Views on the News: Brexit
This coming Friday, the United Kingdom is set to leave the European Union with or without trade and economic deals, unless an extension is agreed upon by the Union. The International Monetary Fund has stated that the UK leaving the EU abruptly would shrink the country’s Gross Domestic Product and could trigger a recession and a deterioration of the world economy. Do you agree with the IMF’s analysis? How do you think the UK leaving the EU without a deal will impact the UK’s and the EU’s economies in the immediate aftermath, and the world economy in the long term?
Hannah Cook ’20
One cannot analyze global issues without looking at the vital role of trade in shaping international relations. The reason being that trading goods between countries typically has positive effects for parties involved: allowing for specialization, strengthening their economy and promoting peaceful relations, to name a few. Whereas I don’t think the world economy as a whole will be too drastically impacted by the UK’s decision to leave the EU, I agree with the IMF’s analysis that this decision will be highly detrimental to the UK and EU. This is because other European countries will be less likely to trade with them in the future and the UK will appear as anti-EU. This, in turn, will not only negatively affect the UK economy, but also, geopolitical ties will be severed and many European countries that were once allies with the UK will begin to distance themselves both economically and politically.
Hannah Cook ’20 is an International and Global Studies and Anthropology double major.
Prof. Lucy Goodhart (IGS)
Brexit is setting a bad example for deadlines. Last Friday, April 12th, was the day by which my country, the United Kingdom, was meant to have agreed a plan for leaving the EU. But Theresa May has been granted another extension, this time for six months. With this pause to reflect, it’s worth considering the economic consequences of the exercise. One interesting analysis comes from an English economist, John van Reenen, of MIT. His work indicates a permanent loss in income of 1-2.3 percent, looking at either “Soft” or “Hard” Brexit. Moreover, if we factor in the dynamic effects on productivity that come with a country’s deep integration in a market, and specialization in areas of expertise, the costs mount to 6.3-9.6 percent. That’s large enough to chew on. And helps to remind us that Brexit isn’t just an endless drama, it’s also important.
Lucy Goodhart is a lecturer in the International and Global Studies and Politics departments, specializing in the global economy and elections.
Prof. Jytte Klausen (POL)
The resolution of the BREXIT debacle has enormous consequences for the United Kingdom and for Europe's future. The economic impact is already felt in London and in manufacturing, health care, and the financial industry. Car manufacturers have withdrawn, and the unacknowledged fact is that BREXIT will hurt the economy of the Midlands and northern England where voters overwhelmingly voted in favor of Leave. BREXIT may cause Northern Ireland to effectively secede from the union. I am here referring to the union of England, Wales and Northern Ireland rather than the European Union, causing further self-harm to the region. The loss of the UK as balancing agent in the EU leaves Germany and France in charge. Unsurprisingly, voices in Brussels are getting louder that it may be a good thing to get the UK out. The federalization of Europe may then proceed apace. "Federal Europe" is unappealing to the smaller member states and voters who already vote for xenophobic parties, blaming "Brussels" everything going wrong. The prospects are terrifying.
Jytte Klausen is the Lawrence A. Wien Professor of International Cooperation, specializing in domestic and international terrorism, Islam in the West and immigration and social cohesion.
Prof. Peter Petri (ECON)
As Donald Trump would say, nobody knew Brexit could be so complicated. A hard Brexit would cause economic losses and rekindle the Troubles in Northern Ireland by creating a border between the region and either Ireland or the UK. A soft Brexit, say a customs union, would leave the UK subject to EU trade rules and without a cherished US trade deal. A new referendum would send everyone back to GO. So uncertainty rages. UK growth is now below one percent, compared to much higher rates in the US, the UK earlier and most of Europe. Investment is falling and the City, London’s Wall Street, is leaving. The IMF worries about a deep recession. When in a hole, the first rule is to stop digging. A customs union is the best card in a very bad deck. The best hope for the UK is to move on.
Peter Petri is Carl Shapiro Professor of International Finance in the Brandeis International Business School, specializing in international trade and investment.
Prof. George Ross (POL)
The EU’s extension of Brexit dealings to Halloween make economic projections uncertain. The specific circumstances of the UK’s leaving will matter greatly and we (and the UK) do not know what they will be - Theresa May’s proposed deal, staying in the EU’s customs-free area, a second Brexit referendum, or crashing out without agreement. Whatever the deal, the UK will then have to negotiate a large number of new trade deals. In global terms, there are other possible changes that could play Brexit roles – Trump and trade, declining global growth, political uncertainties, etc. A final unknown is whether UK and EU economic preparations for Brexit disruptions will be effective.
Everyone agrees that Brexit will make the UK poorer in the short term and that it would be better off staying in the EU. Projections have been gloomy, excepting those from hard-line Brexiteers who live in a parallel universe. The UK Treasury calculated that GDP would drop 0.6%-2.1% by 2035 under May’s plan, while crashing out without a deal could lead to a decline of 7.7%. The IMF notes that a softening global growth rate is likely to make the EU’s immediate decline worse and that a no-deal Brexit could trigger a UK recession, and in the longer run, leave the UK 6% worse off than the EU, even if the recession might be avoided with a “softer” exit. These forecasts are for the UK economy in general, however. Sectoral disaggregation would help pinpoint particular trouble spots – the service sector (especially financial services), London real estate, automobile manufacturing, food prices, disrupted supply chains of all kinds. Other sectors and regions will take hits, as will the UK budget, social services, including the National Health Service, education (particularly higher ed), and unemployment. Some EU sectors could lose as well, but less than those in the UK.
George Ross is Professor Emeritus of Labor and Social Thought European Integration, European politics and social policy and comparative industrial relations in the Politics department.