Brexit: It’s Catch-22 for UK

Controversy is raging in the UK over whether to ‘stay’ or ‘leave’ the European Union (EU) membership, with each camp stuck to its own guns. The ‘stay’ campaign received a significant boost from G20 finance chiefs who warned last week that the departure of the UK from the EU could harm the global economy.
And as the debate spirals, it has even split the UK’s ruling Conservatives, with leader David Cameron and close ally George Osborne facing opposition from senior colleagues Boris Johnson and Michael Gove, who want to leave the EU.
An official report released in London on Wednesday says the break with the 28-nation would lead to a reversion of trade rules, greater costs for businesses and trigger an economic shock.
Foreign Secretary Philip Hammond underscored that the trade relations outside the EU wouldn’t work. He seems to hit out at the ‘leave’ campaigners who assume the relationship could work.
“It is not credible to suggest that you could have continued access to the single market without having to accept freedom of movement of labour to the EU budget,” Hammond said.
Agreeing with Hammond, BlackRock, which manages $4.6 trillion globally, said, “It won’t be so easy for the UK to negotiate trade terms with the EU after the exit. The UK would have “less clout to negotiate regulatory standards for unimpeded EU market access” if it left.
Ahead of the June 23 referendum, the government campaigns the country will be “stronger, safer and better off” if it stays in the EU.
The ‘leave’ campaigners feel they are being frightened by the ‘stay’ campaigners over the Brexit to sway voters. “There has been far too much scaremongering; it’s like Halloween come early,” junior Justice Minister Dominic Raab, a proponent of Brexit, said.
The issue has divided the business community too. Leaders of big companies largely support continued EU membership, though the country’s main business lobby, the CBI, has repeatedly said that some support a Brexit.
The EU is the UK’s most important trade partner, accounting for half of all UK exports and imports. UK exports to the EU correspond to almost 15% of national output (GDP).
EU membership matters to the UK economy primarily because it leads to lower trade barriers. This makes goods and services cheaper for UK consumers and allows UK businesses to export more.
Leaving the EU would lead to lower trade between the UK and the EU because of higher tariff and non-tariff barriers to trade. In addition, the UK would benefit less from future market integration within the EU. The main benefit of leaving the EU would be a lower net contribution to the EU budget.
Leaving the EU would also affect foreign direct investment, immigration and economic regulation in the UK.
The UK is home to the largest financial centre in Europe. As the City of London was intimately involved in the financial crisis, the US and the rest of the EU have an interest in ensuring the City’s financial stability, and vice versa.
If Britain leaves the EU, banks would shift some of their activities into the EU. The remaining member-states would insist that Britain sign up to many rules in exchange for more limited access to European markets than it currently enjoys.
But ‘Leave EU’ says Brexit will free Britain from the EU influence that “prevents the UK from taking full advantage of a surging global economy and capitalising on its unrivalled influence throughout the rest of the world”.
Proponents of the Brexit point to successful European economies, such as Norway and Switzerland, which have prospered despite never being members of the EU.
It has to be seen whether the UK voters would embrace exit to renegotiate a better deal or opt for the other route!

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