What is Brexit?
Brexit is an abbreviated way of referring to Britain's exit from the European Union (EU), a process that began June 23, 2016, as the result of a nationwide referendum.
Brexit, short for “British exit,” refers to the United Kingdom’s decision to leave the European Union (EU) in a referendum held June 23, 2016. The referendum triggered a years-long political crisis in the U.K. and roiled financial markets for years. The UK has been building toward Brexit for a long time. A bit like a marriage heading for divorce, the United Kingdom’s membership in the EU has been on the rocks for years. Disagreements over immigration, economic policy, and who makes what political decisions — Britain's Parliament or the EU Parliament — built up to irreconcilable differences. In 2016, a referendum on staying or leaving the EU had a massive turnout, and over 51% voted to split with the EU. Years of negotiations on how the split will be handled have delayed the actual Brexit. A plan agreed to by Parliament in late 2019 may set the final Brexit date in early 2020 — although this could be extended.
Nothing quite like Brexit has ever happened before — But imagine if a U.S. state, like California, wanted to secede. Innumerable issues would need to be hammered out. How would an independent California trade with the United States? How would people from an independent California travel or work in the United States? What if a major county in California wanted to remain part of the United States? These types of issues, and even more complicated ones, are still being hammered out in Brexit — And likely will continue to be for years.
Brexit is a like a divorce…
Getting married and combining finances and lives is usually fairly easy, but separating and divorcing can be quite difficult and often leads to arguments. The process of Britain and the EU untangling their political and economic affairs is much more complicated than the process of combining them was. As in a divorce, disagreements over who pays for what and how the parties will interact with each other in the future may drag on for years — even decades.
The European Union (EU) began as an economic union of several European countries and eventually became a political union as well. The European Economic Community (EEC) formed in 1958 with six countries (Belgium, Germany, France, Italy, Luxembourg, and the Netherlands) to promote and simplify trade. By 1993, the EEC had grown to include 22 other countries, and the name was changed to the European Union (EU). The focus on trade and a single market has shifted to include political areas like borders, immigration, diplomacy, and even health care. Member countries agree to abide by the decisions of the European Parliament, European Council, and Council of the EU in many areas, much like U.S. states defer to the U.S. Federal government.
There are many reasons that citizens of the UK wanted to leave the EU. Every person asked would probably give different answers. However, overarching concerns about the economy, lost jobs from immigration, and border security are some of the most significant issues that led to Britain wanting to leave the EU.
No one likes to pay the debts of others, and the Eurozone found itself with a big problem when some members accumulated massive debt in 2009. Greece alone had a debt of 300 Billion Euros. By 2011, the EU had created a bailout fund for countries in trouble, the European Stability Mechanism, and countries almost immediately started asking for help. Greece and Italy were the two largest trouble points for many EU members, as those countries either failed to meet austerity measures demanded by the EU and International Monetary Fund (IMF), or had other accounting issues.
Fear of job loss and pay decreases from an influx of immigration also fed support for Brexit. From 1995 to 2005, EU to UK immigration tripled to 3.3 million. Nearly 30% of immigrants were Polish in 2015. The massive wave of immigrants, especially with a large percentage from one country, made immigration more noticeable and stoked fears of job loss, lowered pay, and an increased toll on welfare programs. That led to British citizens wanting more control of their immigration policies instead of following EU rules.
Hand-in-hand with immigration were fears of security lapses. Repeated terror attacks in London heightened concerns of unchecked migration for many in the UK and furthered the calls for more border security and less immigration.
With a close vote in 2016 (roughly 52% to 48%) and a high turnout of around 72%, ideas about Brexit are sharply divided and contested. Northern Ireland chose to remain instead of leaving the EU as well, so Irish citizens have even more concerns than the rest of the UK. Like most hotly contested items, the British Parliament has reflected the division in the country, and the Labour Party and Conservative Party have fought over just about every single part of a Brexit deal.
Beyond political posturing, there are real differences in opinion about how to handle trade borders (especially the border between Northern Ireland and the Republic of Ireland) and other parts of exiting the EU. In fact, calls for a backstop (protection to ensure the internal Irish borders operate freely) are a major sticking point. Fear of what could happen without a deal in place has led to arguments in Parliament. That has, in turn, led to delays in a planned Brexit date, while deals are argued over and rejected. After the close original referendum, calls for a second referendum by those wishing to stay in the EU have also muddied the waters.
As of late 2019, Brexit is scheduled for January 31, 2020. However, the final deal must be agreed on by the Parliament — So that the date could be delayed again if the parties can not agree.
Delays have happened before. Prime Minister Theresa May originally intended the Brexit process to completed on 29 March 2019, but deal rejections pushed the date back multiple times, and Theresa May resigned.
New Prime Minister Boris Johnson negotiated a deal, and the EU agreed to an exit extension to January 31, 2020. Parliament has approved Johnson’s deal.
A bit like a divorce, breaking up with the EU is far more complicated than joining the EU was for the UK. Brexit can happen in several ways. The main two are hard and soft exits. These options determine whether Britain will keep its place in the European single market or not.
If Brexit happens without a Brexit deal to remain part of the EU market, a “no-deal Brexit,” tariffs and quotas from other parts of the EU return, and border crossings are more regulated. That's the hard exit.
A soft exit would keep more ties to the EU market so that trade (and migration to some degree) could continue without as many regulations. Think of a hard exit as Britain moving out of the EU into a separate house. A soft exit would be more like moving into the apartment over the garage — They've moved out, but it's easier to visit and do laundry.
Deciding on a hard or soft exit has involved many disagreements and failed plans. Not only does Britain's Parliament have to agree on an exit plan, but the EU also has to agree to that plan.
Britain’s exit on January 31, 2020, will set in motion an 11 month transition period — during which the details of a hard or soft Brexit are supposed to be worked out.
After so many years as part of the EU, there is very little that won't be affected in the UK by Brexit. Some of the biggest things to be affected by Brexit are:
How trade will work is a huge part of why Brexit matters. In the EU, trade works much like trade between states in the US. There aren't any borders to stop at for inspections, no customs, and not a lot of paperwork involved. If Brexit happens without a trade deal in place, trade between the UK and EU countries goes back to looking like trade between separate nations. That means customs, border inspections, quotas, tariffs, and other restrictions could (at least temporarily) severely limit and delay trade into and out of the UK with EU member states.
Services sold in the EU by UK businesses will also be affected by trade deals or lack of trade deals. As part of the fallout from trade changes, some companies are moving assets from the UK to Northern Ireland (which is staying in the EU) or other parts of the EU to avoid potential upsets to how they do business. Some are staying in the UK and cutting workforce numbers, while others may leave altogether.
Workers will also face challenges in many cases. Citizens of other EU countries living in the UK, or UK citizens living in other parts of the EU, will have to operate under a new set of rules that are likely to be far stricter than the current EU rules. For UK citizens living abroad, laws will vary by country, but they may be required to apply for citizenship in the host country or simply update their passport.
EU citizens living in the UK at the time Brexit happens will be required to go through the EU Settlement Scheme. Formal requests for residency and other steps have to be taken, although children of EU members who are British citizens will not lose their citizenship.
Those wishing to immigrate without already living in the UK will likely face new restrictions and possible quotas and the risk of being denied entry. Those traveling back and forth for work or pleasure will face new passport restrictions, new health insurance, and travel insurance requirements, and must obtain a driving license in either the UK or EU. Border crossings will be regulated with potential customs stops as well. Also, each EU country can have different entry requirements that UK travelers will have to negotiate.
The increased border security and control, one of the factors that led to the Brexit vote, are part of increasing safety for the UK in a post-9/11 world. By leaving the EU, the UK will be entirely in charge of decisions about who gets to cross its borders, as well as when and how those crossings are made.
For the US, Brexit matters because the UK is one of the US's major allies. As an ally and a trading partner, what affects the UK can affect the U.S. Instability of the stock markets and business in the UK is a big deal for the U.S. Concerns about companies that deal with the UK, EU, and the U.S. (whether based in the U.S. or overseas) could cause reactions in the stock market.
Companies also will have to deal with a new set of regulations for the UK once Brexit takes place, adding more cost and time to business transactions. The relocations of some companies within the UK could also affect costs to U.S. companies and consumers if production in the UK halts or slows. Trade deals with the EU will likely no longer apply to trade with the UK, so new deals must be negotiated directly. These negotiations bring further uncertainty to the market until the terms are worked out.
Travel concerns the U.S. as well. Visitors from the U.S. to the UK and vice versa will no longer be covered by EU rules. Visitors from the U.S. will now need an additional border crossing and set of rules to follow if visiting the EU and UK. Visitors to the U.S. from the UK will no longer be covered under the same terms as EU visitors. New agreements will not only have to be created but enforced, adding another layer of bureaucracy and cost to the government.
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