2016: the year of Brexit?

At a time when the European Union (EU) is facing a series of challenges, from the refugee crisis to economic woes in Greece and elsewhere, Euroscepticism is clearly on the rise. This is most apparent in the UK where Prime Minister David Cameron has promised to renegotiate the country’s relationship with the EU and to hold a referendum by the end of 2017. On 2 February European Council president Donald Tusk released a draft proposal outlining a package of reforms to satisfy the British demands. Tough negotiations on the draft deal are now underway. But what could be the impact of a possible Brexit, for both the UK and the EU?

UK’s demands and the European Council’s proposal

The British leader has called for reform in four broad areas, to which Tusk has answered:

  • Economic governance – Eurozone integration must be fair to those inside and outside the single currency. The European Council proposes “mutual respect” between Member States which wish to pursue further deepening of the Economic and Monetary Union and those which do not.
  • Competitiveness – The EU must cut the total burden on business and boost jobs and growth.
  • Sovereignty – The EU must fully implement its commitment to subsidiarity and provide the UK with a formal, legally-binding guarantee that it is not obliged to work towards “ever closer union”.
  • Immigration – Cameron has proposed a so-called “emergency brake” which would allow the UK to limit the benefits paid to new EU migrants for up to four years before being able to access certain benefits or social housing.

Cameron is now trying his best to secure the agreement of his fellow European leaders before the next Council meeting of 17-18 February. This would pave the way for a referendum in the UK in June of this year, reported to be his preferred timeline. All will depend, however, on the pace of the negotiations.

 Consequences of Brexit: what is at stake?

The impact of Brexit on the UK economy, British businesses and wider British interests could be severe and felt across multiple  channels. How serious the impact would be depends on the possible new relationship that emerges between the UK and the EU. For the UK, trade and investment could be seriously affected. Over time, regulatory divergence could increase, affecting trade volumes and reducing the attractiveness of the UK as a destination for investment. Brexit could also have implications for the UK’s position on the global stage, particularly in terms of trade policy. While the UK would be free to strike new trade deals based on domestic priorities, it would face the considerable challenge of renegotiating existing deals that would become void after its withdrawal from the Union.

For the EU, the economic impacts of Brexit depend largely on how dynamic the European economy will be in the years to come. If it manages to overcome its current economic problems, and liberalises internal and external trade, then the cost of Brexit relative to remaining in the EU will be lower. Finally, Brexit could also impact EU integration since other Member States may be tempted to seek out the same special deals or exemptions as the UK. This could ultimately lead to less integration, and more differentiation, among the Member States.

In the UK citizens’ hands

A lack of clarity over what would replace EU membership means that the road to Brexit will be paved with uncertainty. Amidst the arguments for and against, we should not lose sight of the importance of public opinion considering that the British people themselves will have the final say. In December 2015, for instance, opinion polls indicated an almost even split between those in favour of and those against EU membership. The months ahead will thus be crucial for convincing the British whether or not remaining in the EU is truly in their best interests. They will likewise be decisive for the EU as a whole, as a Brexit would no doubt propel further the rising tide of Euroscepticism across the continent.