Even as it is still recovering from the Great Recession, the European project embodied by the European Union (EU) is once again at risk with the possible so-called Brexit, the United Kingdom’s leaving the union. Most analysts predict serious consequences for the British economy as well as the rest of the European economies and believe it could be a serious threat to an already weakened world economy.
Regardless of the results of the referendum, the Brexit is a symptom of a trend countries are taking on where they look inward and offer proposals that would have been inconceivable a few years ago, but that today slip easily into their political agenda. Facing challenges such as the debt crisis, immigration, and refugees, European countries are feeding populism and renouncing their foundational values that promoted cooperation for peace, security, and the rule of law.
The failure of the “European dream,” as a supranational democratic identity, affects us all, because of the EU’s political influence and because of its importance as a leading world economic power. Despite the misses and the calculation errors, the EU is an experience that has not only benefitted an aligned social and economic cohesion in Europe, but has also inspired humanity to overcome past issues. In economics, it has meant the possibility of trade exchanges, economic cooperation and the movement of talent, overcoming tariffs, promoting free competition, and increasing investment in innovation and research as factors of economic growth.
If the Brexit goes through, the United Kingdom’s access to the European Union market would be affected (it sells 45% of its goods and service exports there), and many businesses would want to move their headquarters from London to the continent. It would also have to renegotiate its trade treaties with the EU and with 53 other countries that have preferential access within the Union, and it would have to fit into huge agreements such as the TTIP (Transatlantic Treaty and Investment Partnership) negotiated with the U.S. and the EU. London is also one of the world’s main financial centers, and with the Brexit it would eventually lose this status, because financial services make up a huge part of its total exports.
According to Organisation for Economic Cooperation and Development calculations, with the Brexit the country’s GDP would be 3% less than today’s by 2020, and 5% less by 2030, and in the long term there would be a loss of productivity due to a drop in foreign direct investment and a lack of workforce abilities. The savings on net transfers to the EU, which represent annually between 0.3 and 0.4% of GDP, would not make up for the losses brought about by the sudden halt to GDP growth and the loss of value of the sterling pound. For the continent, the Brexit would affect the rest of the EU countries and the euro, because a member would be lost that balances the political and economic forces within the Union, and given its military strength, the UK plays a decisive role in foreign policy and safety, not only in Europe but around the world. The weakening of its economy would also make the United Kingdom’s role dwindle. Furthermore, the Brexit could lead other European partners to leave the Union or the common-currency system, which would mean the loss of 40 years of collaborative efforts, alignment, and European expansion, tarnished today by the effects of a financial and geopolitical crisis with severe global and regional consequences.
The Brexit also creates uncertainty because of its potential negative effects on financial markets and on the volatility of currencies around the world, beyond the European Union, which worries the Bank of Mexico, as there could be a possible impact on the Mexican economy, in investments, in trade, and in the volatility of the exchange rate. We are experiencing this effect as the date of the referendum approaches. The Brexit has a contagious effect—as has happened with other recent crises—through financial agents and real markets, because Mexico is immersed in the world financial and trade system.
If the Brexit proposal passes, the “European dream” will take a step backward, as will greater integration and cooperation among nations, and it will be obvious that the world is headed toward more fragmentation. It is unlikely that this path could be one of opportunity and prosperity, but rather it could have too high a cost in the current fragile world economic system.
The author has been Ambassador of Mexico in Belgium, Luxembourg, and the European Union Institutions and is currently the Dean of EGADE Business School, Tecnológico de Monterrey.