Financial markets are awash with analysis of the potential implications of a British exit from the European Union, commonly referred to as “Brexit.” The referendum vote will take place on June 23rd and threatens to suspend the United Kingdom’s membership with the EU in what some high profile opponents to leaving consider the equivalent of economic and political isolation. The most noteworthy impact to date has been evidenced by the UK Pound which is crumbling against peers as businesses hold off on investment until the economic climate grows more certain. Although the number of those in favor and those against maintaining membership in the European Union is widely disputed, the ambiguity is sending the Pound into a tailspin with the GBPUSD currency pair plunging to depths last seen during of the financial crisis in 2008-2009.
More to Gain Than Lose
The move to exit the European Union has been gaining substantial traction in recent months as prominent business leaders and political officials back the UK leaving the Union. Currently, opinion polls are showing the probability of an exit are nearly neck and neck with the issue becoming a contentious national matter, even pitting members within defined political factions against one another. While current Prime Minister and leader of the Conservative Party David Cameron has come out in support of European Union and greater integration, the deal has staunch opponents like Mayor of London Boris Johnson who is also a party member. Defining the real impact on the UK economy will be challenging because it will create several new headwinds to facilitating international trade. However, the idea being advanced by the Brexit proponents is that the UK has not benefited from greater integration.
At the core of the exit ideology is the notion that the UK lacks influence in the EU despite embracing certain aspects such as open borders and making a substantial contribution to the budget, receives very little in the way of remittances. One common example cited by the opposition to the EU is the fact that British taxpayers were on the hook for bailouts to Euro Area countries. Additionally, the EU membership dues which are redistributed to member countries effectively serves to tax the UK and subsidize weaker member nations. This is unacceptable to many taxpayers and business leaders convinced that the UK should not be on the hook for the European mess. Now that open borders have proven a disastrous policy as evidenced by the recent events in Belgium, it is easy to understand why many people in the UK are increasingly eager to revert towards more isolationist tendencies.
