Great Britain has made its choice, meaning to leave the European Union. A political decision which seems like an historical turn point but, simultaneously, a contradictory one. On the 2nd of July, in fact, people were marching against Brexit in London while British leaders seemed not ready to face the hypothesis of the divorce just voted. In the last weeks, the Government has rejected a call for a second referendum on European Union membership in a petition that was signed by more than 4.1 million people, the most signed petition since 2011. However in an official reply, the Foreign Office said that 33 million people had had their say and that “the decision must be respected” and that “We must now prepare for the process to exit the EU” .

An unexpected result, with yet no formal legal status since the EU’s establishment is pushing Great Britain to activate the article 50 of the Lisbon Treaty as soon as possible. Seems like Great Britain jumped on a train called “Independence day, again!” but with no certain destination.

After the 23rd June’s breaking point, the world is wondering about the consequences. From the financial point of view, projections are  quite different. The only certain thing was the dramatic fall of the sterling along with the freezing of investments – a tough, predictable, first reaction of the markets to the vote. What about the impact on the UK real economy?, According  to the majority of the economists the job market would be seriously reshaped within years. The cycle would be the following: once the pound has dropped sharply and is not expected to rise again until the situation would reassure the markets, inflation will rise because imports will be more expensive for Great Britain. This will occur in a demand for higher wages by the employees who are dramatically losing purchasing power. Economic forecasts have stated that inflation could rise between 2-3% and would bring employers to choose whether paying higher wages or be ready to slow down the production, meaning, the growth.

Speaking about real economy let us clarify what makes it “real”. The strong link is with the society, especially with migrants in the UK. The labor market issue is deeply linked with migration, one of the main uncontrolled policy that “leave supporters” brought at the top of the British political agenda in order to justify their choice to leave the EU. In the last few years, the majority of EU migrants come to the UK in search for work: they  followed the ups and downs of the labor market and they were perfectly able to fill the gaps which local workers are reluctant to fill. Boris Johnson, the former mayor of London supporting the Leave campaign, claimed that “uncontrolled immigration is forcing down wages for British workers” and many voters add that they are also responsible for a more difficult job market and less reliable public services. Pro Brexit politicians also talked about the introduction of the Australian model of migration policy, in order to bring talented migrants in UK  leaving out unskilled workers.

EU migrants, who now are at risk of being subjected to new legislation and are feeling unwelcomed, provide the British economy with vital skills always in shortage among the local workforce. Not to mention, an exodus of EU workers (unskilled or not) alongside their huge tax contributions will disappear with an estimated loss of 20billion, the equivalent of what migrants have contributed with  in 10 years (2000-2011), according to a study by the University College London. If so, Who is going to do these jobs once the immigration rules would be revised restrictively? This is one of the main questions that the British should ask themselves. Furthermore, since much of the debate around the Brexit has focused on the necessity to restrict migration policy, it is hard to imagine that companies employing EU migrants, relying on mobility and international recruitment, would not complain.

Following the data provided by the Office for National Statistics and the Oxford’s Migration Observatory,  the number of European Union workers in Britain has reached a record high of 2.1 million, (including a new high of 219,000 from Romania and Bulgaria) rising sharply. The migration flows is changing face: people are migrating to UK from non EU countries (47%) more than from EU countries (40%). In conclusion, the challenge would be to provide the economy with the right skills and attract young Brits into those less appealing industries that have struggled to recruit homegrown workers in recent years.

And now let us look at the other side of the coin: what does Europe lose after Brexit? Of course the relations between Great Britain and Brussels have always been troubled, but the partnerships were mostly successful. The UK is often seen internationally as a gateway to Europe, due to factors such as its language, its pool of international talent and its lower market regulation compared to other EU members. The EU and its members could now find it difficult to invest in the City, the market regulation could turn into an annoying tangle of rules and the business will be damaged by that. Brexit has been defined as a “losing deal for everybody”. Politically speaking, it is now quite difficult to predict how the relationship will continue with Brussels and the other Member States. One thing is certain: the new Prime Minister Theresa May has made it clear that her support to Brexit is complete. Her team, with Boris Johnson guiding diplomacy and British Foreign Affairs, is ready to walk towards the EU Brexit door with no regrets but the whole process will take months and delay will also allow EU politicians to reflect on negotiations, making a sensible compromise more likely to happen.

Federica Mastroforti

Master’s degree in International Relations (LUISS Guido Carli)


References

Anon. (2016), Why Brexit is grim news for the world economy, The Economist, June 24th, econ.st/28RwLeB

Anon. (2016), The battle for Downing Street, The Economist, Jul 9th 2016, retrieved from econ.st/2a500vr

Giles C. (2016), Brexit in seven charts – the economic impact, 27 June, retrieved from on.ft.com/29SFrz0

Travis A. (2014), UK gains £20bn from European migrants, UCL economists reveal, 5 November, bit.ly/29SGfUz.

The Migration Observatory (2016), Migration and Brexit, May, retrieved from bit.ly/2aesq6E