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Economic sectors 10 Mar 2016

Brexit, what can happen?

The Brexit (the term coined to refer to an eventual departure of the United Kingdom from the European Union) was the main topic discussed during the last European Council, which took place during February 18th and 19th. After two days of negotiations, an agreement was concluded that, in general terms, meets the UK’s demands.

In a recent report, BBVA Research considered that while this agreement “weakens the European Union’s integration momentum, it is not a drastic step back.” Britons will vote on whether to remain in the EU on Thursday 23 June, in what is shaping up to be a very close referendum.

According to BBVA Research – and just as expected – the agreement reached with the rest of Europe allows British Prime Minister David Cameron to stand behind the pro-EU stance. However, British Euroskeptics may consider this deal as a minimum agreement. Therefore, the risk of a Brexit is still considerable.

These are the 3 keys to understand the Brexit, according to BBVA Research’s report:

1. Are Britons willing to leave the European Union?

In the UK, surveys hint at a slight advantage of the EU-remain movement. Most members of Government, large companies and the other three big parties (Laborists, Liberals, and the Scottish Nationalist Party) defend the option of staying in the EU.

On the other hand, many conservative MPs support the departure. Brexit support by prominent figures, such as conservative mayor of London – and probable PM candidate in the next elections – Boris Johnson could attract many voters.

In short, BBVA Research considers that the option to remain in the EU is likely to win the referendum by a very tight margin, as it usually happens in EU-related referendums. But debates in the UK will probably address broader issues than those discussed during the negotiations with the European Council, such as the economic advantages of staying in the EU, or, at more generally, cultural arguments or the feelings of attachment to/detachment from Europe.

2. Where do other EU countries stand?

During the European Council meeting, Belgium and France pressed to have a “self-destruct clause” included in the agreement, in order to close down the option of a second renegotiation and referendum should Britain vote to leave.

In theory, this should prevent voters to strategically vote for the departure option hoping to ink a more advantageous deal at a later stage. However, the final draft of this clause is ambiguous with respect to this question and does not seem to explicitly rule out the possibility of a second referendum.

David Cameron has warned Britons that if the pro-Brexit faction wins, the decision will be final. Regardless, campaigners still argue that the UK could leverage pro-departure votes to force more concessions out of Europe, thus ignoring PM David Cameron’s warnings that there will be no way back if voters decide to leave the bloc.

3. What will the consequences of the Brexit be for the United Kingdom? And for the rest of Europe?

The Brexit will entail significant costs for the UK, including a loss of confidence, new costly and lengthy negotiations of trade agreements with the EU, the initial exclusion from the Transatlantic Trade and Investment Partnership (TTIP) which the European Union is currently defining with the US, and lower global relevance in geopolitical terms. For the EU, the UK’s departure would call into question Europe’s integration process as a whole, and would set a precedent for other countries, although the UK would probably have to endure a higher toll.

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