Uncertainty reigns in Britain on Monday as the mayor of London Boris Johnson announced he would be campaigning for Britain to leave the European Union, adding to fears of a so-called “Brexit.”
British Prime Minister David Cameron struck a deal late Friday designed to keep the UK in the EU. However, Johnson’s support of a Brexit reflects just the beginning of a four-month campaign in which Cameron must convince his country, and his own Conservative party, to back the plan in a referendum scheduled for June 23.
Britain joined the European Union–a politico-economic union of 28 member states (up from 6 before Britain’s entry) — in 1973. According to UK bookies, there’s now a 33% chance of a Brexit, and the uncertainty is weighing on the pound, which has hit its lowest levels since the UK’s 2009 banking crisis.
Despite weakness in the pound, the country’s stock exchange, the FTSE 100 (^FTSE), has held up and U.S. markets remain strong. The risk to the larger economy is limited given that Britain, even as the second-largest economy in the region after Germany, has its own currency and central bank.
Cameron returned from Brussels this weekend with a deal that included reforms around restrictions to welfare benefits offered to migrants, but many British citizens and politicans remain underwhelmed.
Here are five key issues fueling debate:
The wave of immigrants invited in by German chancellor Angela Merkel is a major concern to many British citizens. An increasing number of British citizens say the country should accept fewer refugees. HSBC data shows net migration from the EU to Britain was 180,000 in the first half of 2015, a new all-time high.
Those advocating for an exit argue that Britain can secure trade deals with countries including the U.S. and China without being constrained by the EU. However, those against Brexit have highlighted Britain’s ability to avoid tariffs as an EU member, which is significant as 45% of British exports go to EU countries.
People in favor of a Brexit point to the high costs of EU regulations. A Brexit would allow for more potential control over employment law, health and safety.
EU budget and member benefits
Britain currently pays an EU membership fee of around 55 million pounds, or $80 million, per day to Brussels, which is allocated as part of the EU budget toward economic growth initiatives and other development initiatives. Brexit proponents argue the money could instead be spent directly on investing in the country, according to Brexit proponents.
Brexit supporters say the UK has little influence within the EU and can have more influence internationally as a separate entity.
While market reaction is currently muted, analysts see significant impact to Britain. Citigroup thinks leaving the EU could lower the UK’s GDP growth by 4% over three years. Major financial institutions in Britain remain concerned about an economic and financial fallout following a Brexit. And Moody’s said it would put the UK on notice for a possible downgrade if they vote to leave the bloc given a “prolonged period of uncertainty.”
- Politics & Government
- Budget, Tax & Economy
- David Cameron
- European Union