Much more than a simple decision about staying or leaving, Brexit is like a divorce in which a network of economic obligations unwinds. Yes, the U.K can decide to exit the European Union (EU). But the terms of their departure and their future relationship would depend on 27 other nations, countless tradeoffs and something called Article 50.
Here is quick summary of the basics:
Some EU History
For starters, when you think of the EU, think friction. In science, friction refers to the resistance created by two surfaces when they move along one another. To diminish friction, you just need lubrication. The goal in Europe was to have people, goods, services and money move without friction. And the solution, the lubrication, was removing tariffs, currency exchange and other barriers that slowed trade down.
Aiming for that frictionless world, in 1973, the U.K. Denmark and Ireland joined the original six members of the EU (France, Germany, Belgium, Italy, Luxembourg and the Netherlands). By 2016, there were 28 EU nations with 19 of them sharing the euro. On June 23rd, the U.K. will decide if it wants to leave.
Brexit Pros and Cons
The big issues for Brexit advocates are sovereignty, border control and over-regulation. They also cite the expense of EU membership and the need to reconsider decades of regulatory statutes.
On the other side we have the benefits of free trade and the complexities of pondering 12,295 EU regulations that range from food standards to banking rules. Everything from the price of milk to the ease of working in Europe will be affected. Furthermore, we can say that the U.K. would be negotiating with the EU but really it will have the commission, 27 member states, the European Parliament, and 27 national parliaments that have their own constituencies.
And, there are still more Brexit concerns…
There is the impact of uncertainty on foreign investment, London’s importance as a financial hub, and currency markets. Some say that Brexit worries have nudged sterling (the pound) lower:
But, there is the Norway alternative.
The Norway Alternative
Rather than joining the EU, as part of the European Economic Area (EEA), Norway gets EU free trade benefits but retains authority over segments of its economy. Those who like the Norway arrangement say you get your free trade and your autonomy. Those who do not like it respond, “No say; still pay.” They are referring to the money Norway contributes to the EU for its participation and the rules it still needs to abide by.
Our Bottom Line: Tradeoffs
As always there is no free lunch. Much more than an in or out decision, the tradeoffs are countless. Whereas EU entry diminished friction, a Brexit could remind us of sandpaper.