Quick Take Wealth Management

Brexit in a Nutshell

On June 23rd 2016, a voting was held to decide whether Britain would like stay in the European Union or leave it. 51.9% of people voted to Leave, while the rest voted to stay. A new word was created, “Brexit” referring to Britain exiting the EU.

The European Union is a club of 28 countries. Each of these countries pays a membership fee, and in return they get to function as a “single market.” Which means, goods and people can move around freely as if it were one big country.

The people who voted to remain in the EU, felt that being part of a big country made it easy to sell things, or it was good for business and trade.

The people who voted to leave the EU, felt that the European Parliament made all the rules and UK was losing control of its affairs. They felt that the membership fees were high and the free movement of people allowed people from poorer countries to move to richer countries. In other words, the people who voted to leave felt that there were more drawbacks than benefits from staying in the EU.

The decision in 2016 to leave the EU was just the start. Since then, numerous discussions have been done, mainly over the “divorce” deal, which sets out rules on how exactly UK leaves. This deal is known as the Withdrawal Agreement. Key points covered by the Withdrawal Agreement include:

  • How much money UK will have to pay the EU as break-up fees – which is about 39B pounds.
  • What will happen to EU citizens living in UK, and similarly, what will happen to UK citizens living in EU.
  • How to avoid a physical border between Northern Ireland and the Republic of Ireland, which essentially is a land border between UK and EU.

The EU and UK have not been able to agree on the Withdrawal Agreement. One of the biggest sticking points has been about what to do with the 310 miles long Irish land border. Both EU and UK do not want checkpoints at the Northern Ireland and the Republic of Ireland border as this is seen as incompatible with the Good Friday Agreement of 1998.  The Good Friday Agreement/Belfast Agreement was seen as instrumental in putting an end to decades of violence in Northern Ireland. But the EU and UK have not been able to come up with an alternative solution to a hard border.

Europe is Britain’s most important export market. The government has projected that in 15 years, Britain’s economy would be 4% to 9% smaller under Brexit than what it would been had it remained in the European Union. As of now, there is lot of uncertainty around Brexit and we could be talking about Brexit for many more years.

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