To remain or not to remain? That is the question British voters have to answer.
A referendum was promised as part of the Conservative Party’s victory earlier this year. And the vote will decide whether England leaves the European Union (EU).
The official vote isn’t expected to be held until 2017. If England decides to depart from the EU, the decision could have a massive effect on the global economy.
British leaders have long debated the merits of the country’s EU membership. On one hand, Britain can freely trade with other member countries. And cooperation has improved when it comes to global issues such as climate change and terrorism.
But “Eurosceptics” are worried…
Many believe that too much power has shifted to Brussels, where the EU’s executive bodies are seated. A vote to leave the EU would be seen as a move toward reclaiming control over Britain’s trade, tax, economic and immigration policies.
That last point is key. Immigration is one of the biggest factors currently driving anti-EU sentiment. As Europe’s refugee crisis continues, British voters are showing increasing favor to the pro-”Brexit” camp.
The estimated cost to U.K. taxpayers is over $37,000 per refugee.
This is why Prime Minister David Cameron wants to limit the number of migrants allowed into the country. He also wants to place restrictions on the benefits received by migrants who have been in the country for less than four years.
Those campaigning to leave also complain that Britain is part of a regularly outvoted minority in the EU, one at the mercy of the eurozone members. If a non-eurozone member’s proposal doesn’t align with the majority’s interests, it’s basically dead in the water.
It really makes you wonder what it’s all worth, considering Britain pays the equivalent of $540 million to the EU... per week. Those are funds that many believe should go toward national needs.
Of course, there are those who believe the country is stronger within the EU. And if a vote to leave succeeds, the effects on the economy could be less than desirable.
Right now, about 45% of its exports go to the EU. As an outsider, Britain would be in a weaker position when negotiating free trade deals.
Corporate earnings will drop due to taxes on foreign imports. Jobs will be lost as international manufacturers move to EU countries to reduce their cost basis. Industries such as farming will lose important EU subsidies.
Nearly half of Britain's foreign direct investments (FDI) comes from the EU, and a third of total FDI goes to its financial services sector. Leaving the EU means putting the U.K.’s financial sector at risk of massive disinvestment.
Global firms have hinted at moving operations out of London and into places such as Frankfurt and Paris. Just talks of leaving have caused Standard & Poor’s to downgrade the U.K.’s government bond rating to “negative.”
All of this indicates that the global financial sector sees a post-EU Britain as an economically weaker Britain. That alone is enough to sink the value of the British pound to both the euro and the U.S. dollar.
There is no question that investors seeking foreign exposure - an essential component of any successful wealth-building strategy - will not think twice about shifting their investments back into the EU in the event of an exit.
But perhaps the strongest reason to stay is that much of Britain’s political influence in the world is tied to its place within the EU. It’s unclear whether the country will maintain its geopolitical influence as an isolated power. At least as part of the EU it has a seat at the table.
Suffice it to say, Britain needs the EU more than it wants to admit.
Cameron hopes to work out Britain’s role in the EU going forward. A successful offer for market reform will crush the chances of an exit. But the sooner the vote is held, the more likely voters will carry their current frustrations into the voting booth.