With a referendum approaching and polls close, investors are preparing for the impact of a potential British exit from the European Union.
Here’s what’s at stake, as well as one argument as to why a Brexit may be a huge economic loss for all.
After two days of intense negotiations, British Prime Minister David Cameron has proposed a new agreement that could allow Britain to stay in the European Union. Although not all of his demands were met in full, the potential deal focuses on migrant workers, protecting the pound and London’s financial sector from regulations, sovereignty, and competitiveness.
It may be just enough of a carrot to dangle in front of the “Euroskeptics”, or Brits that are skeptical of the benefits that Britain receives from EU membership.
However, the split between “stay” and “leave” is still very even according to polls:
With polls close and the “Vote Leave” campaign now in full gear for the referendum on June 23, investors around the world are trying to figure out the potential economic and political impact of a British exit from the EU.
The Bertelsmann Foundation, a non-profit foundation from Germany dedicated to European unity, has come up with a fairly compelling case against a Brexit.
Shown in today’s infographic, the impact of the UK leaving the economic union creates a situation where everyone loses.
While its true that the UK would have greater control over its own immigration and regulations, the downside is largely economic. Britain could avoid making payments to the EU budget, which works out to £350 million per week, but this would be likely outweighed by the increase in trade barriers. Currently 45% of the UK’s exports go to Europe, and without direct access to the single market, the cost of both imports and exports would likely go up.
The costs of trade policy isolation affect the United Kingdom, where GDP could drop from 0.6% to 3% lower by 2030, compared to if it remained in the EU. Bertelsmann warns it could be even worse once the effects of economic isolation factor into investment and innovation behavior, with the GDP dropping up to 14%.
Britain is not the only country that would be affected. As a result of a Brexit, the GDP per capita of Ireland (-2.66%), Germany (-0.33%), Netherlands (-0.35%), France (-0.27%) and Spain (-0.32%) could all also be impacted.
Does the financial community share these concerns? If the pound is any indication of Brexit fears, the currency is currently trading at seven-year lows.
