Brexit has been the largest European strategic transformation since the end of the Cold War. Those who cannot read the primary geopolitical data between the digits of a long economic calculation are bound not to even understand the economic and monetary effects of Brexit. However, it is useful to analyze what Brexit means, also from the strictly economic viewpoint.
The cultural, anthropological and identity values have had a decisive impact on Brexit. These are the values which we usually attribute to “populism”, but which are part and parcel of each electoral behavior, currently as in the past.
Those who believe only in the “rational voter” of neo-positivist theories, or in the voters who scientifically analyze all the options available to them – by also believing they will come true – are always bound to be disappointed.
However, let us analyze data and statistics, even though we have already focused on them in other articles. Net migration has almost doubled in the UK, up to over 183,000 new arrivals in 2016. Furthermore migrants account for a 0.5% yearly increase in the total number of British workers.
With specific reference to international trade, the EU is the recipient of approximately 50% of UK exports. It is also worth recalling that the European rates for manufactured goods to be exported have more than halved since 1991. It is not a matter of “entry barriers”. The European red tape for the 100 types of most costly regulations developed by the EU, costs Great Britain approximately 33 billion pounds a year.
It is also worth recalling that as many as 52,000 new rules were enacted by the European Parliament between 2000 and 2013. National markets cannot be protected with odd and irrational laws and by-laws, but with precise foreign exchange operations and with tough negotiations with the potential EU trade partners. According to the latest data available, the financial services exported from London to the EU are worth 14.4 billion pounds a year. Finally, the European Union alone accounts for 46% of foreign investment in Great Britain.
In all likelihood, said investment will be replaced by the Chinese, US and probably Middle East Foreign Direct Investment (FDI), possibly with a predictable new Israeli presence. It is worth recalling, however, that the UK annual cost for its EU membership amounts to 10.4 billion pounds per year. It is interesting to note that the migrants coming from the EU provide a 20 billion pound contribution to the British public budget.
As a result of Brexit, the real estate and property value is bound to fall by at least 15%. Furthermore, in some London areas, the value of houses has already decreased by at least 30%. As already stated in previous articles, the solutions to Brexit are the UK adhesion to the European Economic Area (EEA) or to EFTA, as is the case with Norway, Iceland, Liechtenstein and Switzerland. Switzerland is not a EEA full member, but it is an EFTA member and it long negotiated autonomous bilateral agreements with the EU.
I do not think that Great Britain has ultimately much to gain from entering a bilateral system of European trade, as was the case with the above mentioned countries. Hence the best solution is the Swiss one, but it requires tough and long-lasting negotiations.
The British productive sectors not exporting to the EU account for 85% of the British GDP. For them Brexit is not a problem, but probably one of the solutions. As can be easily understood, the strictly economic – and hence political – issue determined by Brexit is not as simple as we may assume. A solution for the UK could be opening to non-EU markets, especially for the British financial products.
For the time being, the exports of these products to China account for a mere 2% of all UK financial exports, but nothing prevents the size of bilateral trade from increasing substantially and quickly.
In 2014 also Switzerland reached an agreement which significantly reduced non-tariff barriers to China for its banks and financial holdings. Nevertheless we must be careful of competitors. With regard to the export of these products, Germany has recently grown more than the United States and Switzerland itself, at least since the 2000s. Hence only China is left to Great Britain for a useful financial trading treaty. Nevertheless, at strategic level – which is what interests us most – the Brexit impact on the UK nuclear system must be analyzed.
The leaders of the EU nuclear power companies and EDF, in particular, maintain that Brexit will have no impact on the Hinkley Point C project, namely the first nuclear power station built in Great Britain after at least 20 years of nuclear freeze. This plant, which should be operational as from 2025, will supply 7% of British electricity. China will acquire a 33.5% shareholding of this plant (equivalent to 28 billion dollars), but it wants to build two new nuclear power plants, again with EDF, at Sizewell, Suffolk and at Bradwell, Essex.
The power plant in Essex will use only Chinese technology. EDF has a 66.5% stake in all these new projects, but China is not alone in this sector: NuGen, the joint venture between Toshiba and the French Engie, is planning a new plant in West Cumbria.
Moreover, HorizonNuclearPower is building a nuclear reactor in two sites, namely WylfaNewydd, on the island of Anglesey, and Oldbury-on-Severn, Gloucestershire. Hence Great Britain will become the European autonomous energy hub and there is nothing to prevent us from imagining substantial exports of electricity between Great Britain and the EU Member States which are most haunted by the antinuclear fashion. Finally, from the strategic viewpoint, the Russian Federation is not totally dissatisfied with Brexit.
After the British vote, the anti-EU front certainly includes Poland – which has not adhered to the single currency – as well as Sweden, Latvia, Lithuania and Estonia, which are part and parcel of the anti-Russian front but, by leaving the EU system, would inevitably limit their geopolitical scope of action. Russia is betting – certainly not in the short term – on a fragmentation and disruption of the European Union, which is harmful for NATO itself, namely the Russian primary enemy, but then the link between Western Europe and Eastern Europe would be weakened. This is a primary goal for Russia.
Hence Russia would incur fewer difficulties in rebuilding its traditional area of influence in the Eurasian peninsula. At economic level, for Russia the Brexit impact is less beneficial than we may assume. The wealthy Russians have invested over 5 billion pounds in the UK real estate market. Furthermore, volatility on international financial markets increases and this is a situation not favoring the economies which are experiencing difficulties such as Russia’s.
Moreover – on the assumption of an EU disruption – if the euro fell, oil would come under pressure, with great and severe damage for the Russian Federation. Therefore, for President Putin this would be a strategic victory, but it would mean a future characterized by economic uncertainty.
Finally Israel sees the decreasing weight of a country which is now alien and almost an enemy from the ideological viewpoint. Nevertheless it is managing a new strategy of opening to some countries, including Russia, and it is also pursuing its project for being no longer militarily dependent both on the United States and on some EU friendly countries.
Hence, also in this case, the Brexit impact will be limited.