Brexit Has Officially Begun, and Its Economic Impact Is Already Looking Grim for the UKPhoto by Charles McQuillan/Getty Business Features Brexit
As I have said before, that decision was no rejection of the values we share as fellow Europeans. Nor was it an attempt to do harm to the European Union or any of the remaining member states. On the contrary, the United Kingdom wants the European Union to succeed and prosper. Instead, the referendum was a vote to restore, as we see it, our national self-determination. We are leaving the European Union, but we are not leaving Europe—and we want to remain committed partners and allies to our friends across the continent. — UK Prime Minister Theresa May’s letter to Donald Tusk, European Council President
British voters began their separation from the European Union in a vote last year that has come to be known as “Brexit”—where the United Kingdom will no longer be a member of this 28 country bloc which was created to further intertwine a continent that resembles the United States far more than larger landmasses like Africa or South America. This morning, Theresa May exercised the power given to her by Article 50(2) of the Treaty of the European Union to formally begin this separation.
The Brexit vote was an overly simplistic solution to a wildly complex problem—like driving a truck over a mass in order to split the atoms comprising it. Yes, the European Union is a mess, but formally separating from the Treaty isn’t going to change that, nor is it going to reduce Britain’s headache in dealing with their dysfunctional family to the south—as eight of their ten largest trading partners in 2015 were EU member states. Unless Britain plans to completely reinvent its economy on the fly, they still will have to deal with the morass of EU red tape and nonsense, just without the membership benefits that were created to streamline the process of waiting in line behind this red tape.
It’s understandable why the UK would want to remove itself from this currency union that has no political union to govern itself, as this five-year chart of the value of the Euro versus the US Dollar demonstrates. The precipitous fall beginning in late 2014 is due to a litany of factors, but the dysfunction of the EU certainly played a central role.
However, as the movement of the British Pound from June 2016 on indicates, the UK essentially saw the EU’s dysfunction and raised them even more of the same. A lower valued pound only hurts British citizens, as they now have less purchasing power to obtain the same items from across the continent that they have been buying since joining the Union. Now, instead of having the complex issues of immigration and trade all fall under one roof; the UK will have to establish a new status quo with each and every nation it regularly deals with on a myriad of complicated fronts.
The murky future of the UK is best exemplified in this chart from The Wall Street Journal. The pound is getting crushed, but the British stock market is up about 16% since the Brexit vote. The short term has not been negatively affected because up until today, the UK was still an official member of the EU, while the pound reflects the uncertain destiny of what Article 50 triggers.
This future is filled with confusion for British businesses, and the car and jet industry is already beginning to show their nerves. easyJet and Ryanair demanded that the Prime Minister negotiate a deal to preserve their access to the continent. One look at easyJet’s network clearly demonstrates why. Any dramatic interruption to their service to Europe would eviscerate one of Britain’s most popular airlines. And that’s just the beginning. Ford is Britain’s largest manufacturer of car engines, and Ford of Europe president Jim Farley proclaimed that “any deal must include securing tariff-free trade with the wider Customs Union and not just the EU27, whilst retaining access to the best talent and resources.” In short: the future must reflect the past as closely as possible or chaos will ensue.
Ryanair warned that unless the UK negotiates an agreement that resembles their pre-Brexit access, that “there is a distinct possibility that there may be no flights between the UK and Europe for a period of time after March 2019,” Kenny Jacobs, their chief marketing officer said.
Housing looks like it may take a hit as well. Bloomberg analyzed the London market, and even though it is still too early to come to any firm conclusion, there is a distinct trend that is taking shape. Migration was slowing before Brexit, and it dipped even further after the referendum. If immigration dips to net-zero levels, the UK’s population could fall by as much as seven million over the next 20 years. That would be equivalent to Los Angeles, Philadelphia and Phoenix completely disappearing from the United States altogether.
Cadbury has come out and said that they will likely either have to charge more for their famed chocolate eggs or will have to reduce their size due to the economic realities of Brexit. The $10.7 trillion London banking sector is dealing with the vast complexities that will arrive with this seismic shift, and regulatory experts in London are floating the idea of a “mutual recognition” system. This is because London will lose its blanket “passporting” rights which allow them to sell financial services to the single market that is the EU. Now they are faced with the prospect of negotiations with each individual financial market, and as a result, many banks are exploring the idea of relocating large portions of their firms to Luxembourg, Frankfurt, Dublin, and Paris.
However, the “mutual recognition” system has no global precedent outside of Hong Kong and China’s unique relationship, and many doubt whether it will work. Reuters detailed the problems with one of the other ideas to alleviate this coming problem—designating Britain as a “third country”—writing that:
In practice the system is cumbersome. It operates firm-by-firm, does not cover all activities, has no fixed timetable for approvals and authorizations can be canceled at short notice, bankers say. It took four years for the EU to deem just one set of U.S. derivatives clearing rules to be equivalent as talks got bogged down over technical details.
The European Union is an over-regulated nightmare, and Brexit has effectively heaped an entirely new set of regulations on top of it—further complicating this bureaucratic monster. Instead of being able to negotiate with the EU as a singular bloc, the UK will now have to deal with this nonsense on a case by case basis, and they have less leverage than they would have if they stayed in the 28-country union (soon to be 27).
There is no obvious immediate economic argument in favor of Brexit. All the problems of the EU will remain, and now it is just more complicated for the UK to deal with those issues. However, much like the election of Donald Trump, economics were the catalyst for the primary motivation behind the Brexit vote: an aversion to immigration changing the complexion of a society once dominated by white hegemony.
This chart from The Migration Observatory at the University of Oxford perfectly encapsulates the relationship between economics and nativism. As the bubble inflated over the early 2000’s, the issue of race/immigration became more important in the UK’s political lexicon. Once the bubble burst and the Great Recession hit in 2008, the economy and unemployment became the dominant issues of the time. As we got further away from the historic crash and the economy rebounded a bit, but continued to stagnate, the issue of race/immigration continued to climb—spiking in 2012. By the time the Brexit vote took place, race/immigration surpassed the importance of the economy in voters’ minds.
The 2008 crash restructured an already unequal economy so that more gains flow towards the top. But instead of blaming the bankers, governments and conglomerates at the heart of this, the Brits repeated mankind’s tragic flaw, and turned on a minority population. The economics of their predicament removed a lot of agency and pride from the UK, and instead of taking it back from the thieves who perpetrated these crimes, the “leave” voters perpetuated a depressingly familiar cycle, and attempted to replenish their stocks by taking from those more vulnerable than them.
This was echoed across the Atlantic by Donald Trump’s promise to Make America Great Again. The economics of the American middle class have been on a steady decline for nearly a half-century, yet his central policy initiative centered on immigration, and any concrete economic policies were absorbed by the vagaries of MAGAism. Western societies have been taken advantage of by a cabal of the ultra-wealthy, and instead of addressing the issue at the heart of this stagnation, they have fallen into the trap that has devoured humans for centuries—cutting off their economic nose to spite their nativist face.
Jacob Weindling is Paste’s business and media editor, as well as a staff writer for politics. Follow him on Twitter at @Jakeweindling.