The last year was marked by the unexpected results of referendum held in the UK, where citizens had to decide whether the country should leave or stay in the European Union. Obviously, many experts had been skeptical and the results, with 52 % voted for the exit, were, with no doubt, shocking both for the EU and the entire world. The financial markets reacted immediately: the pound experienced the largest decrease during the entire period of the free-floating and major stock indexes, like FTSE 100 and FTSE 250 also fall considerably (Mackenzie & Platt, 2016 June 25). However, the reasons the UK has voted for the exit remain debatable: actually, the advocates of the UK’s separate economy and policy are insisting on the fact that the EU that includes countries with different economic development was a too heavy burden for the UK and, thus, the membership has more drawbacks that advantages. At the same time, the Brexit does not mean the complete divergence between the UK and the EU, as the future relationships remain undetermined completely. Nevertheless, the decision taken by the UK citizens has revealed existing problems associated with the membership in the EU, particularly the devastating influence on the national economy and local businesses particularly. Thus, the aim of this paper is to discuss the reasons of the exit, and in general, the appropriateness of such unions, that combine both financially weak and string states.
Actually, experts determine different factors that lead to increase of the EU opponents in the EU, as the rise of nationalism across the world and the owing needs for political sovereignty and independence. However, the main reason has been the economic inefficiency of the union (Friedman, 2016 July 5) with the single central bank and unified monetary policy. The largest concern is associated with the South countries like Spain, Greece, Italy, where, the unemployment rate has remained double-digit for almost a decade since 2008 financial crisis. Unlike the US, which is, de facto, also the union of states, with different economic development, where the Fed’s monetary policy helped to stabilize the macroeconomic indicators relatively fast, the monetary policy of the EU has been widely criticized for the devastating effect on the separate countries, especially the vulnerable countries experiencing high unemployment. Thus, the inflation targeting chosen by the ECB with 2 % target, could not make much harm for Germany, with 4 % unemployment rate, but very unfavorable in Greece with 25,6 % unemployment rate (recalling the reverse relationship between inflation and unemployment described by A.W. Phillips). As for the UK, this means the high contributions that the country paid for the membership to the EU budget: about £ 9 billion net contributions annually.
Thus, obviously, there were some benefits of being a part of the EU, as the power of the union in trade negotiations with third parties like the US and China (Bootle, 2015 November 1), and for the UK as a separate country it would harder to conduct these negotiations that might lead to drop in FDI and foreign businesses activity. However, the advantages of withdrawal such as sovereignty in fiscal and monetary policy, political independence and budget considerations obviously has outweighed the advantages of being in the EU.
Does the UK example proves the economic inefficiency of the EU? Actually, opinions are different, however opponents point at the relatively weak recovery of the Union after financial crisis 2008 compared with the US, the major economical rival of the EU. The main reason actually, is that the monetary policy conducted by the ECB and the European Commission, had unequal consequences in different states. Unlike the US, that used both monetary and fiscal stimulation, the ECB forced Greece, for example, to decrease government expenditures, that in turn lead to the surge in unemployment in the country (in other words, the aggregate demand curve was pushed to the left) (Weisbrot, 2014 January 16). Another problem of relatively weak countries is the moral hazard risk, when the government has less incentives to conduct the effective economic policy knowing that strong countries would help in any case. However, the US also experiences the inequality between states; the extent of integration, that has been developed over hundreds of years, is obviously higher then among EU countries (no barriers for labor and capital moves).
Thus, the conclusion is that economic and financial integration has been too fast, and the inequality of the member states lead to the high vulnerability and devastating consequences of the unified policy for the weakest members of the EU, rather than encouraging of their faster development and convergence with the more developed members like Germany and France.
Reference list:
Mackenzie, M., Platt, E. (2016, June 25). How global markets are reacting to UK’s Brexit vote. Financial Times. Retrieved from: https://www.ft.com/content/50436fde-39bb-11e6-9a05-82a9b15a8ee7
Friedman, G. (2016, July 05). 3 Reasons Brits Voted For Brexit. Forbes. Retrieved from: http://www.forbes.com/sites/johnmauldin/2016/07/05/3-reasons-brits-voted-for-brexit/#10c8b4f78c1b
Weisbrot, M. (2014, January 16). Why has Europe's economy done worse than the US? The Guardian. Retrieved from: https://www.theguardian.com/commentisfree/2014/jan/16/why-the-european-economy-is-worse
