Walking in new shoes

By | News & Politics
Theresa May. Credit@flickr.com

Speaking at the Conservative Party Conference last week, Theresa May, Britain’s Prime Minister, announced plans to invoke Article 50 of the Lisbon treaty, the official route to leave the European Union (EU), by the end of March 2017. The former Home Secretary, who took over from David Cameron, pledged to restore control over immigration, one of the fundamental triggers of the Brexit vote: “For a lot of people the issue of migration from the rest of the EU to the UK was a key issue […] we will deliver on this control.”

This is the first time in the history of the European Union when a member country has voted to leave the Union, prompting a debate on how the negotiations may unfold, particularly on two key aspects – how British firms may do business in the EU after Brexit and whether the EU nationals may retain their right to live and work in the UK.

The European Union has grown from an economic and political partnership set up after World War Two to foster economic co-operation to a “single market” – world’s largest single trading bloc, allowing goods, people, services and capital to move around freely. Although, at times, discussed separately, these four constituent elements are closely intertwined.

Out of various potential Brexit strategies, the UK may opt to maintain access to the single market reaching a status similar with Norway or Switzerland, two European countries with economic ties with the EU. This option may maximise the closeness of the economic connection between the UK and the EU, although it may imply further payments by the UK into the EU budget and maintaining open access for EU workers into the UK labour market. Another option may be cutting all ties with the EU, including access to the single market, in order for the UK to reestablish total control of its boarders and complete sovereignty. However, this route may impact the economy since the British and the EU economies have been connected for decades and disentangling from this link may take considerable effort.

 Brexit. Credit@publicdomainpictures.net

Brexit. Credit@publicdomainpictures.net

Reacting to Theresa May’s declarations, German Chancellor Angela Merkel highlighted the importance of upholding the EU’s ‘fundamental freedoms,’ including free movement of EU citizens. According to Merkel, offering Britain access to the EU’s internal market as well as allowing it to limit immigration may lead to a ‘free-for-all in Europe’, a situation the EU leaders seem keen to refrain from.

On the same note, Joseph Muscat, the Prime Minister of Malta, the country expected to hold the EU’s rotating presidency in spring 2017, said the four freedoms of the EU single market are inseparable: “These principles are the basis for everything the EU does.” The French president, Francois Hollande, echoed the thoughts of Angela Merkel, by affirming France’s commitment to defend the European project. Like Germany, France is one of the 6 founding members of the EU.

Internally, the British government may be facing pressure from the financial markets and business leaders. On October 11th the GBP exchange rate was 1.10 vs the Euro and 1.22 vs the US dollar. Meanwhile, Richard Branson, the founder of Virgin Group stated: “Modern-day Britain is an amazing […] hub of creativity and innovation built […] on the collective embrace of diversity as a major asset. This is the Britain I grew my businesses in.”

While Theresa May’s declaration aims to pave a new road for Britain outside the EU, it is the government’s duty to act diligently, consult with industry leaders and make strategic decisions based on facts and economic significance, rather than political ideals alone.

The situation needs to be analysed in the context of both the EU and British internal politics. It may be possible to find a compromise on migration — such as retaining reciprocal rights to take on job offers without a presumption of permanent residence or benefits claims. This way the UK may have an opportunity to maintain its trade with the EU while opening its markets to the rest of the world.

How may the financial markets influence Brexit negotiations?

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