Britain’s financial services sector would have “everything to gain” if the country withdraws from the European Union, according to Leave.EU, one of the more vocal campaigns in favour of the so-called Brexit.
“The UK’s position as a world leader in financial services is not dependant on its membership of the European Union,” said campaign co-founder Aaron Banks in a press release dated January 11. “Outside the EU, we would be better placed to compete with the challenge coming from cities such as Hong Kong and Singapore.”[1]
The Leave.EU campaign, which describes itself as “Britain’s fastest growing grassroots movement,” is responding to growing concern about the economic and financial ramifications of Britain’s exit from the 28-member EU. The initial press release was intended to introduce a series of media briefs designed to argue in favour of a Brexit and dispel myths perpetrated by the so-called “doom-mongers.”
“The doom-mongers have, for too long, got away with spreading their myths that we are too small, too poor and too stupid to run our own country,” Banks added. “These media briefs show the UK has a great deal to be proud about in business, culture, sport and the influence and opportunities these generate – despite our EU membership – rather than because of it.”[2]
Brexit Background
The UK’s European Union membership referendum – better known as Brexit – is scheduled to take place sometime before the end of 2017. The referendum bill was passed by British parliament in 2015 as part of a campaign promise by the incumbent Conservative Party, which secured a majority government in May 2015 that defied leading polls. The referendum is intended to resolve one of the most long-standing debates in UK politics, one that stretches back to 1973 when Britain first joined the European Union.
Those in favour of Brexit argue that outside the EU, Britain would be better positioned to carry out its own trade negotiations and control immigration without being bound by unnecessary EU regulations. Those in favour of remaining part of the EU suggest that Brexit would undermine the UK’s economic standing and reduce its global influence, all while creating unnecessary trade barriers with the rest of Europe.
It’s important to remember that, despite its EU membership, Britain is not part of the Eurozone, a 19-member currency union that shares the euro. While there were many practical reasons for staying out, including five economic tests conducted by the UK Treasury to determine the feasibility of adopting the common currency,[3] Britain has always been especially sensitive to giving up its monetary and fiscal independence. Against this backdrop, it’s not difficult to see why many strong voices within the UK want to break free from the EU accord.
Pros of Leaving the EU
Those in favour of Brexit propose several political and economic reasons for departing the European Union.
- Regulations: Given that the vast majority of Britain’s small- and medium-sized enterprises (SMEs) don’t trade with the EU, they shouldn’t have to face the huge regulatory burden imposed by Brussels.[4]
- Sovereignty: By exiting the EU, Britain would regain much of the political sovereignty it handed over to Brussels when it joined the union. Britain would immediately regain full control of important policy related to banking regulation and immigration.[5]
- Economics: The direct and indirect cost of Britain’s membership in the EU is estimated to be as high as 11% of its annual gross domestic product.[6] Those funds can be better used toward implementing domestic initiatives that could make Britain a more attractive hub for global business and finance.
Cons of Leaving the EU
Despite its drawbacks, EU membership has numerous advantages. This is precisely why so many people are worried about the potential drawbacks of Brexit.
- Trade: One of the biggest benefits of EU membership is free trade, which helps UK businesses avoid costly tariffs. While Britain would save billions of pounds in membership fees by leaving the EU, those savings wouldn’t be enough to offset the newly imposed tariffs.
- Jobs: Brexit would have a major impact on the free flow of people in and out of the UK. This would limit opportunities for UK workers abroad and make it more difficult for UK companies to employ workers from the rest of the EU.[7] According to a senior official at the City of London, Brexit would cost Britain’s capital up to 100,000 banking jobs,[8] a major blow to the world’s fourth-largest financial hub.[9]
- Influence: Brexit could not only undermine Britain’s military influence, but also leave it with very little say in global economic and financial matters. By exiting the EU, which represents 25% of global GDP, Britain’s attractiveness as a destination for foreign investment would be compromised.[10]
A Divisive Debate
Brexit is just one of the many divisive debates raging throughout Europe. According to a December survey of 20,000 voters, nearly half of the public wants to leave the EU, with just 38% opting to remain.[11] However, many analysts still insist that an EU exit is a long shot at this point. The date for the referendum is not known yet, although analysts suggest the vote could be held early next year to avoid prolonging the uncertainty.
For the rest of the EU, a Brexit could impact not only the terms of trade, but the union’s political and macroeconomic standing on the world stage. This could pave the way for “political contagion” that could tear apart the EU. After all, the same tensions in the UK about the EU are also felt in other member-states. If successful, a Brexit could have far-reaching consequences for the rest of Europe.[12]
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[1] Simon Kennedy (January 11, 2016). “’Brexit’ Campaign Says Banks Would Benefit from U.K. Leaving EU.” Bloomberg.
[2] Leave.EU (January 11, 2016). “Press Release: The City Has Everything to Gain and Nothing to Fear from Brexit.”
[3] HM Treasury (June 2003). UK membership of the single currency: An assessment of the five economic tests.
[4] The Week UK (November 11, 2015). “EU referendum: the pros and cons of Britain leaving Europe.” The Week UK.
[5] Nina dos Santos (April 24, 2015). “UK election: The pros and cons of ‘Brexit.’” CNN Money.
[6] Invesco US (August 27, 2015). “Brexit: The Pros And Cons.” Nasdaq.
[7] The Week UK (November 11, 2015). “EU referendum: the pros and cons of Britain leaving Europe.” The Week UK.
[8] Jonathan Prynn (November 27, 2015). “’Brexit’ would lead to loss of 100,000 bank jobs, says City.” Evening Standard.
[9] Simon Kennedy (January 11, 2016). “’Brexit’ Campaign Says Banks Would Benefit from U.K. Leaving EU.” Bloomberg.
[10] Invesco US (August 27, 2015). “Brexit: The Pros And Cons.” Nasdaq.
[11] Kate McCann, Matthew Holehouse and Christopher Hope (December 17, 2015). “Brexit now backed by 47 per cent of British voters, new poll reveals.” The Telegraph.
[12] Global Counsel (June 2015). BREXIT: the impact on the UK and the EU.
