Britex and Export Trade

The European Union (EU) is a political partnership that represents a cooperative economic relationship between 28 member countries. The member countries are composed of Central and Eastern Europe. The member countries work together to set policies and to promote their collective interests. While the scope of EU decision making varies depending on the subject being reviewed, for matters of economic and most social concern, the members have agreed to a collective process. As part of the accord, the member countries share a single market that allows people, products, and capital to move freely between the members. With the exception of nine member countries including Britain, the EU shares a common currency called the Euro.  Lithuania became the most recent country to join the Eurozone on January 1, 2015 (Archick, 2016).

Formation of the European Union

The “Single European Act” of 1986 was the first modification of the acting treaties for the European countries. It impacted the Treaty of Paris signed in 1951 and the Treaties of Rome, signed in 1957. The 1986 Act provided several important steps for the unification of Europe. First, it approved or legitimized the “European Council” which acted as a committee where heads of state or their designee could meet for formal negotiations. The primary goal of the accord was to establish a common market which included a shared monetary policy. In addition to pursuing a “common market” the act also addressed integration of social rights. The signing of the 1986 Act was the first step toward a 1992 target for full integration  (Historiasiglo20.org, 2003).

According to Hill (2014, pg 264-265), the “Single European Act” was “born of frustration among members, that the European Council was not living up to its promise to improve economic activity between the member countries.” By the early 1980’s the European Council had failed to adequately remove barriers that prevented free trade and investment. Additionally, technical and legal standards needed for economic growth remained unfinished. As a result, prominent business leaders mounted a campaign to end the European Council’s economic division. This resulted in the establishment of the Delors Commission.

The Delors Commission is generally seen as the most successful at advancing European integration. The commission proposed that all impediments to the formation of a single market be eliminated by December 31, 1992. The result was the single European Act which was signed in 1986 and became law in 1987. The Delors Commission was named after the key figure, Jacques Delors. He started his career at the Banque de France in 1945 before being appointed General Secretary for Permanent Training and Social Promotion (1969-1973). He was a member of Prime Minister Jacques Chaban-Delmas’s cabinet (1969-1972). He was elected as a Member of the European Parliament in 1979. Delors was also President of the Economic Monetary Affairs Committee of the European Parliament from 1979 to 1981. Prior to this, he had served as the Minister of Finance and Economy in France. In October 1996, Jacques Delors founded the think tank Notre Europe, today known as the Jacques Delors Institut (Jacques Delors Institute, 2016).

The “Single European Act” was not without its detractors. Most notably, Margaret Thatcher, was outspoken about her agenda to shrink the government’s involvement in both economic and social welfare. Thatcher saw the  “Single European Act” as a step in the wrong direction. In September 20, 1988, Thatcher shared her views at the College of Europe in Bruges Belgium.

“My first guiding principle is this: willing and active cooperation between independent sovereign states is the best way to build a successful European Community. To try to suppress nationhood and concentrate power at the centre of a European conglomerate would be highly damaging and would jeopardise the objectives we seek to achieve. Europe will be stronger precisely because it has France as France, Spain as Spain, Britain as Britain, each with its own customs, traditions and identity. It would be folly to try to fit them into some sort of identikit European personality…” – (Thatcher 1988)

Jacques Delors rebuttal to Thatcher took place the following year at the College of Europe in Brussels.  Delors famously stated “History is accelerating and we should make it with her…” (Historiasiglo20.org, 2003). Delors had the advantage of a seismic change in world politics.  On November 9, 1989 the Berlin Wall fell. The Berlin Wall was constructed to stop the flow of immigrants between East and West Berlin and came to symbolize the political division between a free market and communism. The Berlin Wall was created under the authority of Premier Khrushchev and did successfully stop the flow of immigrants but it also isolated the West Berlin residents leading up to the Berlin Wall Blockade and the subsequent Berlin Airlift (History.com, 2016).

On June 12, 1987, in his speech at Brandenburg Gate West Berlin, Germany, President Ronald Reagan famously stated “Mr. Mikhail Gorbachev, open this gate! Mr. Gorbachev, tear down this wall!” (Air University, 2016). The symbolic and literal destruction of the Berlin Wall was the precursor to the eventual collapse of the Soviet Union which occurred in 1991.

The first European ramification of the collapse of the soviet block was the reunification of Germany, now the German Federal Republic. With approximately 80 million citizens the reunited Germany now represented a significant portion of economic muscle. Now larger than either Britain or France the newly minted country was a potential risk for some. Francois Mitterand, the President of France, used the reunified Germany as a means to encourage the European integration process. His logic was based on the assumption that  a Germany securely attached to the European Union (EU) would be less of a potential future risk. Helmut Kohl, the Chancellor for Germany, also pushed for European Integration as a means to both display its new political muscle and to quiet any potential fears or hostility toward the country.   This shared goal, between France and Germany, for integration of the EU was known as the “French-German Axis”. In a common message the two leaders drafted a single letter…

“In the light of far-reaching changes in Europe and in view of the completion of the single market and the realisation of economic and monetary union, we consider necessary to accelerate the political construction of the Europe of the Twelve. We think that this is the right moment to transform the whole of the relationships among the member States into an European Union and to endow it of the necessary means of action.” (Archick, 2016)

After several years of continued debate and discussion, the Treaty of Maastricht was signed and came into force February 7, 1992.  The actual debated and negotiations surrounding the European Councils work was criticised for low levels of transparency and the fact that it was restricted to high level political officials (Historiasiglo20.org, 2003).

What Is the Euro and the Eurozone Crisis?

Nineteen of the EU’s member countries share a common single currency. Together they are often referred to as “the Eurozone.” The introduction of the euro began in January 1999. In addition to a shared currency, Eurozone countries also share a common central bank, the  European Central Bank (ECB). While the member countries share  common monetary policy they do not share fiscal policies. Each member country exercises their independence in establishing spending and taxation policy (Archick, 2016).

The “Eurozone Crisis” began as a “debt crisis” in Greece during 2009-2010. In 2009 investors became nervous about the amount of debt that the Greek government held. The prevailing wisdom at the time, thought the debt was too high. As a result the markets demanded higher interest rates for Greek bonds, which in turn drove up the cost to borrow, which further aggravated the Greek debt crisis.  In 2012 the Eurozone crisis began to reduce in intensity. This diminished intensity was largely the result of the recovering markets. Named “Grexit”, in 2015, the anti-austerity party used the potential Greek exit from the EU as a negotiating tactic, requesting debt relief and relaxing the austerity measures put into place (Archick, 2016).

The Schengen Area

The Schengen Area refers to 22 EU members including Britain. Within the Schengen Area internal border controls have been eliminated, allowing individuals to travel without passport. The Schengen area is based on the Schengen Agreement of 1985. Named after the town it was signed in. In 1999, the Schengen Accord was adopted into EU law. In addition to eliminating internal borders, participants countries agreed to improve coordination between their criminal justice authorities. As part of that strategy they created the Schengen Information System (SIS) a “large-scale information database that enables police, border guards, and other law enforcement and judicial authorities to enter and consult alerts on certain categories of persons and objects.”  Both Ireland and the UK opted out of the Schengen free movement area but still take part in some forms of the agreement related to criminal justice collaboration, including access to the SIS (Archick, 2016).
Britex

The conflicting opinions of member countries demonstrates a growing divide between those members that want a closer affiliation through greater integration and those members that prefer to keep the EU as an intergovernmental process so that they may better protect their national sovereignty. Despite this conflict many members still report that the EU strengthens both their political and economic clout.  Regardless, tensions continue within the EU. This is evident by the June 23, 2016 referendum held in the United Kingdom. During the referendum, 52.5% of the vote supported the UK in exiting the UE (Wheeler, 2016).

Britex is the shorthand term most commonly used to reference Britain leaving the EU. Now that the referendum has been passed the next steps are uncertain. According to Wheeler of the BBC (2016), Britain  has to invoke Article 50 of the Lisbon Treaty. The Prime Minister, our his successor will need to decide when to make that decree. Article 50 has only been active since 2009 and no country has yet used it, so no one really knows how the Britex process will work. What is know is that Britain will continue to remain a member of the EU until it no longer is and that might take some time.

Unintended Consequences

In large part the EU was created to establish a single European market and this accomplishment  is seen by many as its greatest asset. The concept of the single market was to increase trade, create jobs and lower prices. Peter Mandelson famously said “the markets don’t like instability and they don’t like uncertainty”. The whole concept of Britain exiting the UE creates all kinds of uncertainty.  According to Buttonwood (2016), a columnist for the economist.com, as soon as the results of the referendum began to come in, the markets responded.  The pound dropped to its lowest level since 1985. “It was the worst day for sterling since the currency floated in the early 1970s.” The impact was also felt in equity markets around the world. The Nikkei 225 average in Tokyo dropped by an initial 8%. The Financial Times Stock Exchange (FTSE) 100 dropped 500 points within minutes of the opening; Frankfurt’s DAX index fell 8.6%. S&P futures indicate a 5% drop, and the US Treasury 10-year bond yield fell a quarter of a point in overnight trading. Uncertainty has real economic impact and both businesses and investors will remain conservative by postpone investment plans until they have a clear picture of what this will mean.

Another unknown is what impact Britex will have on pensions, savings, and mortgages. During the referendum, the Prime Minister referenced the “triple lock for state pensions” would be jeopardized. This references an agreement that increases pensions by a minimum of the level of earnings, inflation or by 2.5% depending on which is highest (Wheeler, 2016). Some have speculated that the Bank of England might need to increase further plans for quantitative easing, as an alternative to cutting interest rates. This would result in lower bond yields and annuity rates. This would have a negative impact on anyone taking out a pension annuity resulting in less income.  Concerning mortgage cost, the prime minister stated that the average cost of a mortgage could increase by up to £1,000 a year (Wheeler, 2016).

Summary

It took years for the EU to evolve and become a single market. The concept of the single EU market was to increase trade, create jobs and lower prices. Britain’s exit from the EU creates all kinds of uncertainty. Uncertainty about how the exit will impact jobs, pensions, and other financial tools. This uncertainty leads to financial instability. “Markets don’t like instability and they don’t like uncertainty”. We are already seeing the financial impact of that uncertainty, not just in Europe but around the world.   Another assumption is that because it took years for the EU to evolve, it may very well take years for Britain to fully withdraw from the EU. This prolonged process  will further dampen the British economy, as uncertainty and instability remain a common issue.  When the impact of this decision finally hits home, meaning when the average citizen begins to feel its impact, we may very well see another referendum.

 

About the Author

Jerry Landers is the Executive Director for Aspire Indian Health and Vice President of Business Development for Aspire Indiana. You can learn more about the mission of Aspire at http://www.AspireIndiana.org or by following me on Twitter @JerryELanders

I blog and tweet about health care, business and social media.

References

Air University (2016). President Ronald Reagan – Berlin. “Tear Down This Wall” Retrieved from http://www.au.af.mil/au/awc/awcgate/awc-ref.htm#speeches

Archick, K (2016).  The European Union: Questions and Answers. Congressional Research Service 7-5700 RS 21372 Retrieved from https://www.fas.org/sgp/crs/row/RS21372.pdf

Buttonwood (2016). Brexit and the markets: a seismic shock. Retrieved from http://www.economist.com/blogs/buttonwood/2016/06/morning-after

Hill, C. W. L. (2014). International business: Competing in the global marketplace (10th ed.). New York, NY: McGraw-Hill Education.

Historiasiglo20.org (2003) The Single European Act and the road toward the Treaty of the European Union (1986-1992). Retrieved from http://www.historiasiglo20.org/europe/acta.htm

History.com (2016). Berlin Wall. Retrieved from http://www.history.com/topics/cold-war/berlin-wall

Giaque, Jeffrey Glen. 2002. Grand Designs & Visions of Unity: The Atlantic Powers and the
Reorganization of Western Europe, 1955-1963. Chapel Hill, N.C.: University of North
Carolina Press

Jacques Delors Institute (2016). Jacques Delors – Founding President of the Jacques Delors Institute. Retrieved from http://www.delorsinstitute.eu/011016-2033-Jacques-Delors.html

Kiplinger Letter (2016).  Forecast for Executives and Investors. Washington DC Vol. 93, No. 25

Lind, J. (2003).  “Apologies and Threat Reduction in Postwar Europe.” Paper prepared for delivery at the Memory of Violence Workshop, Massachusetts Institute of Technology, January 24-25, 2003 Retrieved from http://web.mit.edu/rpeters/papers/lind_apologies.pdf

Thatcher, M (1988).  Speech to the College of Europe (“The Bruges Speech”). Retrieved from http://www.margaretthatcher.org/document/107332

Wheeler, B (2016).  The UK’s EU referendum: All you need to know. Retrieved from http://www.bbc.com/news/uk-politics-32810887

Van Ham, Peter. 1999. Europe’s Precarious Centre: Franco-German Cooperation and
the CFSP European Security. European Security 8:1-26

Van Ham, Peter (2016).  Brexit: Strategic Consequences for Europe. Netherlands Institute of International Relations ‘Clingendael’. Retrieved from https://www.clingendael.nl/sites/default/files/Brexit%20Report%20February%202016.pdf

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About jerrylanders

Executive Director for Aspire Indiana Health and Vice President for Aspire Indiana. Doctorial Student at Columbia Southern University studying business. Married and father of three children. I blog about mental health, business, social media and how all three intersect.
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