{"id":45687,"date":"2021-01-23T21:06:45","date_gmt":"2021-01-23T21:06:45","guid":{"rendered":"https:\/\/essays.homeworkacetutors.com\/2021\/01\/economic-effects-of-brexit\/"},"modified":"2021-01-23T21:06:45","modified_gmt":"2021-01-23T21:06:45","slug":"economic-effects-of-brexit","status":"publish","type":"post","link":"https:\/\/www.colapapers.com\/us\/economic-effects-of-brexit\/","title":{"rendered":"Economic Effects of Brexit"},"content":{"rendered":"
\n

Brexit: The Beginning of the End or the End of the Beginning? <\/strong><\/p>\n

ABBREVIATIONS<\/h3>\n

CAP:
\nCommon Agricultural Policy\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 GATS: General Agreement
\nTrade in Services<\/p>\n

CEE:
\nCentral and Eastern European\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 GATT: General Agreement
\nTariffs and Trade<\/p>\n

CJEU: European
\nCourt of Justice\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 IMF: International Monetary Fund<\/p>\n

EC:
\nEuropean Community\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 MFN: Most Favoured Nation<\/p>\n

ECB:
\nEuropean Central Bank\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 NT: National Treatment<\/p>\n

EEC:
\nEuropean Economic Community\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 OCTA: Overseas Countries and Territories<\/p>\n

EFTA:
\nEuropean Free Trade Association\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Association<\/p>\n

EEA:
\nAgreement on the European Economic Area\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 QMV: Qualified Majority Voting<\/p>\n

EMU:
\nEconomic and Monetary Union\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 SEA: Single European Act<\/p>\n

EP:
\nEuropean Parliament\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 TEU: Treaty of the European Union<\/p>\n

ERM:
\nExchange Rate Mechanism\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 UK: United Kingdom<\/p>\n

EU:
\nEuropean Union\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 US: United States of America<\/p>\n

FTA:
\nFree Trade Agreement\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 VAT: Value-added Tax<\/p>\n

FTT:
\nFinancial Transaction Tax\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 WTO: World Trade Organisation<\/p>\n

Abstract<\/h3>\n

In this dissertation, my interest is to discover the effects of the withdraws of the UK from the European Union, especially the consequences on economy in UK and the main European countries. My intention is to provide a description of the effect of the Brexit, starting on the history of the UK and EU in general and the effect of the Brexit on UK Trade. I have also spoken about the single market and, of course, the situation for London, as centre of financial sector, that move almost 90% of the European capital market. After these descriptions, I have spoken about the future relations among EU and UK, on economic, political and general agreement issues. As a result I found that the trade for UK will change significantly and than the economy will be touched by its effects.<\/p>\n

INTRODUCTION<\/h2>\n

In the 73\u2033, UK economy was suffering for structural changes. Due to
\nlow barriers on trade, while, in the same time, the EC budget grew.<\/p>\n

The Thatcher government had a strong ideological commitment to
\nliberalisation of the markets, hence, the UK government became a strong force
\npushing for trade liberalisation in the EC. SEA, introduced the freeing of the
\nmovement of capital, goods, services and labour inside the Community and came
\ninto effect in 1987.<\/p>\n

The Treaty of the European Union was signed in Maastricht and was
\napplied on 1993. This agreement, was made up for monetary and political union. From
\nthat, the UK was able to have further and better access to the market. <\/p>\n

In 2002, while 12 member states adopted the euro as their sole currency,
\nUK did not enter this final stage of the EMU and the government decided not to
\nhold a referendum. The changing UK governments were in many cases reluctant
\ntowards EU integration, though the UK has also been a strong force for
\nintegration, not least when it came to creating the single market. <\/p>\n

On 23 June 2016, during Cameron\u2019s government, an historic referendum was made up to decide whether the UK should leave or remain<\/a> in the European Union. As a result, British people have voted to leave the EU with 51.9%. On 29 March 2017, in a letter to the President of the European Council Donald Tusk, from the Prime Minister of the United Kingdom, Theresa May, the UK invoked Article 50 of the Treaty on European Union thereby triggering the secession of the UK from the EU. The negotiations on the terms started on 19 June 2017 with the UK remaining a full member of the European Union until it will leaves the EU at the expected and agreed date.<\/p>\n

There is no precedence for establishing relationships with former member
\nstates, so the UK would be the first member state to exit the EU. Though, for
\nexample, Greenland voted to leave the EEC in 1985, but it is still subject to
\nEU treaties, as it is a part of the Danish Realm.<\/p>\n

At this point, my question is: what is the real cause and effects of the
\nBrexit? Is it only for economical purpose or also an excuse to get far from
\nEuropean affairs and decisions?<\/p>\n

Hence, I wanted to provide different answers. My focus will be on the integration points such as Trade, Financial and Future Prospect for EU and UK relationship.<\/p>\n

In the Chapter 1, I will describe the changing after the Brexit, for the UK import and export in their new dimension in and outside EU agreement.<\/p>\n

In the Chapter 2, I will be interested on treating the City of London.
\nThe Financial Services Industry is becoming increasingly important for the UK
\neconomy, and, together the insurance services contribute \u00a3126.9bn in gross
\nvalue added. Being London the capital of the financial European market, is
\nextremely important add this topic, analysing the power of London market and
\nhow it will change.<\/p>\n

In the Chapter 3, I will concentrate on the economic next steps for EU
\nand UK.<\/p>\n

CHAPTER 1: BREXIT: HOW TRADE CHANGES FOR UK<\/h2>\n

1.1 Economic Outlook<\/h3>\n

Being a part of customs union, the countries are able to share and exchange their goods and services on a specific base. There are different prices and agreement, that allow countries to have lower price, higher output and additional benefit. Hence, this lead to a better economic result<\/a>; not only this but also there can be an increase of exports because countries partners can remove their tariffs. So, leaving from EU, UK will face, for example, a decrease of these opportunities, an increase of costs of production and a lower consumption among UK citizen. <\/p>\n

Leaving the custom union as member, UK can earn maybe other
\nopportunities due to the trade creation with other countries. It could happen,
\nmainly, if the exit from EU group leads to new trade ways or diverted it, and
\nalso the new costs of the trade as new member with the EU.<\/p>\n

It is
\npossible to notice that the volume of the total export for UK will decrease,
\ndue to the withdraw of the EU treatment, and as a result, UK firms will face
\nproblem to reach economies of scale, competition due to the protectionism as an
\neffect of the reduction of the domestic industry.<\/p>\n

1.2 Tariffs for non-EU members<\/h3>\n

Analysing the costs of the trade from EU and UK after leaving the
\nEuropean Union, if the UK will not negotiate a trade agreement, as a member of
\nthe WTO, their tariffs will follow the obligation of the WTO.<\/p>\n

WTO has two principles that drive the trade among relation members.
\nThese are: National Treatment (NT) and the Most Favoured Nation (MFN)
\nprinciple. They apply across all sectors including goods, services, and
\ntechnology. NT is a rule of internal non-discrimination and MFN, on the other
\nhand, covers external non-discrimination (Schoenbaum & Chow, 2008). If the
\nWTO rules that two products are not \u2018like\u2019, discrimination is justified. Hence,
\nthe UK could encounter problems in this regard. <\/p>\n

In the Single Market there are good possibilities for firms and
\ncostumers because there are similar prices for companies and buyers, this can
\nbe changed for UK, now that will be out of this market. There are some products
\nthat cannot be substituted, because they accomplish to specific aims and needs,
\nbut they will now have a different and maybe higher price. Furthermore, there
\nis also the possibility that British costumers will not substitute EU products
\nwith British one, but with others that come from different countries. Another
\npossibility is that for example the price to product goods, and its final
\nprice, for UK companies will be less competitive. <\/p>\n

Regarding the Financial Services, as the major sector for UK especially
\nas exporter, there will be an increase of the UK\u2019s trade deficit with the EU,
\ndue to EU committed market access and NT.<\/p>\n

Within the WTO agreements there are no arrangements for investments, U
\nwill have to rely on treaties for enabling EU investments with it. That said,
\nfor the investment sector there is the GATS, which protect only if they concern
\nservices with investment made up on site.<\/p>\n

1.3 Single Market: new setting<\/h3>\n

By being a member state of the EU, the UK is part
\nof the world largest internal market, consisting of 508 million people and with
\na total GDP of $18.46 trillion. This economic zone gives UK businesses ample
\nopportunity to export their goods and services, unrestricted as they are by
\ncustoms duties or tariffs.<\/p>\n

Exports of goods and services from the United Kingdom fell by a marginal
\n0.1 percent to \u00a349.8 billion in April 2017, almost unchanged from March\u2019s
\nrecord high, due to a decrease of 0.5 percent in exports of trade in goods
\nwhile exports of services rose by 0.6 percent.<\/p>\n

Is notable see that sales of goods to the EU fell by 3.8 percent, mainly
\nto Germany and Netherlands. By contrast, exports of goods to non-EU countries
\ngrew by 2.6 percent, boosted by higher sales to Switzerland, China and Hong
\nKong. The EU is the UK\u2019s main trading partner, though the share of UK trade
\naccounted for by the EU member states has fallen consistently since 1999. <\/p>\n

There is an important effect from the Brexit; the international
\ncompetition is increasing and UK\u00a0 is very
\ndemanding and open economy, so its firms will be intensive exposed with other
\ninternational companies for different fields of business. UK companies, mast to
\nremain challenging because those of EU are protected from structured rules that
\nhelp to maintain lower prices of goods, so more attractive for costumers. <\/p>\n

One of EU attractive points for countries is the product regulation. The
\nUK products are already ready for the EU market, also after the Brexit, if the
\nBritish companies will not change standard productions. It can be a domino
\neffects if the UK firms will choose to not follow EU standards, in order to
\nreduce the cost and be more efficient.<\/p>\n

UK, as a result, has to follow the EU standards and the rules regarding
\nthe production to be able to remain in the Single Market. This is an important
\npoint because, otherwise, there could be a negative approach for UK goods,
\nservices, all based on a technical rule. Especially for small and medium
\ncompanies which will be subject to higher costs to be available for EU single
\nmarket.<\/p>\n

1.4 UK and Developed Countries: the new trade<\/h3>\n

There is, recently, the idea that UK can earn trade
\nways and much more volume with economies under rapid development, and for that
\ngain some steps and cover some Brexit negative effects.<\/p>\n

In the short-term, there will be the rise for import costs, caused by a
\nreduction of the agreement validity; there will also be a decrease for trade
\nvolume and as the uncertainly situation, there will be a reduction for outgoing
\nand incoming investments.<\/p>\n

On the other hand, UK should have better chances reaching comprehensive
\nagreements with small, like-minded economies, but regarding the big emerging
\nones, such as China and India, it should not have as much margin. The UK will
\nbe dependent on trade with the EU and other large developed economies for the
\nfuture deals, but the economic growth of developed countries is expanding at a
\nmuch faster rate than the developed countries, there is, for UK, great
\npotential in lowering barriers to trade with large emerging economies and so
\npotential new positive effects.<\/p>\n

In below Table, the Top non-EU destinations for UK exports are listed,
\nas well as the Top origins for UK imports. Germany is the largest importer into
\nthe UK in February 2016 (\u00a34.75 billion) followed by China (\u00a32.94 billion) and
\nthe US (\u00a32.93 billion). In terms of exports, the UK exported the most goods to
\nthe US (\u00a33.47 billion), followed by Germany (\u00a32.70 billion) and France (\u00a31.48
\nbillion). In both plots, it is clear that there is a roughly equal split
\nbetween EU and non-EU countries. <\/p>\n

\"\"<\/figure>\n

It can be seen that the destinations with the highest growth in UK
\nexports are dominated by developing economies. This implies that there may be
\nsignificant profits to be made from negotiating FTAs with developing economies,
\nespecially if they also have large populations. One of the largest markets for
\nUK services is the US.<\/p>\n

Talking about US agreements, there is the US-EU TTIP. From this
\ncooperation there is a common accept of products from EU and US and vice versa.
\nSome barriers for trade will offset and it will be more easy to trade. For UK
\ncompanies will be an amazing opportunity to reduce the technical barriers and
\nfor this after Brexit, UK could miss this opportunity. It is early to say due
\nto the long times involved.<\/p>\n

That said, is important to argue that all the new potential economies
\npartners have different technologies, and there are different preferences among
\nnew potential customers. So, to quantify the trade volume is uncertain, but
\nthere has been already some changes among the situations i have explained
\nbefore. <\/p>\n

To conclude, it is impossible to understand the times and the potential
\ngain for this kind of trade. UK can, of course, start new deals with new
\neconomies but also try to maintain its position within the Single Market.<\/p>\n

1.5 UK and Capital Development<\/h3>\n

UK has received much more investment from EU rather than other EU
\nmembers. These investments are highly important for UK It receives those
\nbenefits thanks to be EU member.<\/p>\n

From this kind of movement of capital, EU\u00a0 remove restriction for EU members\u00a0 and the commission negotiates investment in FTAs and as stand-alone agreements, making it a possibility that the UK upon negotiation can get many of the same advantages of the Single Market regarding the movement of capital. Is important to say that non EU countries invest capital, so there is a correlation and could be an effect from the Brexit. The position of UK within the Single Market is very important for foreign investment<\/a>, its expands the power of UK in the Financial sector and for that, a lot of foreign companies have added their presence in the UK.<\/p>\n

UK at 35% has the highest number of headquarter-based investments in
\nEurope. Foreign investors, have an interest in placing their regional
\nheadquarters within the EU, this is because the subsidiaries on EU territory
\ncan demand to be subjected to the same regulations as the headquarter. It is
\nnot easy to estimate how much investment would be affected; while foreign
\ncapital is more mobile than domestic, is more likely to be relocated when
\nmarket conditions change. Regarding the services, they are much difficult to
\nmove than manufacturing capital, and they account for 60% of FDI in the UK. In
\nthe end, it is impossible to assess how much incoming FDI will change with
\nBrexit, but there is the impression that incoming FDI will fall.<\/p>\n

CHAPTER 2: LONDON AS FINANCIAL POWER<\/h2>\n

2.1 The centre of the progress<\/h3>\n

Accounting for 22.8% of financial services in the world, London is the
\nlargest financial centre in Europe. Thank to EU activities for liberalisation
\nthe financial markets, to be a member of EU is an advantage for the UK
\nfinancial industry. As be a part of the Single Market, UK allow London the
\ncapacity to accept European banks to create their wholesale activities in the
\ncity and it helps London to lead connections with also non financial
\ninstitutions, which want to enter in the single market. London specialized its
\nfinancial industry in the financial services and became the first city among
\nother European ones. <\/p>\n

After the collapse of the Bretton Woods System in 1971, the UK removed
\ncontrols on foreign capital in unison with the US, Germany, and Canada,
\nresulting in increased financial activity, but also smaller financial
\ncollapses.<\/p>\n

Thanks to the Single Market roles, the controls on flows of cross-border
\ncapital were dismantled at EU level, it happened in 1988. <\/p>\n

The main reason was to give the access all the members of EU in the
\nmarket and for that increase the competition. UK\u2019s retail banking market became
\nmore concentrated, as mergers and acquisitions lead to the dominance of few
\nlarge banks over mortgage and business lenders in the decade leading up to the
\nglobal financial crisis. When UK took the decision to do not accept the Euro
\ncircuit, some expected that London could lose ways and competitively, but it didn\u2019t
\nhappen and London became the largest euro centre for its trading.<\/p>\n

With the introduction of the euro, the EU set up TARGET, a real-time
\ngross settlement system, which allowed funds to move smoothly across the EU(Sophie
\nVasbo, 2015).<\/p>\n

The UK managed to gain access to TARGET, which established the principle
\nthat institutions based in the Single Market should have equal right to conduct
\ntransactions in the common currency and the international financial markets
\nbecame more integrated. <\/p>\n

Thanks to the UK activities, the liberalisation of European capital
\nmarkets was gained, but the global financial crisis has generated a pressure to
\nregulate financial markets. The UK banks have been obligated to raise capital
\nand hold more liquidity, draw up recovery and resolution plans.<\/p>\n

2.2 The allure of the City <\/h3>\n

London, is now a big hub, where investment, business firms, and the most
\nskilled people in the world are attracted. Important elements that have allowed
\nLondon to became so important, are the best performing environment, the
\ncapacity and predictability of the legal system, the English language as world
\nconcept,\u00a0 the structure of the financial
\nindustry that can engage every day with a huge numbers of activities. Each
\nskill is the soul of London and also after Brexit it will not change. But what
\nabout all these as a whole?<\/p>\n

With the introduction of the euro, there was the fear of losing business
\nand attractiveness for London, and with the growth of Frankfurt from the second
\nto the first financial centre, due to the fact that the ECB, and hence the
\nfuture monetary policy for 11 member countries, were to be located in the
\nGerman city. But, as told before, London gained in trade with the Euro, more
\nthan other financial centre in the EU group. The reason is that there was an
\nintense competition for highly qualified labour between the two cities. The
\nhighly skilled and ambitious people preferred to live in London, as it is
\nperceived as a more cosmopolitan city where more career possibility can be
\ntaken.<\/p>\n

Another point in favour for London is the big network gained for firms
\nand employees. Behind all this there is an history, especially the comparison
\nto US market. To conclude cross-border governance was found to be a key issue.
\nInstitutional conflicts are very damaging in the financial services sector and
\nrepresentatives of the transnational businesses emphasised the hope that the UK
\nwould continue to have access to the Single Market and to implement EU
\ndirectives going forward. <\/p>\n

There are a variety of factors that define the City of London\u2019s
\ncompetitiveness, the most important of which has nothing to do with EU
\nagreement. For this reason, i think it will hard to remove the business flow
\nand investments in London and companies within the financial sector have more
\nreasons to keep both their offices and central decision-making in London.<\/p>\n

2.3 The Strength of UK influence<\/h3>\n

The new financial legislation, has not scratched the UK importance and
\npower and losing sovranity. As the UK has had an opt-out clause in the TEU, it
\nhas not been affected by decisions and regulations adopted by the ECB or the
\nEuropean System of Central Banks, because the ECB has the mandate to supervise
\nbanks and other financial actors. On the other hand, the UK\u2019s voting rights in
\nthe European Council are suspended for issues solely regarding the Eurozone.<\/p>\n

As proposals in co-decision are adopted by QMV, new financial
\nlegislation has to be approved by a majority of member states.<\/p>\n

The worry is that future financial legislation will be favouring Eurozone
\ninterests rather than EU-wide interests. The ECB proposed that euro-denominated
\nbusiness should be cleared within the Eurozone; thus, any \u201ccentral
\ncounterparty\u201d that handled more than 5% of euro-denominated product should be
\nbased within the Eurozone, and clearing of euro-denominated trade would be
\nlimited to a maximum of \u00a34.2m outside the Eurozone. London could be damage from
\nthat. Not only, London is home to 75% of the EU\u2019s foreign exchange trading, and
\nfinancial centres within the Eurozone could look forward to considerable
\nincreases in their foreign exchange trading. <\/p>\n

While, the ECB proposed the initiative in order to increase oversight
\nand secure prudential regulation over clearing-houses, Eurozone countries will
\nbenefit form that. So, the UK Treasury took the ECB to the CJEU and argued how
\nthe proposal contravened with the free movement of services and capital, and in
\nMarch 2015, the CJEU pronounced in favour of the UK, and ECB was to annul the
\npolicy. Furthermore, under the provision of the banking union, the ECB has been
\ngiven the ultimate supervisory responsibility for all EU banks so the ECB will
\nfavour those banks at the cost of UK bank with setting the liquidity and
\ncapital requirements for the biggest banks in the Eurozone.<\/p>\n

The UK still has considerable power over financial legislation and as
\nlong as membership is retained.<\/p>\n

2.4 Brexit Effect for London<\/h3>\n

There will be a lot of consequences for London due to the withdrew of EU
\nmembership, some are very important. There can be a reduction of the market for
\nfirms, its reduction and also there can be higher issues with tariff barriers.
\nAnother important point is that third countries have regulation and supervision
\nof their financial sectors equivalent to that of the EU, and for this UK firms
\nhave to open a branch in the country part of the single market to sell their
\nproducts and services in EU area. This branch has to be regulated by the
\nauthorities of country where it has the base. Furthermore, UK supervision and
\nregulation would be subject to continuous assessments.<\/p>\n

Moreover, to standardise market-access for non-member countries, Eu are
\ntrying to establish an EU-wide regime for financial services. The EU could
\nrecognise foreign regulatory to be equivalent to the corresponding EU
\nframework. The Commission would make the decision, based on an assessment on if
\nthe third country framework demonstrates equivalence to EU frameworks on having
\neffective supervision by authorities, legally binding requirements, and an
\noutcome-based analysis of the regulation. Once the UK\u2019s framework is accepted,
\nUK-based firms should face less barriers to trade, just as their services and
\nproducts would automatically be considered acceptable for regulatory purposes
\nin the EU. <\/p>\n

The UK would recognise EU rules as equivalent to its own, and banks from
\nthe EU can continue to have branches in the UK with domestic regulation; so,
\nthe transition may not be too damaging for businesses in the UK financial
\nsector.<\/p>\n

For Foreign Financial Institutions, the rules will be more demanding.
\nThese institutions can no longer maintain access to the Single Market by
\ngetting far from a subsidiary in London, but will need to have a subsidiary
\nwithin the Single Market. The Foreign Financial Institutions will maintain also
\ntheir European headquarters in UK just for the path dependency and the costs
\nwill be paid by foreign companies. Also if the UK can avoid implementing EU
\ndirectives by having its regulatory framework recognised, the UK will be highly
\naffected by EU decisions. As the CJEU ruling can be appealed, and Eurozone
\nauthorities have made it clear that they prefer wholesale activities to be
\nconducted within their oversight. As a non-EU member, the UK would have to rely
\non EU members outside of the Eurozone to protect the Single Market, but no
\nother member state outside the Eurozone have an evident reason to protect their
\nfinancial sectors, because no one is important to the national economy as
\nLondon is to the UK.<\/p>\n

The best scenario is that UK will have the full access to the EU
\nfinancial market and face less problem with the trade if it will join the EEA
\nafter all the Brexit process because it could lead to less problem for the Uk
\nfirms (Sophie Vasbo, 2015). But on the other hand, UK will have to accept all
\nthe rules for fiancial servicies of the EU, with no influence in the decision making.
\nAs Lonodon is to important centre for the UK financial activity and also, it
\ncan be argued that London will mantain this importante role. EU legislation
\nwill come to affect the UK, regardless of its future arrangement with the EU.<\/p>\n

The actual economic consequences are more difficult to determine. Even
\nthough the Single Market is central to much of the City\u2019s business, it is
\nevident that as long as UK regulation and supervision are counted as equivalent
\nto that of the EU, London business should not incur major losses. The greatest
\nimpact would be if London were cut-off from certain markets, as for instance
\neuro-denominated trade; the future for the City of London is much more
\nuncertain outside EU membership, than inside.<\/p>\n

CHAPTER 3: FUTURE CONNECTION BETWEEN UK AND EU<\/h2>\n

3.1 Structure for Exit and Future Evolution<\/h3>\n

As UK has
\nan important ramification and network with all the EU members, it means that,
\nUK economy, withdrawing EU with Brexit will depend to the best relation built
\nwith EU. When a member states informs the Council of its decision to leave the
\nEU, the negotiations process begins. The treaties will continue to apply to the
\nexiting state until the withdrawal agreement is signed or until two years after
\nthe notification if the negotiations fail. During these two years, the UK can not
\nparticipate in discussions or decision-making in the Council or the Commission
\nin matters concerning its exit (The Lisbon Treaty, 2013).<\/p>\n

The trade
\nnegotiations are conducted by the Commission. It works in conjunction with a
\ncommittee that will monitor the negotiations and ensure that it is in
\naccordance with the mandate given by the Council, which is the primary force in
\nthe exit negotiations.<\/p>\n

Moving
\nafter the Brexit is important and challenging for UK to build the future
\nparticipation to the Single Market and what EU will demand to UK and what UK
\nwill willing to concede. The UK government has made it very clear that going
\nforward they wish less integration and to increase national sovereignty. The UK
\ncould distance itself from the EU and focus on trade with the rest of the
\nworld. The EU is falling behind in the global race, and as I have argued, there
\nis much to be won by reducing barriers to trade with countries that show
\nincreasing interest in UK goods and services.<\/p>\n

3.2 EU: How the Economy will Change<\/h3>\n

In 2014
\nUK gived a direct contribution of 10.97% to the EU budget, so its absence will
\nbe felt. The remaining 27 member states would have to raise their contributions
\nor accept a reduction in the EU\u2019s total spending. That sais, depending on the
\nfuture arrangement the UK may have to contribute to the EU budget, for instance
\nif it joined EEA. Economically, membership of the EEA seems to be the better
\nsolution for all parties. The UK will have full access to the Single Market and
\nwould avoid current and future tariff and non-tariff barriers to trade. As a UK
\nForeign Affairs Committee expressed it, EEA membership effectively involves
\nintegration without representation. While the UK would have Single Market
\nrights, it would have to depend on the other member states to ensure these
\nrights; negotiating a basket of bilateral agreements would be a much more
\navailable solution for the UK. <\/p>\n

The UK
\nwould only have to follow regulation in the sectors covered by the agreements.
\nWith this model, Switzerland has gotten the closest trade relationship with the
\nEU next to the EEA countries. It is, however, not as extensive as an EEA
\nagreement, because Switzerland only has sectorial agreements for trade in
\nservices with the EU and the UK should expect to see limited access for vital
\nareas of business.<\/p>\n

Another important point is that
\nthe UK could negotiate a FTA with the EU. The UK would have the freedom to
\npursue its own external trade deals, while enjoying tariff free trade in the
\nSingle Market. Indeed, this agreement would be structured as trade-off between
\ndepth and sovereignty; this will not be in the best interest of EU member
\nstates.<\/p>\n

The complexity of the framework
\nfor EU negotiation, allowing individual member states more power. The UK is not
\nfacing one single member, but many different parties with different political
\nactivities and, for that, increases the chances of a early close of the
\nnegotiations but in negative. For instance, while the EU has an interest in
\nallowing financial services across the borders, the Eurozone countries have
\ntheir own agenda, increasing the oversight of financial services and
\nmaintaining euro-denominated trade within the Eurozone; for this the UK is
\nfacing the same political obstacles outside the EU as it did as a member.<\/p>\n

3.3 The Results<\/h3>\n

I have
\nwrote in all the research that the best scenario for the UK economy after
\nBrexit, would be participation as an EEA member. It will impose the least
\nchanges to a very beneficial economic arrangement especially for UK and with a
\ngood results also for all EU members. With regards to the relationship with the
\nEU, the UK\u2019s political and economic interests do not line up, what is most
\nbeneficial for the UK political activates, is the most damaging economically.
\nThere is little doubt that the UK will be better off than if WTO obligations
\nset out the framework. With an FTA the UK will gain further access and lower
\nbarriers to trade.<\/p>\n

However,
\nit is uncertain whether the City of London maintains access to the Single
\nMarket, and whether the UK will have to allow an unlimited inflow of EU
\nmigrants. The first uncertainty could be very high in cost for the financial
\nsector, although, the City of London has strongly advantage that ensures that
\nit will maintain most of its market and power. The second uncertainty could be
\nseen in positive and negative point of view. If the EU succeeds negotiating the
\nfree movement of labour, the UK economy would be better off. If it is clear
\nthat the UK government is not willing to allow the considerable loss of
\nsovereignty an EEA agreement would incur, it is questionable if they will allow
\nfor free movement of labour. <\/p>\n

All in
\nall, only three things are certain:<\/p>\n