Fifty-two per cent of United Kingdom citizens who recently went to the polls voted in favour of leaving the European Union.
It’s a decision that will be felt around the world for years. In fact, the Brexit vote will have gigantic economic repercussions in the U.K. and far beyond.
Immediately after the vote results were announced, the British pound declined sharply and global financial markets took a nosedive. And that’s just the tip of the iceberg – they don’t nearly reveal the full extent of the economic and financial repercussions unleashed.
The global recovery in the aftermath of the 2008 financial crisis has been sluggish and unremarkable. National economies are sputtering and underperforming. The evidence is found in the low levels of economic growth, persistently high unemployment and a lack of significant private sector investment.
The Brexit vote has aggravated this weak and volatile economic landscape and will trigger a prolonged period of economic uncertainty – and perhaps another recession.
In the global economy of the 21st century, political boundaries are insignificant. The contemporary economic system is one of interconnected trade, investment and the movement of people. So economic missteps can no longer be restricted to the countries in which they occur. In this context, the economic fallout from Brexit will be felt around the world.
At its heart, Brexit will result in an economic and political disaster for the UK. It’s akin to a massive earthquake that leaves in its wake significant structural damage. Northern Ireland and Scotland, both of which voted decisively to remain in the EU, will likely restart the process of seceding from Britain and trigger significant and prolonged political instability. It will also undoubtedly prolong the financial agony in the U.K. for years.
Brexit will also likely have a domino effect, with copy-cat referendums occurring in those southern European countries where fiscal austerity measures have exasperated the public – countries like France, Spain, Portugal and Greece.
Canada has had a stellar economic relationship with the U.K. We have used Britain as a launching pad for our trade forays on the European continent. The U.K. is Canada’s fourth largest trading partner. In 2015, our merchandise exports to the U.K. were $15.9 billion. And the U.K. exported $9.2 billion to us worth of goods in that same year.
Canada is a trading nation. Our prosperity, jobs and economic growth depend on our success as global traders. For us, Brexit could not have come at a worse time. The Canada-EU free-trade agreement is nearly done and now requires all-member country ratification. But the EU’s attention will be diverted to negotiating the final divorce settlement for Britain. In consequence, the Canada–EU Comprehensive Economic and Trade Agreement will be put on the back burner.
The Brexit conundrum reminds me of Winston Churchill’s famous quote: “Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” We need to take stock of where we are and to chart a different, innovative and bold new course that is more congruent with the 21st century.
The word for crisis in Chinese is composed of two characters. One denotes challenges and the other opportunity. Brexit tells us that our social and economic policies no longer meet the needs, hopes and aspirations of our society.
We need new policies and re-engineered governance that reflect the changes in the global landscape – before we have a global financial disaster.
Dr. Constantine Passaris is a professor of economics at the University of New Brunswick and an Onassis Foundation Fellow (Greece).