Brexit class aug15 2016_helen_y_cao

Helen Y. Cao
Tec Cuernavaca,
Aug 15 2016
Source: New York Times, How Britain Voted in the E.U. Referendum
BREXIT

Agenda
• What is the European Union?
• UK & the EU
• How did it come to BREXIT?
• BREXIT results
• Reactions post BREXIT

QUIZZ
• What was the reason behind the formation
of the European Union?
A) Create a single market
B) Sustain peace after WWII
C) Free movement of people

QUIZZ
• How many people are part of the European
Union, as of 2015?
A) Roughly 400 million
B) Roughly 500 million
C) Roughly 800 million

QUIZZ
• Where did the British economy rank among
European Union countries in 2015?
A) First
B) Second, behind Germany
C) Third, behind Germany and France

QUIZZ
• Was the BREXIT referendum 2016 the first
British referendum on European
membership?
A) Yes
B) No

Has a vote like this happened before?
Source: NYTimes

The EU consists of 28 countries
Source: BBC

EU has 500 million citizens
Source: europe.eu

EU is the worlds largest economy
Source: WSJ
BREXIT

How does the EU spend its money?
Source: europe.eu

Robert Schuhman: ‘Father of Europe‘
“make war not only unthinkable
but materially impossible”

History of the EU
We are carrying out a great experiment, the fulfillment of the same recurrent
dream that for ten centuries has revisited the peoples of Europe: creating
between them an organization putting an end to war and guaranteeing an
eternal peace...
— Robert Schuman, speaking in Strasbourg, 16 May 1949
The European Union is set up with the aim of ending the frequent and bloody
wars between neighbours, which culminated in the Second World War.
1950, the European Coal and Steel Community begins to unite European
countries economically and politically in order to secure lasting peace.
In this way, none can on its own make the weapons of war to turn against the
other, as in the past. The six are Germany, France, Italy, the Netherlands,
Belgium and Luxembourg.

History of the EU
1957 Building on the success of the Coal and Steel Treaty, the six countries
expand cooperation to other economic sectors. They sign the Treaty of Rome,
creating the European Economic Community (EEC), or ‘common market’.
The idea is for people, goods and services to move freely across borders.
1986 – Single European Act aiming at designing a market for good, services,
labor and capital. In 1993 the Single Market is completed.
Overall time more countries join the EU. Starting out from 6 countries, there are
now 28 member states.
1999 – Monetary union resulting in introduction of the Euro in 2002 (further
step in single market for capital)

From economic to political union
What began as a purely economic union has evolved into an organization
spanning policy areas, from climate, environment and health to external
relations and security, justice and migration. A name change from the
European Economic Community (EEC) to the European Union (EU) in
1993 reflected this.
History of the EU

EU is a Nobel Peace Prize Laureate
The Nobel Peace Prize 2012 was awarded
to European Union (EU)
"for over six decades contributed to the
advancement of peace and reconciliation,
democracy and human rights in Europe".
http://www.enpi-info.eu/

Core principles of the EU
In 1993 the Single Market is completed with the 'four freedoms' of:
• Freedom of movement of goods
• Freedom of movement services
• Freedom of movement of people (workers and citizens)
• Freedom of movement of capital
Four freedoms are core of the EU’s founding principles
Goal to boost trade, create jobs, increase competition and thereby lower prices
for consumers.

UK & the European Union
1973 – The UK joined the European Economic Community (EEC later become the
EU) through its 3rd application
1963 & 1967 – UK’s application to the EEC was veto’s by French President Charles
de Gaulle twice
1975 – Two years after Britain joined the European Economic Community, it held
a referendum on whether it should stay. 67% voted for in.
Source: NYTimes

UK the 2nd largest economy in the EU

UK is a net contributor to the EU budget
Source: BBC
Net EU contribution
approx. 0.5% of GDP,
whereas other
countries contribute
approx. 1% of GDP

Why was a Referendum Called?
Cameron decided to hold a
referendum even though he
opposed it.
Why?

Tory Party & Euroskepticism
"We have not successfully
rolled back the frontiers of
the state in Britain, only to
see them re-imposed at a
European level, with a
European super-state
exercising a new dominance
from Brussels"
Source: 1988 speech in Bruges.

Tory Party
The Tory right wing would see the
European project as a threat to UK
sovereignty and national identity.

Immigration
from post-communist
countries
since the 80s
Raise of the anti-immigrant
UK Independence Party
(UKIP)

Net migration to the UK 2014
Source: NYTimes
2015 Net migration to the UK: 330.000 people, 184.000 from
EU countries, 188.000 from non-EU countries

2012Referendum?
Source: http://www.theguardian.com
"My backbenchers
are unbelievably
Euroskeptic and
UKIP are breathing
down my neck."

2012Referendum?
"I have to do
this. It is a party
management issue.
I am under a lot of
pressure on this. I
need to recalibrate“
Source: http://www.theguardian.com

2013
Source: http://www.vox.com
Cameron did not expect
to have to follow through
a referendum.

“Cameron proposed BREXIT to save
his own political skin — but ended up
destroying it and screwing over the
country.”
Source: http://www.vox.com/2016/6/28/12033390/brexit-david-cameron-fault

June 23, 2016
Source: New York Times, How Britain Voted in the E.U. Referendum
BREXIT

A World Divided
• Embrace Globalization | Fear Globalization
• Liberals (inclusive, open and tolerant)
perhaps don’t know their own countries and
societies
Alexander Betts is Professor of Forced Migration and International Affairs

Immediate reaction post BREXIT
POLITICAL REACTION
• The prime minister Cameron stepped down. Mr. Cameron, who led the
“Remain” campaign, announced on Friday that he had no "precise timetable"
but that he believed his successor — who will manage the process of leaving
the union — should be in place by October.
• Boris Johnson, the former mayor of London who backed leaving the E.U., was
considered a front-runner to succeed Mr. Cameron. But on June 30, Mr.
Johnson announced he would not run for the position of party leader (and
therefore prime minister).
Source: NYTimes

BREXIT
Reaction financial market
Source: NYTimes, Reuters
As of today, Aug 15, all 3 indexes are at higher than pre BREXIT level

Source: NYTimes, Reuters
The British pound
plummeted to lowest
level since 1985.
Investors fled to the
American dollar and the
yen.

Source: NYTimes
The United Kingdom lost its last remaining
AAA credit rating on June 27, when the
credit rating agency Standard & Poor’s
downgraded the nation to AA, Reuters
reported.

Is the referendum legally binding?
Source: NYTimes
The referendum is not legally binding, though it is difficult to
imagine that the British government would ignore the will of the
voters.
The process of leaving begins only after the British
government invokes a provision of the European Union’s governing
treaty known as Article 50
Once Article 50 is invoked, though, Britain could not change its mind
and stay in the union unless the 27 other members all agreed.
No country has invoked Article 50 before.

What happens next?
Source: BBC
• Theresa May (Torys) new British prime minister July
13, 2016
• May supported the campaign for Britain to stay in the EU but
said she will respect the will of the people and said: "BREXIT
means BREXIT and we're going to make a success of it."
• For the UK to leave the EU it has to invoke an agreement
called Article 50 of the Lisbon Treaty which gives the
two sides two years to agree the terms of the split.
• May has said she will not kick off this process before the end
of 2016. This means that we will not begin to get a clear idea
of what kind of deal the UK will seek from the EU, on trade
and immigration, until next year.

What happens next?
Source: BBC
Theresa May’s new government & 3 Brexiteers
David Davis (conservative MP and Leave campaigner)
Liam Fox (former defence secretary and leave campaigner) - international trade
minister
Boris Johnson – foreign secretary
From triggering Article 50, there are 2 years to reach a deal which needs to be
approved by at least 20 EU countries representing more than 65% of the EU population
Michel Barnier –
chief BREXIT
negotiator appointed
by the European
Commission has made
clear he will not
engage with Britain
until Article 50 is
formally triggered -
nor start work until 1
October.

Potential Outcomes
Source: BBC, Investopedia, HBR
No deal = WTO rules. If no agreement is reached within two years, this is the default.
Notably, these rules cover only trade, not the many other issues the two sides need to
negotiate.
The Norway model. There already is a model in place for European countries that do
not wish to join the EU but want access to the single market.
In other words, using the
Norway model would mean
the UK would accept roughly
the same conditions as those
prior to BREXIT but with an
additional cost: losing a vote in
the EU halls of power.

Potential Outcomes
Source: BBC, Investopedia, HBR
The Swiss model.
Switzerland is currently not a member of the EU or the European
Economic Area (EEA).
It has negotiated a series of bilateral treaties with the EU member states
over decades (using over 100 bilateral treaties).
The Swiss are also subject to some EU policies and contribute to the
EU, but not to the same degree as Norway.

Group Work
Teams 1 & 2 Teams 3 & 4 Teams 5 & 6
Is a referendum a good
way to deal with a decision
like BREXIT?
Please provide pro and cons
Make a anonymous BREXIT
polls on campus.
(min. 20 responses) Discuss
the results. Please ask the
responders why they vote for
or against.
You are a global company
headquartered in Mexico
with operations in the UK and
all 27 countries.
How does the BREXIT result
influence your business?
Each group will present 15-20min in next class (Aug 22)

Brexit class aug15 2016_helen_y_cao

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