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363. Brexit: Change of the Europe and the World

Lee, Dong-eun, Lee, Yu-jeang 기자2016.11.07 12:25:02

On June 23, 2016, 52% of the citizens of the United Kingdom voted in a referendum to leave the European Union (EU),  after being an EU member for 43 years. This was called the Brexit referendum, and it would result in political, economic and cultural changes. This incident will not only affect the UK and Europe, but also countries throughout the entire world, including Korea. Thus, it is essential to analyze the reasons why UK citizens wanted Brexit, along with details of the voting, and overall influences.

The Background of Brexit

Development of the EU

           In 1946, Winston Churchill delivered a famous speech at University of Zurich in Switzerland asking for unity and alliance among European countries to prevent another World War. In 1950, a Euro-enthusiast called Robert Schuman, who was the foreign minister of France, suggested uniting Europe, and this resulted in the founding of many European communities, including the European Coal and Steel Community (ECSC), the European Economic Community (EEC), and the European Atomic Energy Community (EAEC). These three communities were merged into the European Community (EC) in 1967, which changed its name to the European Union (EU) in 1994. For 66 years, European countries have proceeded to unite Europe, but the EU is currently  facing unprecedented crisis due to Brexit.

           The UK joined the EC in 1973, hoping to solve an economic problem called The British Disease, which was caused by an inefficient economic structure. However, after Margaret Thatcher became the British Prime Minister, she blamed the influence of the EC for the British Disease and demanded the return of the UK contribution, this being  the second largest in the EC. Eventually, two-thirds of their financial contribution was returned to the UK.

           In 1992, the EC announced the Maastricht Treaty, which led to the creation of the EU and the euro. This treaty enabled the EC to include its members’ diplomacy, security, domestic affairs, and the legal  field under its control. The EC developed into the EU, based on the Maastricht Treaty, and it changed itself from an economic union into an economic, diplomatic, and political union. Now, the EU includes organizations such as the European Central Bank, the European External Action Service, the European Parliament, and the European Police Office. However, this gave rise to  the objection that it was taking  charge of too many sectors traditionally considered to be under each nation’s exclusive management.

The Reason Some British Citizens Want Brexit

Since the euro was launched in 1999, it became a key currency in a short period of time. However, after the euro zone economic crisis in 2011, questions were raised as to whether the common currency  is ideal for European nations or not. The Greek government-debt crisis and the Italian economic crisis worsened the situation. After these economic crises, Germany demanded a tight fiscal policy for members of the EU, which caused great grievances among the British working-class and blue-collar workers.

Another reason why some British citizens want to leave the EU is because the EU controls the British economy by recommending a 35 hour working week, by regulating carbon dioxide emissions, gasoline mileage, production of cosmetics, and so on. They think the British government should decide the economic policies of the UK. Furthermore, the UK paid 12.9 billion pounds in  EU financial contributions. This is a significant amount of capital considering that the British Home Office’s budget is 9 billion pounds per year. British people want to use their contributions at home instead of paying for the EU, and want to be relieved from economic regulations imposed by the EU.

Additionally, the UK has had a great influence on the EU, but this  has decreased as the number of members in the EU has increased. The UK’s vote had a 20% impact in EU decision making in the 1970s, but fell to 8% by 2015, making it hard for the UK to reject any EU legislation. Moreover, in the 1990s, the UK decided not to join the European Monetary Union and the European Fiscal Compact, and this resulted in weakening the influence of the UK even more. Thus, some British people have claimed that the UK’s influence is disproportionate with its large amount of financial contribution.

Lastly, the immigrant issue is problematic in the UK. After the UK economy revived from the financial crisis in 2008, Eastern-European immigrants rapidly gathered in the UK as British employment rose. The hiring rate in the UK was 73.3% from November 2014 to January 2015, which was the highest since 1971. However, according to the UK Statistics Authority, immigrants took  more than 40% of the 500,000 new jobs created in 2015. This is why some British citizens think that only the immigrants are making a profit, while British people are the ones who worked hard to restore the UK economy. Additionally, some are discontented with the idea of to providing  welfare  to immigrants, according to  the EU human rights legislation. 

Brexit and Its Impact on UK

           David Cameron, the British Prime Minister, announced as an election pledge in 2015, that a conservative party would hold a Brexit referendum before the end of 2017, if they were elected. He had been under pressure from many of his Members of Parliament and from pro-Brexit citizens. When the Conservative Party unexpectedly won the 2015 general election with a majority, there was no choice but to carry out a Brexit referendum  in 2016.

Should the UK Remain a Member of the EU

or Leave the EU?

Results

Choice

Votes

%

Leave

17,410,742

51.89%

Remain

16,141,241

48.11%

Valid votes

33,551,983

99.92%

Invalid or blank votes

25,359

0.08%

Total votes

33,577,342

100.00%

Registered voters/turnout

46,501,241

72.21%

A grape showing Brexit referendum results which is from electoralcommission.org.uk

In the referendum on the EU membership on June 2016, 52% voted to leave. This resulted in the complex process of withdrawal and political and economic changes in the UK and other countries. The result was split between the constituent countries of the UK, with a majority in England and Wales voting to leave, and a majority in Scotland and Northern Ireland, as well as Gibraltar, voting to remain.

           Brexit is expected to have great impact on the UK. As Scotland voted to remain a member of the EU, Scotland could choose to leave the UK in order to remain in the EU. Furthermore, leaving the EU could cause conflict between pro-Brexit groups and those who are against Brexit. In terms of economic changes, the British pound’s exchange rate is falling drastically due to uncertainty about the UK economy. This will raise the prices of the UK’s imports, resulting in inflation. Additionally, the lower exchange rate of the British pound will lower the prices of the British exports, and this could increase overseas sales. However, if the UK cannot negotiate tariff benefits when trading with the EU, the competitiveness of British exports could decrease. Lastly, the UK could lose its role as a financial hub if companies in the UK do not have free access to European nations. Due to these negative prospects, the International Monetary Fund (IMF) cut its growth projection for 2017 UK to 1.3%, from its earlier forecast of 2.2%.

Impacts of Brexit on the World

           Britain has voted to break out of the EU, and the outcome is feared by global investors for its potential shock on the fragile world economy and financial markets. Although it will take two years for the country to negotiate the terms of its departure with the EU, the shock has had an immediate effect  on markets across the globe, even in non-European countries.

           First, in the aftermath of the referendum, fears are mounting that the world might plunge into a currency war. In short, the pound went down, while the yen, the franc and the dollar gained ground.         Japan's yen, one of the haven assets in times of turmoil, hit a 32-month high of 99.02 per dollar after Brexit. Japanese Prime Minister, Shinzo Abe, has been trying to implement Abenomics, which aims for inflation and a weak yen since 2012, but the outcome of the referendum has run counter to this policy. He said Japan would carefully watch foreign exchange and stock markets, but his remark seemed to indicate that the world's third largest economy could intervene in the currency market to put the brakes on the surging currency. The Swiss National Bank already intervened in the currency market in reaction to the UK's exit from the EU and said it would try to ease upward pressure on the franc. It is likely that the US will also opt to cut the dollar rate to stabilize the global situation. All this competitive depreciation by major economies would be intended to raise exports by devaluing their currencies. However, these must be beggar-thy-neighbor policies which would worsen the economic problems of other countries by pursuing their own interests.

           Brexit has caused  changes not only economically, but also politically and culturally. In particular, it is a matter of the utmost concern that  other countries in Europe might also consider  exiting from the EU.

           Indeed, the far-right parties of various countries in the EU have strongly urged  withdrawal. Marine Le Pen, a French politician who is the president of the National Front, said that Brexit is a victory for freedom, and other countries have to hold their own referenda about this issue, like the UK. Marion Marechal Le Pen, a French politician of the National Front, also called for a so-called Frexit,  and emphasized the rights of French voters  to choose. Furthermore, Geert Wilders, the head of a right-wing political party and a member of the Dutch Parliament, announced that the Dutch people want to decide about their own nation, finance, border and immigration policy for themselves, and he would propose a referendum called Nexit. According to a recent survey, it is said that 54 percent of the Dutch want a national vote to break away from the EU. Besides these countries, many analysts expect that Italy, Denmark and Czech Republic are also thinking about withdrawing from the EU. However, some critics are worried that Brexit and further movements seem to neglect the historical achievement of positive peace and stability achieved by the founders of the EU in postwar Europe. They insist that unless the shock waves stemming from the referendum are  resolved as early as possible, a vacuum of power will occur in Europe as a whole, which eventually will link to internal and external threats to both the EU and UK’s security. In short, the critics believe that Brexit itself is an act which is contrary to the founding ideology of the EU, and it will eventually lead to a rift throughout  the whole of Europe.

Impacts of Brexit on Korea

           Like elsewhere in the world, Britain’s decision to leave the EU is expected to further overshadow the prospects of the Korean economy, which is already faced with negative prospects in terms of employment, inflation and exports. Korean government officials swiftly went into an emergency mode and prepared a new set of economic policies for the second half of this year, saying they would use all means possible to stabilize the markets.

           First, the Korea Composite Stock Price Index (KOSPI) closed at 1925.24 points, down 3.09 percent from the previous close, while the Korea Securities Dealers Automated Quotation (KOSDAQ) shed 4.76 percent to 647.16 points after the referendum. Some analysts forecast that the benchmark KOSPI might  fall as low as 1800. The won also fell 2.58 percent against the dollar, to close at 1179.9. On the securities market, the UK is the second largest foreign investor in Korea, after the U.S., holding 36.4 billion won worth of local stocks. British money accounts for nearly 10 percent of all foreign capital in the markets. Jeon, Seung-ji, a fixed income analyst at Samsung Futures, said that given the UK’s presence in global financial markets, it is unlikely that the local foreign exchange market will be stabilized easily or any time soon.

           Despite the panic on the financial markets, some private economists and government officials said the impact on the trade market will not be as severe as it seemed, and that Korea’s exposure to the UK is not that big from a trading perspective. Korean exports to the UK were worth 7.3 billion dollars in 2015, accounting for just 1.4 percent of all shipments. UK investment in Korea totaled 260 million dollars, which is about 1.2 percent of the total received by Korea.

           However, the situation will  be likely to delay Korean exports to its free trading partner, since  Korea, the UK, and the EU have to renegotiate the terms of their trade pacts and tariffs separately. Some analysts say that the UK and the EU are expected to engage in their negotiations with minimum impact on the global economy. However, Korea will inevitably face volatility, and further growth will be slowed down by stagnant stock markets both at home and abroad.

           The referendum will also inevitably make the Finance Ministry readjust its growth forecast this year. Given the worsening situation, Korea’s initial 3 percent growth projection is out of reach, and many analysts are expecting that the economy will probably grow by around 2 percent. Furthermore, job losses and low inflation could  be prevalent, along with socioeconomic impacts from corporate restructuring.

Conclusion

           As Britain begins to  withdrawal from the EU, because of this referendum, countries all over the world, including Europe and the UK, can be expected to undergo drastic changes in economic, political and cultural aspects . In order to cope with these changes, every country will have to establish and carry out its own policies, matching global and domestic requirements.  It is remarkable that these new policies will  also influence the circumstances of world, leading to a new era. Likewise, Korea has to take this event as an opportunity, and make the most of it,  according to its own economic, political and cultural situations. The competitiveness of Korea in the world market will depend upon this.

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