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MACROECONOMICS

Brexit: What are the Implications?

Brexit, WhatImplications, Macroeconomics, David Cameron,  fx trader, forex

18 Apr 2016

A new deal

UK Prime Minister David Cameron returned from his negotiations with other EU leaders in late February ‘clutching a piece of paper’, which he hopes will ensure Britain’s continued membership of the European Union. However UK politicians have returned, flushed with success, from key European summits in the past, only to find that the terms of the agreements they had reached were not worth the paper they were written on.

True to his word Mr Cameron held a cabinet meeting immediately on his return and his ministers agreed to hold a referendum on the 23 June 2016. Mr Cameron has allowed ministers to vote with their conscious and campaign as they feel appropriate, whether in or out. In effect the battle lines have now been drawn, with the outgoing Mayor of London (and according to some, a possible successor to David Cameron), Boris Johnson joining the out campaign.

So what has Mr Cameron negotiated?

David Cameron has continued in the footsteps of a long line of UK leaders that have sought to extract favourable terms for the UK from Brussels. Britain has to date remained outside of the European single currency and has sought to protect what it sees as its own vital self-interests. Mr Cameron has negotiated in a similar vein and the key points of the agreement he has reached are as follows.

Migrant welfare payments:

The UK will have the ability to limit access to ‘in work benefits’ (tax credits and housing benefits) for EU migrant workers during their first four years in the UK. The so called ‘Emergency Brake’. However, this brake can only be applied for a maximum period of seven years.

Child benefits

Child benefits paid to migrant workers whose children are overseas will be recalculated to reflect the cost of  living in their home country.

The pound and the Eurozone

Britain can retain its own currency whilst in Europe without fear of discrimination and any money that the UK spends on Eurozone bailouts would be reimbursed.

The City Of London

Safeguards will be put in place for the UK’s large financial services industry to prevent it being subject to Eurozone regulations

Sovereignty

The UK will not be forced into an ever closer union of EU states. This commitment is to be incorporated into an EU treaty change. National parliaments will be able to band together to block EU regulations, if 55% of EU member parliaments vote against that legislation.

There are also some concessions on restrictions to freedom of movement, about competitiveness and strengthening the single market.

Though Mr Cameron has come away with a deal, it is not the one he wanted. He has had to give ground in several key areas such as returning powers from Brussels to the UK and the practicalities of the agreement have yet to be agreed.

What do the out campaign want?

The out campaign is to some extent fragmented with up to three separate groups canvassing for a UK exit from the EU. Though they have different agendas they share some common beliefs. One of which is that the EU hampers the UK economy through a combination of excessive rule making and the billions of pounds a year in membership fees that are levied on the UK, from which out campaigners perceive little or no return. The out campaign would also like to see Britain regain control of its borders, so as to be able to reduce the number of people coming into the UK to work.

They also object to the prospect of an ever closer federalised Europe, modelled on the United States, within which UK sovereignty would be sacrificed. The out campaign believes that Britain can trade profitably from outside of the EU and that the rest of the world’s markets and trade can more than compensate for not being part of the single European market. It’s interesting to note that the in or out question cuts across party lines and the whole political spectrum, making for some interesting and unlikely bedfellows

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