Britain is out of the EU. What will happen next?




The topic of Brexit has somewhat moved into the background of the Iranian-American clash and coronavirus rampant in China. And not particularly noticed was the news that on January 29 the European Parliament by an absolute majority approved the withdrawal of Britain from the European Union, and the Council of Europe confirmed this decision. Earlier, after several years of domestic political battles, the initiative was approved by the British Parliament, and then the document was signed by Queen Elizabeth. What will happen next?


At midnight on January 31, Britain officially left the European Union. This will end the epic, which began with the submission of Prime Minister David Cameron on June 23, 2016 — then there was a referendum on withdrawal from the EU and 51.9% of Britons supported this initiative. However, then the procedure got mired in domestic political routine, which soon ceased to cause anything but irritation in society. Theresa May, who replaced Cameron, failed to agree on the terms of exit from the EU in three years, and in May 2019 May resigned. Her successor was former British Foreign Secretary Boris Johnson, who announced unconditional Brexit until October 31, 2019. However, the eccentric prime minister soon cornered himself, the only way out of which was early parliamentary elections.





Johnson went VA-bank at great risk because the election did not bode well for the Conservatives with their “endless Brexit”. All the more so because the advantage of the Eurosceptics in the referendum was not outstanding at all — 3.8%, but the mood for the past three years could have changed. And that was what Labour leader Jeremy Corbin tried to play, promoting the idea of a second referendum. But the results surpassed all expectations — the Conservatives won a record 365 seats in the House of Commons, and Labour suffered a crushing defeat. The result was better only in 1983 when Margaret Thatcher was Prime Minister when the Conservative Party won 397 seats. The majority in Parliament effectively gave Boris Johnson a mandate for a Brexit. And his prime minister did. Britain comes out, the Eurosceptics are jubilant.

In turn, it is not difficult to explain this sentiment and the desire for an uncompromising Brexit. In half a century of European integration from the “workshop of Europe,” Britain has become a major importer of European products. Compared to 1950, the share of industry in the GDP structure has decreased from 50% to 18% in 2018. Over the past 20 years, the United Kingdom has a negative trade balance with all key European economies: Germany, France, Italy, Spain, etc. In general, the negative trade balance of Britain and the European Union in 2018 was almost 135 billion dollars. Although in 2001 this figure was only 15.3 billion dollars. Today, these distortions are hardly compensated by expensive English real estate, banking services and offshore. Finally, Britain is the largest donor to the EU budget. For example, in 2007-2013, London's contributions amounted to 57 billion euros. Only Germany, the EU's largest economy, has provided more.

However, the signing of the Brexit is far from the end of history. Soon London and Brussels should start bilateral negotiations on new agreements. If old relations are destroyed, then new ones must be built. A whole year of transition is envisaged for that, within which all legal and economic aspects will remain in force. The main question is whether Britain can maintain a customs union with Europe and the free movement of goods, people and capital. Or does London have a tough final divorce scenario? There is also an intrigue about the timing of the negotiations: whether the transition will end in 2020 or be extended. I must say, it will be very difficult here. The EU, extremely offended and disappointed with Britain's demarche, is hardly interested in maintaining the same level of economic integration. For Brussels, January's events dealt the strongest blow to united Europe. European sentiment is not a peculiarity of British society, but a rather steady trend that is growing everywhere: both on the European periphery and in Western Europe. Britain may be only the first swallow and a harbinger of further disintegration of the European Union. So there will be no mercy for the “traitors” — Brussels will gladly show what price the apostates pay.





Meanwhile, the economic consequences of Brexit are the absolute Achilles' heel of Britain. If London does not agree on the fate of a common customs space with the EU, then in 2021 Europe will introduce duties on British goods. Of course, this will deal a serious blow to the British industry and will lead to numerous bankruptcies of companies and loss of jobs. By the way, many companies are already running from a “sinking ship”, changing their English residence permit to German or Irish. And there's an inescapable and already tangible outflow of capital. London will also have to impose return duties, and this will provoke serious inflation, given the import dependence of the British economy. It is likely that in case of a tough Brexit final, the golden era of the City of London will end. This global financial center works exclusively in conjunction with the large financial market of Europe. Autonomously, it will play the role of a local financial center, not interesting to large players. The total loss of the economy is estimated at 3-9% of GDP, and it cannot be said that this is the limit.

The key question in this scenario is obvious: how do the British authorities intend to compensate for potential economic losses? And it is not easy to answer. The imbalances that have accumulated in the British economy for decades can hardly be corrected by a momentary gap with the EU. Even the benefits that London derives from an exemption from contributions to the European treasury cannot be quickly converted into new success. The revival of industry in a post-industrial country is a trick that no other state has ever turned its back on. And it is much easier to assume what markets will replace the European one. Britain will have to reorient its foreign trade contacts towards China, the Middle East, and Africa. However, this will hardly be called an “easy walk”. Breaking into these markets is no longer as easy as it was decades ago. In addition, London will face the interests of the United States and other countries in these areas of the world.

In general, Britain will have a long and thorny road ahead in the most radical scenario of a final break with Europe. At the same time, it will be almost unrealistic to win back the exit from the EU and is fraught with the deep political and economic crisis. Brussels will not miss the opportunity to outplay this issue so that all previous experience of EU membership will seem like a fairy tale to the British. Any attempt to go global for London will be made from a deliberately unfavorable negotiating position — from the threshold of the European house. One way or another, it will be a total loss that will devalue the entire current political system in Britain. So, in the coming years, the country will have one right path — to free-floating.





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