Economy

What You Need to Know About Brexit

On Thursday, the United Kingdom is set to vote on a referendum measure that could have major implications for the economic and political system of Europe and beyond: Citizens will decide whether the U.K. should remain in the European Union or exit (hence the term "Brexit," or British exit).

England

Here's what you need to know:

  1. Britain joined the EU (originally called the European Economic Community) in 1973. The economic and political system, headquartered in Brussels, includes 28 countries across Europe. The EU has its own currency (the euro) and immigration policies, which member countries are expected to adopt.
  2. The U.K. has pushed back on certain EU agreements, choosing to use the British pound rather than the euro and opting not to adopt the EU's open border policy between member countries, for example. (You still have to show your national I.D. or passport at U.K. boarders unlike the 26 Schengen countries in the EU, where member state citizens can cross borders without presenting a passport.) That said, the U.K. must still allow an unlimited number of migrants from members states to enter the country.
  3. The Brexit vote is not exactly a surprise. The last time Britons voted was in 1975, according th The Guardian, and since then the scope of the EU has changed. Factors including the economy, immigration, and concerns about the influence of bureaucratic powers within the EU have led to increased euroskepticism and calls for economic and political sovereignty in Britain. Prime Minister David Cameron promised to hold a referendum on a British exit in 2013 in response to pressure from members of his own party, The New York Times reports. The referendum is Thursday, June 23, 2016.
  4. The pro-exit argument follows a few common themes: Primarily, Britons who want to exit the EU feel that the centralized European political and economic system is too great an economic and political liability. If the financial situation in the eurozone takes a turn for the worse, as it did in 2008, then the U.K. suffers as well (albeit to a lesser degree because Britain has the pound). There are also those who feel strongly that the EU's liberal immigration laws put the U.K. at risk, both financially and in terms of national security. In the podcast Panoply, Andrew Sullivan described the anxiety some Britons are feeling over immigration, which is fueling pro-Brexit feelings. "It think these anxieties are incredibly real, because the in-group/out-group instincts of human beings are very hard wired," Sullivan said. Immigration fears has been heightened by the Syrian refugee crisis, Business Insider reports.
  5. The anti-exit argument answers a lot of these issues: The U.K. does reap economic benefits from EU membership, despite its entrenched economic ties to member states. The Guardian reports that Britain's GDP has more than doubled since it joined the EU in 1973. This might not all be directly related to its membership, but "it would be hard to argue that EU membership has hindered the British economy." More importantly, this side argues, a departure from the EU could have serious economic consequences, with predictions ranging from "this could cause a short-term economic recession" to "this could prompt a devaluation of the pound." Some also worry that Brexit could have a domino effect, leading other member countries to flirt with the idea of an EU exit. It's also worth noting that while Brexit advocates cite immigration as a primary concern justifying Britains' departure from the EU, those opposed to the exit cite the fact that immigration to the U.K. has actually bolstered the economy, with immigration accounting for half of the U.K. GDP growth since 2005, according to a report from the Organisation for Economic Cooperation and Development (sic).
  6. The majority of economists appear to oppose the U.K. exit from the EU. Cameron, President Obama, prominent economists such as Nouriel Roubini and George Soros have warned against Brexit, to name a few examples. Financial institutions such as the International Monetary Fund, the U.S. Federal Reserve, the Bank of England, and the London School of Economics have also voiced opposition to exiting the EU.

syrian-refugees

How Brexit could affect America:

America

There are plenty of ways that a British exit from the EU could impact the United States. The Guardian lays out seven ways that you can read about here, but the main points are as follows:

  1. The international economic instability that could result from a British exit has U.S. officials and financial experts worried. The U.S. Federal Reserve cited the prospect of the Brexit referendum passing as one reason not to increase interest rates this week, Reuters reports, and Obama has cautioned that trade deals would be disrupted if the U.K. exits the EU.
  2. On the corporate side, American companies such as Ford, General Electric, Goldman Sachs, Mars, Chase, and Cisco have voiced opposition to Brexit. If the U.K. leaves, that could leave "a huge amount of uncertainty about manufacturing, exports and distribution," NPR reports. Under the EU, companies with offices in Britain enjoy the financial benefits of open trade and it's also easy to transfer employees between member countries because they don't need visas.
  3. There are also some concerns that America could lose out on its influence over political and economic policies in Europe if the U.K. departs the EU, The Washington Post reports. Britain is one of America's closest allies in the EU, and if the country forgoes its role in EU decision-making, then the U.S. might also see its influence wane.