One of the most important macroeconomic issues facing the world today is the looming June 23 vote in Britain regarding whether the UK should remain in the European Union. Cris Sheridan recently interviewed Mikala Sorenson and Nandini Rao, both of Global Risk Insights, to hear the pros and cons regarding the so-called “Brexit” referendum.
Sorenson made the case in favor of the UK leaving the European Union. She cited excessive regulations coming from the EU which has moved the Union away from simply being about free trade. The case of loud lawnmowers being banned in the UK is just one example of a law passed in Brussels that conflicts with the interests of the British public. Sorenson called it “staggering” how much disregard she has seen for national sovereignty under the EU as it now stands.
Sorenson also felt that Britain’s leaving the EU would be a catalyst for needed reforms in the EU. She noted the “mismatch of North and South and recurring debt problems” as things that “will not solve themselves” outside of something like the threat of the UK leaving. Sorenson also felt that the fears of economic disaster with the UK gone from the EU are overblown. The UK will continue to have the US and China as trade partners and it will be in Europe's better interests in coming up with some sort of trade agreement with Britain. “The EU needs the UK as much as the other way around,” Sorenson notes.
Finally, Sorenson points out that many other European countries have different types of agreements or relationships with the EU—examples including Switzerland, Turkey, and Norway—without being full Union members. Britain’s economy could grow under a similar arrangement with the rest of Europe.
Taking the other side of the issue, Nandini Rao summed up the opposition with the phrase, “united we stand, divided we fall.” For Rao, the UK leaving “may lead to questions about the EU’s future overall since other countries might clamor for their own referendums,” and she stated bluntly that the Brexit could be “the nail in the coffin for the EU.” Given the size of the British economy, the loss of a single market in Europe would have an adverse effect on trade and she feared that the uncertainty of Britain leaving the EU could harm the UK by “pushing up inflation [through a lower Sterling] and pulling down growth.”
There are other negatives in Rao’s mind associated with the Brexit. If the UK splits from the EU, Scotland may vote to split from the UK since polls show that Scots prefer to stay in the EU. Another is that the quality of future trade agreements would suffer if the UK went alone, as opposed to being a part of the larger European Union.
When asked regarding their expectations for the vote next month, both Rao and Sorenson felt that the referendum would fail and that the UK would remain in the European Union—even though the vote promises to be a close one. Rao noted that the prospect of the IMF delivering its paper in support of continued Union could further tip the balance in favor of those advocating staying the course. There is also a lot of international support for the UK remaining in the Eurozone, Rao noted.
For her part, Sorenson said that whether or not the referendum passes, “it is a warning as to what happens when the voter base becomes alienated from what the EU supposedly stands for. It would benefit the Union to become less political and more trade oriented again.”
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