Brexit’s Financial Aftermath: Where Does the UK Stand?

Despite the expected negative impact of  Brexit in the short term, leaving EU could be a right decision, after all. 

After the referendum in the United Kingdom, on 23 June 2016, when ‘leave’ won by 52% to 48%, everything has changed in the European Union. According to Article 50, each member state can leave the European Union, but during the two years of negotiations, all EU laws will apply in the UK. The most important inquiry has been whether a hard or soft Brexit would suffice and what will it cost the UK.

Many agree that the UK will suffer significant consequences of its decision in the short term, but the majority also believes that in the long run this decision may prove to be a good one. While a prediction has been advocated eloquently by Donald Tusk, there is still much to be decided and much more to be deliberated upon. It is understandable that EU members are angry and disappointed in the UK, as the solution will be the start of several predicted and unpredictable problems in Britain, especially in the short term.

A hard Brexit seems the more probable solution; the UK must prepare for the great changes. The biggest problem will be the loss of access to the European single market. The manufacturing sector would be more in danger because of tariffs on goods, but losing of passport rights will generate the most problems in cross-border trade and commerce of financial services. The near-possible solution may be the application of the Swiss banking model of working with subsidiaries, with yet some adverse effects.

The City, Competitive European financial centres who associate with key Euro related activities and infrastructure in their zones, and financial experts from the EU who will need a visa and work permit for work in the UK will suffer the most. This is inspite of the City having a strong comparative advantage and a developed system of capabilities.  In addition, a long haul of uncertainty will increase the risk-premia on assets, volatility, and availability of financing. In a long run, this will affect employment in this sector, long-term investment decisions, and the volume of business companies from the UK within the EU. It doesn’t look good, isn’t it? This is only one side of the whole story.

A hard Brexit will also bring Britain a full control of their borders and applications of only its laws, which it ‘actually’ wanted, with no interference in its economy, even while bearing higher costs. The ability to confer trade agreements with countries outside of the EU, especially China, is not gone yet.  Positive impacts from the skills-based migration policy, reduction of regulation and turning to the countries with faster economic growth, are expected in the long term. A soft Brexit also being a possible scenario, is infact a less desirable outcome from Britons. The outcome seems pointless, making Brexit kind of standoffish.

The UK, as a strong and mature economy has the potential to deal with a hard Brexit. The question is misdirected at the very least, to the UK. Will the EU survive Brexit – should perhaps be the main subject of concern.

 

 

 

 

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