What is an economic union?
An economic union is an economic integration arrangement under which countries engage in economic engagement by allowing free flow goods, services, capital and often people across the borders. The European Union (EU) is the highest level economic integration as an economic union. The EU had 28 members including Britain and it has been reduced to 27 with its exit.
In the 59-year history of EU, no state has exited and Britain is the first. With Brexit vote, Britain is out of the European single market where goods, services, people and capital moves freely.
What will be Britain’s future relationship with EU?
Britain can now go for a formal WTO type trade relationship with EU. Going further ahead, it can try for a simple free trade agreement that implies only free trade in some commodities at the same time without allowing cross border movement of people.
Switzerland’s current arrangement with the EU or accessing the bloc under World Trade Organization rules can be a model for Britain future engagement with the EU.
Second implication: on movement of people
Once Britain gets out of the EU, people from other EU countries can’t go freely to Britain and vice versa. Citizens from other countries will not have the right to live and work in Britain. This is one area where the Leave campaigners argued strongly. Immigration of people from other European countries and the fresh wave of migrants from Middle East will take away the job of its citizens.
On Britain: Britain losses the advantage being part of a big market but will keep its labour for its own people. The exit means reduced level of trade and thus investment interaction with EU. Its trade with EU will be on higher tariff in future. Britain should compete with other countries say, like China in the EU market. This indeed will reduce Britain’s attraction as an investment location for products to the entire European market.
In the long term Britain can perhaps overcome this disadvantage by enhancing its productivity.
Economic implication on EU: The world’s largest economic union- the EU has to take Brexit as a no-confidence vote. Over the last few years, especially since the Greek crisis, people were questioning about the stability of an economic arrangement between countries that are in asymmetric development stages. Hence, the Brexit will give the EU an opportunity for consolidation by making necessary corrections.
Many experts believe that Britain’s exit from EU could encourage other nations to follow suit with referendums of their own. At least many developing countries in the bloc may demand more to stay in. in all these context, EU’s stability has been affected by Britain’s exit.