Implications of the UK leaving the EU . . . on the MENA .

The UK leaving the EU; the United Kingdom that for many non Anglophiles, has been no more than the spokesperson for the United States in Europe, kept its membership in the EU, remaining partial for almost all the time it was in, by having always favoured its economic interests first.

The country kept its currency, the Pound Sterling, by opting to stay outside the Eurozone.  The Schengen agreement giving it a special status, of maintaining its opt-out by not being inclusive.  It was however an active player in the construction of a European security and defence policy at the Saint-Malo Summit of 1998.   And yet, this June 23, 2016, the British peoples voted at 51.9% for the Leave the European Union.

Today the Brexit is consumed.  The United Kingdom of Great Britain and Northern Ireland is no longer part of the European Union.

Historically, this constitutional monarchy joined the EEC in 1973.  The UK was the slowest economy among the G7 before its EU membership, but has had since the fastest growth.  Towards the end of the 1990s, Wales, Scotland and Ulster received greater autonomy and large transfers of skills, this autonomy was even more enhanced in Scotland, following the failure of the referendum on independence of September 2014.  Euro-skepticism seething in the background, in the last general elections held in May 2015, Prime Minister David Cameron was able to not only retain his position but get full majority.  In effect, since a speech by Cameron in January 2013, the Conservative party has been committed to holding a referendum on the UK’s membership of the EU in 2017.The anti-immigration and Euro-skeptic UKIP Party who came into politics for the first time in October 2014, have 22 years after its creation, just won the bet.

First effects after the announcement of the results, David Cameron revealed his deception and departure in October 2016 besides the risk of splitting with Scotland and Northern Ireland who both are and voted to remain in the European Union.  Asian stock exchanges and the Pound plunged by almost 10% and for oil on June 24th, 2016, the WTI was at $48.05, the Brent at $48.66 and the Euro trading at $1.1109.  Most experts, predict that leaving the European Union would likely have a significant negative impact on the UK’s economy.

Meanwhile, everything depends on the management of this transition, with in the medium term, companies wishing to invest sustainably, relocating towards other countries offering the advantages of being on the territory of the ‘single market’.  Some already called for the transfer of the City to Frankfurt.  According to many analysts, the British will have two years to negotiate the terms of the Leave and the nature of its future relations with the 27 with uncertainties.

Transiently though, there are several scenarios that are available.

  • First, a possible arrangement comparable to that of the Norway association agreement for instance.  But in return, contradicting the speech of supporters of the Brexit, the United Kingdom should continue to apply the free movement and European standards.
  • Or a Swiss scenario of bilateral agreements, but again this would require it to respect freedom of movement.
  • The third scenario, could be a bilateral agreement on free trade like the one signed by Canada.

At a glance, it could be said that each scenario has its own drawbacks.  But in case of no agreed accord, it is the WTO regimen that would apply, i.e., no access to the single market, accompanied by the establishment of barriers depending on the application of the “most-favoured-nation clause details.

In the “darkest” scenario of an exit without free trade agreement, Euler-Hermes, a European credit insurer assessed losses for the British export to £30 billion in 2019, or 8% of total UK exports.  According to Carolyn Fairbairn, director of the CBISur, withdrawal from the European Union “Brexit” would cost £100 billion to the economy, and 950,000 jobs, which means that the unemployment rate in 2020 would be 2% to 3% higher than if the country remained within the EU.

Politically, Britain will have to strengthen its relations with not only the United States of America but also its Commonwealth, including with the possibility of freezing of the negotiation of the Transatlantic single digital market.

The waves of immigration that have somehow fostered this vote were only the consequence of geostrategic tensions at the level of the Third World, particularly in the Middle East, sub-Saharan Africa and North Africa.  These like everyone knows have triggered waves of refugees.  But for most of the discerning, it is those large influxes of migrant workers from last joining East Europe to the EU that have broken the camel back.

Prior to the exit, EU citizens were able to live and work in the UK without the need for a visa.  This was objected to by many as the authorities wanted to decide on who migrates into the UK based on skillsets not passports.

Other reasons could include the freedom to sign free-trade deals with different countries around the world, independent of the European Union, and being able to formulate policies independently, without a tie-up to the EU.

In addition, this vote may stimulate the other Euro-skeptic European parties in the Netherlands, the Czech Republic, Poland, Denmark and France.  According to a survey published by the French ‘l’Express’ of June 24th, 2016, in France, supporters of left (76%) and right (75%) are opposed to the Leave option, unlike the sympathisers of the National Front who are very favourable (77%).  And only 31% of respondents see in European construction “a source of hope”.

Europe without Britain is reduced by 14% of its GDP, and needs to review its budget and would have to compensate the £10 billion of net contributions of the United Kingdom.  The precise measurement of economic impacts of the political withdrawal of Britain from the Union European have yet to be seriously assessed.  But for now, as a consequence, it is recognised that apart from the wave of nationalism riding high, the withdrawal will necessarily have certain political and economic implications.  Policy implications, because this will undoubtedly change the fate of the European Union where partisan Germany of a stiffer budgetary rigour ends up head to head with France that advocates an easing of monetary and fiscal of Brussels rules.  Economic impacts with a slowdown in the growth of the world economy leading therefore towards less imports of Oil & Gas and other commodities from the MENA could mean more unemployment generally and less financial resources for say the GCC’s.

The impact might not be as immediate in the MENA region, experts forecast.  Others speculated potential consequences such as financial markets, especially those in the GCC, operating on thin trades.

The International Monetary Fund warned the UK about exiting the European Union, claiming the uncoupling would be bad news for everybody, not only driving the country into a recession, but possibly driving to stock market crashing and a drop in house prices, amongst many other consequences.

Half of the UK’s investments and trade revenue come from the EU, but quite a substantial trade is with the Middle East region, particularly with that of the GCC countries.  GCC investors have been continuously buying property in the UK capital with the UAE alone accounting for more than 20% of buy-to-let property sales in the UK in 2015. An exit from the EU might negatively affect their portfolios which have already had significant run-downs on account of low oil prices.

Some politicians and experts, who acknowledge that the enlargement to 27  members was made in haste, advocating to prevent the break-up of the European Union, through a certain relaxation of the rules of Brussels and to rather focus on employment.

In the meantime, the strengthening of the Franco-German couple who would now than never, constitute the hard core of the EU, should go towards a Europe that is more social and citizen orientated.

Dr. Abderrahmane MEBTOUL, Expert International, University Professor, 

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