To Brexit or not to Brexit?

The overall atmosphere concerning the potential Brexit is getting warmer as the Referendum, foreseen to be held on June 23, approaches. Two potential scenarios, important for both the EU and the UK, are possible: Brexit or Brestay. How both outcomes will affect the British overall economy and should British people consider the economic moment when casting their vote?

As it approaches, more and more voters are having second thoughts concerning their final decision. If the Referendum would have been held during the middle of June, 51% of total voters would cast their vote in favour of leaving the Union. Short, middle and long terms are (quite) possible to foretell. But in case of “Brestay”, the task seems to be even harder.

Short term shock on stock markets all over the EU

That fact, made several trade and financial centres (such as stock markets) fail during May for about 6% of their total value. Reuters offered an analysis of potential breakout of the stock markets if the UK leaves the Union. In accordance to their views, it is for sure that the shares’ values will fall down to non predictable level in the leaving scenario. But what is more interesting is the fact that they even judge the whole atmosphere before the Referendum.

The uncertainty of what will be the final outcome is being added to the tension on the markets in Frankfurt, London and Paris. So, even in case that the people decided to stay within the EU, it seems that some financial damage has already been made.

Middle term effects of potential Brexit

When it comes to the middle term effects of the potential Brexit, it looks like not many politicians both apologists and the ones on the contra side, are being speaking about. The short and long term is being analysed within the International Organisation and other fora. The OECD’s forecast predicts that a Brexit would cause a “substantial shock to trade,” heralding a new era for Britain that would see significant barriers to market access for exporters. It also claimed gross domestic product (GDP) in Britain would plunge by 3 percent if the UK exits the EU, while GDP across the EU on average would drop by 1 percent.

In the longer term, it says a restricted trade regime would hamper economic productivity and dynamism, causing foreign investment to drop. It suggests UK GDP could drop by 5 percent by 2020 following a Brexit. Pro-Brexit campaigners dismissed the OECD’s analysis as biased, while Labour’s Shadow Chancellor John McDonnell said it lays bare the failure of Chancellor George Osborne’s economic policies.

And what about the investors?

According to a recent survey of 2,000 personal investors, 58% believe a ‘leave’ vote would have a negative impact on their investments, even though a similar proportion, 62%, intend to vote for Brexit in the referendum. Half of personal investors are concerned about the impact that the referendum might have on the UK stock market, whatever the outcome in June.

So what impact would a vote to leave have on the stock market? The answer is, of course, difficult to predict. There will certainly be losers, at least in the short term, but it cannot be ruled out that there may be winners too.

Why the potential “staying IN” scenario could not be a part of this analysis?

As probably noticed, nowhere in this text (or at least nowhere), could be found the information on potential consequences for staying in the Union. Since the limits of the article are set to the economic moment, it is to be assumed that “staying IN” scenario would not affect both the EU and UK. Several obvious reasons confirm that.

First, the UK has opted out of the Eurozone system. It means that neither its currency is Euro, nor it is obliged to respect the financial and (most) banking rules coming from the Commission and other EU institutions and bodies. It changes nothing. Second, if the UK stays within the Union, probably the only losers will be the political campaigners for Brexit outcome. Last but not least, the fact that people will continue to enjoy all four freedoms as it was the case so far, is the strongest argument for none consequences for the UK in case of “staying IN” scenario.

As Mao Zedong said: “Nothing will change; trees will grow again next year, sun will continue to rise up every day, and women will continue to give births.”

Nenad Stekić

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