Cosy arrangements with reality for Brexit supporters
May 21 2016 08:25 PM
COZY
Christopher Dembik is economist at Saxo Bank.

By Christopher Dembik

In order to reassure voters, Brexit supporters advance two main arguments. The first consists in stating that the uncertainty linked to the exit from the European Union will be short-lived and will only marginally affect the UK economy. The second, central to its campaign, is based on the idea that the exit will lead to a new agreement with the European Union, advantageous to the UK.
Aren’t these just cosy arrangements with reality?
Let’s look at the first argument. If Brexit wins, its supporters are conscious of the fact that in the short-term the UK will not be able to avoid speculative attacks. The central bank’s only option to stem this flow would be to increase its policy rate, and in so doing penalise the dynamics of growth. Nevertheless, for these supporters, these inconveniences will only be short-term because they believe that the solidity of British fundamentals, which is real, will enable them to overcome this transition period.
This is forgetting that this uncertainty will not fade as long as a new agreement with the European Union has not been worked out, ratified and implemented.
And that could take a very long time! When Greenland voted in favour of independence from Denmark and left the European Union, negotiations dragged on for three years on a single point: fishing quotas!
The free-trade agreement between Canada and the European Union took seven years to be finalised and still has not yet been ratified! Such a long and complicated process is to be feared for the UK.
As British business will have no idea as to the trading conditions they will have with the European Union, they will surely refrain from investing and stop hiring.
The first argument does not hold up, so what about the second one? Brexit supporters claim that leaving the Union will allow them to retain all the advantages of the common market without the inconveniences. In other words, not having to contribute to the European budget and not having to accept the free movement of people.
Due to the close trading relations between the UK and the European Union, they are gambling on the fact that it will be in Europe’s best interest to make concessions. That’s utopia. Trade relations between the USA and the UK are just as close, but despite this, the transatlantic treaty project has being shuffling along for three years!
Moreover, Brexit supporters have forgotten one crucial point: European exports to the UK represent only 3% of European GDP whereas British exports to the Union represent 13% of the UK’s GDP. The ratio of economic strength is incontestably in favour of the Europeans.



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