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On June 23, residents of the four countries that make up the United Kingdom (UK)— England, Scotland, Northern Ireland, and Wales — went to the polls to determine if the country should leave the European Union (EU). Most experts believed that Britons would make the “sensible” decision and vote against what has popularly been dubbed “Brexit.” After all, the benefits of remaining with the world’s largest economy far outweigh the drawbacks. But the experts were wrong!
Of the 72% or 30 million people that voted, 52% opted to exit the EU. The stunning result has roiled global financial markets and caused the British pound to dip to a 31-year low against the US dollar. It also led to the resignation of British Prime Minister David Cameron, a big proponent of staying in the EU, and left the country without a clear leader.
To be clear, the referendum result is “advisory” and, therefore, not legally binding. To formally begin the separation process, the UK will have to invoke Article 50 of the EU agreement. Once that happens, the country will have two years to negotiate a new treaty that will outline the rules they will have to comply with, if they wish to continue trading with EU countries. This will address issues like trade tariffs, migration, as well as regulations on everything — ranging from agriculture to cars.
Given the uncertainty of how the negotiations will go and the fact that the country has no clear leader, many experts believe that the UK will plunge into a recession, at least in the short-term. The longer-term impacts will depend on what kind of terms the UK can agree upon with the European Union.
One of the options proposed by those in favor of Brexit, is an agreement similar to the one Norway has. Though not an official member of the EU, the Scandinavian country appears to enjoy many of the benefits. While that sounds like a perfect solution, experts believe it may not be possible.
For one, Britain’s new Prime Minister may refuse to agree to all the rules and regulations that Norway currently abides by despite having no representation on the EU Council. The more likely scenario, however, is that EU officials will not give the UK favorable trade concessions for fear that other countries will start defecting as well.
Should the agreement turn out to be particularly unfriendly, companies headquartered in the UK may decide to move to a country that is still part of the EU. That’s because staying put will most like mean they will have to pay extra tariffs and provide extensive safety certifications. If corporations start to depart, experts estimate the country’s economy will shrink between 3.8% to 7.5% by the year 2030.
Given the rather dire outlook, it is not surprising that Prime Minister David Cameron who will step down in October, has decided to leave the invoking of Article 50 to his successor. Meanwhile, UK residents appear to be regretting their decision to leave the EU. Almost four million have signed a petition to try to convince the government to hold a second referendum. But David Cameron, has ruled out the possibility of putting the issue to vote again.
However, given that the referendum is not legally binding, the incoming Prime Minister could theoretically ignore the popular vote and decide to remain part of the EU. Though the possibility of that happening is slim, many residents are hopeful and believe that it may be the only way to save the country from the impending economic crisis. But Scotland’s First Minister Nicola Sturgeon is not counting on that glimmer of hope. She has decided to take things into her own hands and is proposing a referendum that would enable Scottish residents to vote to leave the UK, and join the EU as an independent nation.
What happens next is anyone’s guess. The only thing UK residents can now hope for is that David Cameron's replacement, who will be elected by the members of the Conservative party, is strong enough to guide the country out of this self-inflicted turmoil as painlessly as possible!
Resources: Washintonpost.com, Vox.com,cnbc.com,cnn.com