Brexit's Impact on the EU-27: Challenges, Reforms

How Brexit has affected the EU-27

Before the Brexit referendum, the information brochure sent to households by the government surprisingly did not include expected per capita loss of at least 1800 pounds. If the public had received this information, 52.1% would have voted remain in the referendum. Instead, the pro-Brexit campaign used an anti-immigrant narrative as a scapegoat for the poor provision of public services, yet this was in fact a result of massive budget cuts for local community services. After Brexit, several economic and social issue that require major reforms, if the rest of the 27 EU countries is not to disintegrate.

After the results of snap UK elections in mid-2017, the then Prime Minister suffered a blow after the conservative party lost its majority votes, forcing the party to enter a coalition with Northern Ireland’s Democratic Unionist Party. It was therefore less likely to have a ‘hard Brexit’ due to Northern Ireland’s preference for flexible border regime between them and the Republic of Ireland. This paper explores the background and dynamics of Brexit, evaluating some of the challenges that it bears for the 27 EU countries.

Seen by many as the will of UK people, Brexit researchers have been sceptical of the spill over effects on the other remaining 27 countries, some examining the voting behaviour of Brexit while others examining the kind of Brexit voters wanted . Beyond these pieces of academic research, other school of researchers have gained an interest in the kind of Brexit arrangement that might be suitable for them. But this detailed attention to the public opinion on Brexit is characterised by a dearth of research on Brexit-related effects on the remaining 27 countries. Understanding the impact of Brexit on the remaining 27 countries is important for two major reasons. First, the EU remaining 27 countries have a greater negotiating power that the UK in the Brexit negotiations. consequently, the Brexit process has largely been shaped in many ways by the EU parliament, EU commission as well as the remaining 27 governments. As such, the UK hopes that the remaining 27 countries are would be willing to offer better terms of the UK as it withdraws has largely been frustrated. Instead, the EU 27 governments have generally formed a united force against British attempts to cherry pick it exit demands.

Secondly, the voter-based nature of Brexit has contributed to an increased risk of political contagion; other political sceptics in the European region have become more emboldened with the choice of exit referendums, Brexit thus posing a serious threat for the EU, especially at the time when the European integration is currently under threat by European elites and voters. In the next section, this study presents some of the key dilemmas that Brexit has caused the EU-27, as a background to understanding some of the impacts Brexit has caused to the EU-27.

The Brexit vote marked an important historical event because for the first time, an EU member voter voted to leave the Union. The referendum was an embodied a crisis that is not new to the European politics. For instance, in 1992, the European integration process was challenged by a popular referendum when a vote was taken against the Maastricht Treaty, as well as when the Netherlands and France ended the European constitution in 2005. however, whereas earlier referendums sought to either slow down or stop further integration, Brexit was majorly focused on rolling back the European integration. depending on how the future relationship between UK and EU-27 will be, Brexit’s retrenchment of the European integration has had several spill-over effects on EU-27 even though two of such effects stand out namely: the loss of cooperation gains and the risk of political contagion.

Most of the cooperation gains made by the European integration are economic in nature, and they include the potential damage of companies conducting trade in the UK and the potential economic downturn that will occur alongside job loses when the trade ties between the EU-27 and the UK are cut down. other economic costs of Brexit to the EU-27 include budget cuts due to loss of London’s contributions to EU, as well as London’s loss of free access to Europe’s financial market.

Apart from the economic impacts of the loss of cooperation, there are political and social impacts that Brexit has had on EU-27. For instance, the loss of free movement of people between UK and EU-27 as well as the uncertainties of the EU residents living in the UK as well as the loss of UK’s participation in the EU anti-crime or anti-terrorism programs have caused a series of political impacts on EU-27.

In case Brexit continues to severe the strong ties between the EU-27 and the UK, the EU-27 citizens will bear considerable costs. Ideally, the EU-27 public are the ones who benefit from the close exchanges between UK and EU, either indirectly through regional economy or indirectly through personal business. For example, individuals from EU-27 countries who live in states that have greater ties with the UK. This exposure might vary depending on the ongoing negotiations. For instance, a harder Brexit was estimated to put Bulgaria’s and Slovakia’s GDP at risk.

Brexit has also contributed to a greater political contagion risk in the EU-27. Asa spill-over effect, a successful Brexit that makes the UK better off while outside the EU might demonstrate to the EU-27 citizens that they can unilaterally improve their position while still having the many benefits of the European integration. the successful Brexit is likely to provide a powerful counterfactual that enables voters in EU-27 countries to evaluate to what extent disintegrating from the EU can bring better benefits. Consequently, UE-27 might begin to experience disintegrative tendencies of other member states. At the same time, nonetheless, upon observing that the UK is badly off after Brexit, voters from the EU-27 countries are less likely to seek exit. Therefore, Brexit provides a ‘reality check’ that might make EU exit less attractive, especially the citizens who speculate that they will enjoy the benefits of both the international cooperation ad national sovereignty. In short, a Brexit’s success will contribute to disintegrative tendencies of countries within the EU-27 while any failure of Brexit is likely to deter EU-27 countries from any disintegration.

The degree to which these two spill overs effects will manifest themselves depend on the characteristics of the relationship between EU and UK moving forward. The smaller the losses from Brexit, the closer UK and EU-27 will remain. ideally, this presents an opportunity for the EU-27 to maintain its ties with the UK after Brexit and salvage as many gains of the cooperation as possible. Contrastingly, the direction and extent of political contagion effects that deter or encourage the cooperation will depend on how well the UK’s model attracts EU-27. Any of the outcomes that favour British interest will encourage exit tendencies in EU-27 public domain while any uncompromising and non-accommodative position that increases the cost of leaving will deter exit tendencies among the EU-27 countries.

Consequently, the EU -27 governments and other institutions face a public dilemma because on the one hand, a depending on the post-Brexit negotiations, any hard-line moving forward will be costly not only for Britain but also for the EU-27. On the other hand, giving UK better off terms by allowing them to enjoy the benefits of European integration without sharing the cists will threaten the long-term stability of EU-27. this paper argues that how the EU-27 countries decide to accommodate this dilemma, and how they will view the post-Brexit negotiations (i.e whether they will be more accommodative or take a hard-line position) depends on how they are exposed to the consequences of these two Brexit spill over effects. Generally, EU-27 countries should be hawkish when they are likely to have a lesser net-cost of non-accommodation and be more dovish when there are higher costs of being non-accommodative compared to the benefits of taking a hard-line position.

This implies that countries that are more expose to the loses of cooperation gains from hard-line post-Brexit negotiation – either because of the close ties with the UK or because their economy is vulnerable to Brexit should be more supportive for a more accommodative and softer Brexit. contrastingly, countries with less exposure to Brexit shortcomings should take a tougher position. At the same time, countries that are focus on preserving their long-term stability of the EU should have a more hawkish post-Brexit negotiation position. the more positive EU-27 view the union, the less likely they should accommodate the UK. But a more attractive EU-exit strategy should be appealing to EU-27 member countries that are considering exiting in future.

Regarding exposure to loss of cooperation, citizens of EU-27 member countries are likely to suffer from loss of personal ties, as well as loss of business sties as some of the direct exposures. Apart from these direct exposures, Brexit is likely to have a significant impact on EU-27 populations’ context such as the regional economy in which the countries are embedded. This makes citizens from EU-27 countries indirectly exposed to Brexit. In a study by Chen et al, the researcher evaluated the subjective and objective impact of Brexit on EU-27 countries’ exposure to Brexit and found the following results:

In the figures above, it is evident that as late as December 2018, majority of EU-27 citizens were not much concerned with the effects of Brexit on their countries - more than a half did not think that Brexit would affect their country at all. Similarly, 13.3% even thought that their countries will be much better after Brexit. Similar reports indicate that only 19.2% were sceptic and thought that Brexit would make their countries worse off. The study also found that the respondents were more optimistic about the impact of Brexit on EU, even though they generally believed that the EU would face slightly more risks that their respective countries . That said, based on this optimistic assessment Chen et al further used an objective indicator to measure the public’s expectation of their country’s situation post-Brexit. Chen et al measured the degree to which EU-27 countries on the NUTS-2 levels are exposed to the negative economic-related impacts of Brexit that emanate from geographically disintegrated production processes in the EU, UK and beyond. Even though the researchers estimated the level of risk of the Union’s GDP in the case of a hard Brexit negotiation and matched it to survey data, the study found that the estimated loss would be 1.55 of the GDP.

The contagion risks of Brexit are especially worrisome for those who want to protect EU together with its integration projects. Chan and colleagues developed a model of quantifying this effect using two variables namely the respondents’ overall attitude towards EU and the likeliness so the respondents to vote for exit if the referendum was held in their respective countries. The study found that 10.6% of the respondents would vote to remain while 13/9% said they would vote to leave. In the next section, this paper explores a few case studies of EU-27 countries or cities that are of high exposure to Brexit, accompanied by their socio-economic and demographic backgrounds.

Bretagne & Hauts-de-France (France)

Asa result of its proximity with Britain, Bretagne & Hauts-de-France AND Brittany acts as the European door to the UK because of the channel tunnel and the densely networked maritime flow between the two sides of the border. Generally, the economic similarities between the French regions and the UK reveals their strong socio-economic integration and relations. Hauts-de-France is a former industrial hub that is densely populated and experienced a period of de-industrialization in the past few decades. Regardless of its somewhat dwindling econiomy,the region still boasts of various industrial activities such as agricultural production and transport. Similarly, the area has experienced newly emerging sectors in the past few decades including creative industries, waste management, bioeconomy and ICT.

Compared to Hauts-de-France, Brittany is a less densely populated region whose 5% of the population are French while 0.4% of its population are British. Its GDP ranks 7th within France, with an unemployment rate like that of the EU’s average unemployment rate 20.3%. The region had an earlier economic specialization of agriculture but has also evolved into a technology, research, and innovation hub.

These two regions are closely to the UK’s economy because it is an important foreign investor in both Hauts-de-France and Brittany, whereby 5% of foreign investors in Hauts-de-France are British, while 11% of business in Brittany are British owned. more importantly, there are important integration of research activities between the UK and Brittany, especially those that are EU funded. for example, under the EU’s Seventh Framework Program, researchers from Bretagne handled at least 256 projects with the UK worth a total of 94.5 million Euros.

In case of a hard-post-Brexit negotiation results, the current beneficial relationship with the UK might be threatened through the following ways:

There might be limited access to exclusive economic zones that may significantly impact deep-sea fishing because the French fishermen might not have access to British waters, which is the main resource for fishing. similarly, Brexit might cause a depreciation in Sterling Pounds that might reduce the British citizens’ purchasing power – thus becoming less willing to spend their Money in France. More unfortunately, research activity financing and other student exchange opportunities through the Erasmus program might be severed.

A hard-post-Brexit negotiation might also cause a significant decline in rural area population, especially those areas with a higher concentration of UK citizens. This might result to a various challenge to public service provision and land planning. similarly, the reintroduction of EU duties and border control might cause a trade slow-down as or affect the flow of people across the borders. Similarly, the reintroduction of travel visas might limit the length of stay of British tourists.

Nonetheless, despite these potential negative economic impacts, Brexit also presents various opportunities for Bretagne & Hauts-de-France. As at now, both regions have taken an optimistic stance on Brexit and therefore their historical and geographical links to the UK might present many opportunities to various areas such as more research funds, business competitiveness, and more foreign investment in the region. A typical example is Hauts-de-France, which has attracted specific foreign investors who are currently UK-based but are concerned with their access to the UK.

Lubelskie Voivodeship and Malopolskie (Poland)

The main impacts of Brexit on these two Polish regions is migration and export of various goods into the UK. Similarly, the other possible impacts are related to the consequences of decreased financial allocation from the EU government after UK’s withdrawal. But first, Malopolskie Voivodeship is in southern Poland and covers the Poland side of Tratra mountains. Its capital city, Krakow, is a popular tourist destination. By 2015, the total population of the area was 3,372,618, representing 9% of the country’s total population. The possible Brexit impacts are related to Polish migration that are evaluated in terms of the flow of migration in the Malopolskie region as well as the adverse effects on the economic activities within the Opolskie and Lubelskie regions.

Brexit might impact on the Polish migration that relates to the possible return of people into Poland, yet there are many Polish migrants into the UK. A typical example is the case of Malopolska, because its residents consider UK as the most desirable place to migrate to.

It should however be considered that the impact of Brexit on Polish migration will depend on EU-UK migration negotiation agreements, with many outcome scenarios currently available. For instance, Polish migrants might maintain the access to the labor market, due to UK maintaining its EEA membership. Similarly, it is speculated that the Polish migrants could still maintain some of their rights and access to the labor market if the UK and EU sign a bilateral agreement that is relevant to this population – just as was done between Switzerland, Norway and EU. Most probably, the UK could introduce migration policies aimed at regulating migration that are negotiated in exchange of UK’s access to EU open market.

In a worst scenario, the impact of Brexit on these two Polish regions may be detrimental if the new regulations make it more challenging for Poles to migrate to the UK or remain in the UK. Additionally, there are also other aspects of the regulations that might influence migrant’ decision-making and behavior. For instance, the migrants might choose to return home due to security concerns or perceived discrimination.

Economically, Brexit might impact these two Polish regions with respect to UK’s failure to contribute to the EU budget, export and other elements of trade. The UK is one of the biggest contributors to the EU budget. upon withdrawing from the union, EU will have to significantly reduce its budget – which finances all its cohesion policies. Considering that Poland receives the highest amount of the EU budget among all the EU-27, the reduction of EU budget may be felt by Poland and its regions, especially due to UK’s lack of contribution to the EU Cohesion Policy resources.

But Brexit also presents Poland with certain opportunities that are worth mentioning. Some trade and economic opportunities might arise for Poland in the sense that if the Poles returning home are classified as skilled workers, Poland may be able to satisfy its demand for qualified labor force across many of its regions, including Malopolska.

Federal state of Hessen (Germany)

Hessen is considered one of the 16 German federal states and consist of three main administrative districts namely Kassel, Gießen and Darmstadt. Based on the latest 2016 population reports, Hessen has a total population of 6.2 million, representing 7/5% of the German population. This implies that the region has a population density of 290 people per km2 , measuring above the German national average population density of about 230 km2 .

Economically, Hessen is among other southern German areas such as Wiesbaden, Darmstadt and Frankfurt that are the main urban areas in Germany. In 2015, businesses in Hessian exported goods worth 4.5 billion to the UK, 7.5% of all these exports originating from Hessian. The main economic industries in Hessian include pharmaceutical and chemical products, automotive industry, machinery and electronic products.

Brexit might have possible impacts on Hessian ‘s flow of goods and capita from the UK. Brexit might cause changes in market conditions that lower the levels of trade relations, leading to volatile market rates. Similarly, it is expected that Hessian might experience lower levels of foreign investments and unemployment attributable to transfer of jobs from the UK to other states.

Moreover, Hessen may be more attractive for companies based in third world countries looking for business location in Europe, and therefore as opposed to the UK that has been a major competitor business hub, Frankfurt may become even more competitive for businesses seeking to enter the European single market.

The other issue related to the volatility of exchange rate is that whereas the British pound might depreciate, exports into England might become expensive while the imports from England might become cheaper. Moreover, Hessen may play a significant role in European integration after Brexit because of an increase in its demographic and economic importance – creating a better opportunity for the region’s economy.

Ports and Flanders Region (Belgium)

Because of their proximity, the UK and Flanders have maintained close relations. Commercial and maritime contracts between the two regions play a significant role in their ties; as well as the strategic locations of Flanders cities such as Ghent, Antwerp and Bruges. As a neighboring country, the UK has been regarded as a country of priority in Flemish foreign trade and policy. as such, Brexit is expected to have significant political and economic impact on Flanders, particularly on its Flemish ports due to the changed trade relations, the possible exit of the UK from the customs union and the change of the Belgian coast into an EU’s external border.

First, the custom duty enforcement and newly introduced custom procedures between EU and the UK could have a significant impact on the fluidity and demand of freight flows. as a result, Flemish port could lose a significant share of their traffic, impacting the port activities and contributing to decreased employment opportunities in the maritime sector.

Secondly, from a policy point of view, Brexit may lead to a creation of new external border along the Belgian coast that would necessitate political and logistical solutions for controlling migration. similarly, the Flemish port might need to cooperate with the UK to build border crossing points to help control illegal migrants trying to migrate into the UK. There is currently a cooperation between the British authorities and the Zeebruges but Brexit might interfere with this cooperation.

In conclusion, this paper has demonstrated the various political and economic impacts that Brexit has, or might have on the stability of EU-27. Using France, Poland, Germany and Belgium as case study examples, this paper has demonstrated that Brexit, depending on the outcomes of the Post-Brexit negotiations that are currently underway, will not only cause negative political and economic impacts but also positive economic and political impacts. A significant finding of this paper is that EU-27 will have to consider trade-offs and compromises inherent in the negotiations because the more countries are exposed to a fall-out from Brexit, the less they are likely to take an accommodative stance. The overall evidence paints a picture that EU-27 are generally aware of the consequences of Brexit and are therefore determined to take a position in the post-Brexit negotiations that protect their interest.

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