After much anticipation, British Prime Minister David Cameron finally announced the date for a nation-wide referendum for the UK's exit from the EU, known as "Brexit". The vote will be held on June 23, 2016. Marred by Europe's on-going sovereign debt crisis and migrant crisis, euroskepticism has engulfed British politics—a recent poll shows that 52% of the British public supports Brexit.
If Brexit succeeds, Britain would be left with two choices. First, it could follow the likes of Norway, Iceland and Liechtenstein by opting out of the EU but remaining part of the European Economic Area (EEA), the European single market. Second, it could follow Switzerland and exit from both the EU and the EEA. One thing is clear: with 55% of British exports going to the EU (accounting for 15% of its GDP), leaving the EEA could very well prove to be an economic disaster for Britain.
Remaining part of the EEA would allow Britain to retain the economic benefits of the free mobility of goods, services, capital and people while avoiding some of the regulations and extra financial costs associated with EU membership, including contributions to the Common Agricultural Policy. EEA membership, however, would deny the UK the ability to appease the demands of its nationalistic faction to reinstate immigration control of EU citizens. The most consequential effect, however, would be the resultant democratic deficit. The EEA binds its members to adopt the laws and regulations of the single market. However, without EU membership, the UK would not have representation in the EU Parliament to negotiate and influence any of the EEA laws it is legally-bound to adopt. Furthermore, the financial benefits of non-EU membership are at best trivial—Norway is the tenth highest contributor to the EU budget, despite its non-membership.
An alternative path is to emulate Switzerland by exiting from both the EU and EEA and instead engaging in a series of bilateral free trade agreements with the EU. This would allow the UK to negotiate and selectively implement individual trade agreements with the EU on an ad-hoc basis to the benefit of its national interests. In addition, it would allow Britain to regain full control of its immigration policy.
Abandoning the EEA, however, could indeed prove to be detrimental to the UK's economy. While the UK may be able to successfully negotiate for reduced tariffs for some of its industries, other industries would face heightened rates of tariff and non-tariff barriers. Many corporations see the UK a major economic hub that provides direct access to the EU's single market. The disparities in regulations that would arise between Britain and the EEA might incur a large disincentive for foreign investment into the UK. Predictions show that the UK could lose as much as 9.5% of its GDP as a result of heightened economic barriers—losses equivalent to those faced during the 2008 global financial crisis.
David Cameron has held a nationalist, but pragmatic approach in regards to Britain's EU membership. While he unequivocally opposes Britain's further integration with the EU, asserting that "an ever closer union is not a commitment that should apply any longer to Britain. We do not believe in it. We do not subscribe to it", the Prime Minister believes that Britain holds a brighter future in an aggressively reformed EU rather than an outright divorce from the Union, labelling the latter “a leap in the dark.”
From its inception, Britain has always had an uneasy relationship with the EU. This is historically evident from Britain's initial refusal to sign the Treaty of Rome in 1957, and to its refusal to participate in the Eurozone and the Schengen Agreement. Britain's separation from the rest of the EU landmass and its nostalgia for its former empire has fostered an "insular mentality" and an attitude of distinction from the rest of the Europe.
Britain has every right to embrace its unique identity and political autonomy. Yet, the question that remains is how far will Britain be willing to isolate itself economically from the world's largest and most integrated trading bloc which it depends so much on?
This fundamental decision will be made on June 23.
In the words of David Cameron himself, "If we vote to leave, then we will leave. There will not be another renegotiation and another referendum...this choice cannot be undone."