fox playing “critical” roles in the negotiation of the exit and future trade that could have an impact on London’s status as a major global financial center.
“Britain really is at a crossroads, whether they sort of look inward and it’s little England, or they look outward and figure out how Britain can be the center for trade and tourism and commerce, and it’s all down to leadership,” Graffy said.
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Follow Cassandra Stephenson on Twitter: @CassieKay27
