Brexit Will Weaken the UK and the EU

The decision by voters in the United Kingdom to withdraw their country from the European Union is likely to prove to be a major turning point in modern European history.  While the vote in 2016’s referendum on leaving the European Union was close (52% to 48%), this narrow decision will have major ramifications for the future of the UK, the EU and for Europe as a whole.  Of course, this result was not a major surprise, as the UK’s ties with the rest of Europe were tenuous at best due to the UK’s geographic separation from continental Europe and that fact that, while nearly every other country in Europe suffered defeat, occupation or subservience during the Second World War, the UK emerged as an undisputed victor and did not share in the continent’s utter devastation at the end of the war.  Now, the United Kingdom is struggling to deal with the ramifications of the narrow decision made by its voters, while the European Union is preparing to lose one of its most powerful and dynamic members, a development that threatens its global ambitions.

For a while, it did not look like the European Union and the United Kingdom would reach a deal on their future relationship once the UK withdrew from the EU.  Now that a draft agreement has been reached, there is even more chaos and uncertainty on all sides, especially in the UK.  In the United Kingdom, many political and business leaders are opposed to the deal, including many members of Prime Minister Theresa May’s conservative government.  Many British voters and politicians that long favored leaving the European Union are opposed to many aspects of the deal that will tie the UK to EU regulations and oversight for years to come.  Likewise, many of those in the United Kingdom that never wanted to leave the European Union have intensified their calls for a second referendum to be held, now that the terms of the deal between the UK and the EU are better known.  Among European Union member states, there is also significant opposition to many aspects of the deal, with countries such as Ireland and Spain already expressing their reservations about certain parts of the deal.  As such, there is much negotiating to come between all parties involved in this issue and much more uncertainty to overcome.

It is no surprise that, as the UK’s withdrawal from the European Union nears, the level of uncertainty has risen. In fact, this uncertainty is likely to continue to cause political and economic turmoil in the months ahead, given the complexity of withdrawing from such a bureaucratic entity as the EU. Much of this complexity involves the regulatory changes that Britain must deal with once it leaves the European Union.  Likewise, businesses and investors are likely to continue to hold off on major spending commitments in the UK as long as the future relationship between the UK and the EU remains uncertain.  

Nevertheless, the doom and gloom surrounding the UK’s future is quite overblown.  Even after Brexit, London will remain the largest economic center in Europe and the favored destination in the region for businesses and investors from around the world.  At the same time, the United Kingdom’s trade and investment ties with the rest of the world have been growing much faster than those with the UK’s European neighbors, a trend that has been accelerating in recent years. Nevertheless, inside or outside of the EU, the United Kingdom is increasingly becoming a third tier power, overshadowed not only by giants such as the United States and China, but also by other large powers such as India and Russia.

For many commentators in the European Union, Brexit is simply a loss for the United Kingdom and not for the rest of the EU.  This is wrong in many ways.  While it is true that a handful of financial centers will benefit from the shifting of investment from London to bases inside the EU, the EU itself stands to lose much once the United Kingdom is no longer a member.  

For example, the European Union is losing its leading recipient of foreign investment, something that other EU member states may find hard to offset.  Also, no member state has contributed more to the EU’s overall economic growth over the past 25 years than the United Kingdom, and the UK remains one of the most modern and dynamic economies in Europe.  Finally, the EU is losing its most influential global actor, as Britain’s ties with the wider world are greater than that of any other EU member state. Once the UK is out of the EU, it is likely that Europe will become less reform-minded and more statist, something that will harm Europe’s economic competitiveness.  Of course, the UK’s withdrawal from the European Union will also embolden nationalists in other EU member states, further dividing the EU in the process.  As such, Brexit amounts to a major loss for the European Union.

Make no mistake, Brexit is a major loss for Europe on the global stage as well.  Since the Second World War, Europe has been forced to surrender its strategic independence to the United States.  Now that there are calls for more strategic independence in an EU context, that organization is losing one of its most powerful members.  

A weakened and less-global European Union will struggle to have its voice heard in a world increasingly dominated by the United States and China.  Worse, the EU faces major challenges to its security from its east (Russia) and from its south (the Middle East and Africa), challenges that it will need the United Kingdom (and the United States) to help deal with.  For a group of countries that want to have a larger voice in the world and more control over their own futures, the loss of one of its most influential members is a blow that could prove to be devastating to the European project.  In short, Brexit is a loss for all sides involved.

Michael Weidokal is a leading global economist and geopolitical expert, and the Executive Director of ISA (International Strategic Analysis), one of the world's leading global market intelligence and economic forecasting firms.

• To learn more about ISA, visit www.isa-world.com.
• To book Michael for your next event, visit www.michaelweidokal.com/speaking.