Brexit – Will it Come? What Britain’s Exit of the European Union Means

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MBS hosted the post-graduate workshop titled “Europe and the world” within the DBA program. Pressing issues around the European Union were the subjects of a scientific, profoundly fact-based examination of imminent challenges. One of the topics the postgraduates discussed was the possible “Brexit”.

Once again, Britain‘s exit (Brexit) from the EU has become a current topic: These days, the European Council has met to discuss how to react to the British head of state, Mr. David Cameron. He had confronted the EU with a few rather hazy claims. Mr. Cameron had explained several times that – should negotiations lead to a deal that was acceptable for Great Britain – he would recommend Brits to vote for the EU membership in the upcoming referendum.

So far, the European integration for participating member countries has consisted in a step by step transferal of parts of their national sovereignty to supranational EU institutions: to the Commission, the Parliament, the European High Court. This mainly involves competencies for the customs union, a joint competition policy for the single European market and a joint trading policy.

19 of altogether 28 EU member states even agreed to introduce a homogenized currency, thus renouncing a national money and currency policy – in favor of the European Central Bank. In some of the most important areas of politics, such as tax, structural, social and foreign politics, the member states have declared their willingness to align approaches and measures.

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© oversnap – iStock.com

A genuinely common course of action, however, only will manifest itself if decisions are taken in consensus or a qualified majority by the two inter-governmental bodies of the EU (the European Council of the heads of states and governments and the Council of Ministers, composed in a problem-oriented fashion by the EU ministers of the specific ministries). In this complex, state-like entity, member states have – in the meantime – achieved considerable integration advantages.

In the international context, the European Union has become a sizeable political and economic power bloc, and its member states can benefit from remarkable stability. Military conflicts within the EU can be considered as almost completely excluded, free traffic of persons, services, goods and capital has been largely realized, the political systems are democratically legitimized and the Union provides a multitude of economic advantages.

And ultimately, many Europeans have developed a certain sense of a common bond. Imbalances among the member states continue to exist, but the Union is removing them on an ongoing basis. 94 percent of the EU household, made up of only one percent of the gross national products, is invested into various subsidy and funding measures, and only 6 percent are used for the EU administration.

Intensification of European activities

For the future and as agreed by the member states in the Lisbon Treaty of 2009, the goal of a Union of constantly growing closer together could mean that the heads of states and governments consent to an increasing intensification of common action. In the long run, common foreign and security policies will require a stronger integration of the military powers of the EU.

The economic union of the 28 states requires common and shared ideas on necessary measures for promoting growth and fighting unemployment – and the implementation of these measures. The maintenance of the domestic markets with its immense advantages urgently requires a well-coordinated treatment of migration.

At the moment, this is where disagreements between the member states are strongest. And here is also Mr. Cameron’s position: He wants to see his country’s attractiveness for migrants reduced by exempting them from the networks of social security for four years. This is irreconcilable with the Union’s common standards and would mainly affect migrants from Eastern Europe. In addition, Mr. Cameron wants to do away with inefficiencies and bureaucratic red tape in the work of the Union. Moreover, he no longer agrees with the contractual goal of an “ever closer Union” and wants to keep up Britain’s exception as a country that is not participating in the Euro.

The effects of a Brexit for Great Britain and the EU

In their last module, the DBA students of MBS intensely scrutinized and discussed the Brexit. In doing so, they did not concentrate on investigating Great Britain’s position in this situation. Instead, it was their task to identify and evaluate the impact of an actual Brexit on Great Britain itself and the European Union. The postgraduates concluded, as a result, that this step would quite probably rather damage Great Britain as well as the EU.

As Great Britain, within the EU, declines more market regulation and advocates a reduction of encumbering governmental restrictions, a strong counterweight to France’s rather directive view would go missing in the future. Until present, Germany and Great Britain had acted as representatives of a more market-based orientation of the European Union.

Of course, the complex struggle for a consensus and coordination of the measures of the individual countries might become easier if there suddenly were one less member state, which so far refused completely or at least in part to have itself convinced of benefits of the Union. In addition, the axis between Germany and France would be further valorized.

Substantial political damage

The DBA students concluded that the political damage would be outstanding for both sides. The international reputation of the EU would certainly suffer, if – for the first time – a member state would leave the EU, even more so because Great Britain is a nuclear power with the second largest gross national income in the EU. If this step would at all strengthen the position of the EU escapist was seen rather critically.

If at all, the “special relationship” with the USA could profit. But it remains questionable if the US did not prefer the Anglo-American foot in the door of the EU to a small independent country. Scotland, however, could attempt a new secessionist referendum. For the EU, another resulting negative consequence would be that, for the first time, an exit had been dared indeed, paving the way for followers. The loyalty of the member states towards the EU could sink, and a national mindset could be strengthened.

Who would suffer the strongest economic consequences?

The economic consequences would also be negative, but Great Britain would suffer the strongest blow. The EU would lose at least one big net payer. But market conditions for many British companies would significantly deteriorate, not only for London’s financial markets. All contracts between the EU and the USA would no longer apply to Great Britain, including future ones such as TTIP. Companies might leave the country, markets could be lost.

From the many advantages from which Europeans have been profiting in the meantime – often without being consciously aware – one particular was highlighted as an example for being at risk: The alignment of academic education within the Bologna Process.

The majority of the British people seem to be aware of the negative consequences of a Brexit. At any rate, surveys show a slight advantage of the advocates for a EU membership. The group of MBS postgraduates, however, voiced fears that further aggravation of the conflicts around the refugee crisis might overturn the mood in Great Britain. The talks and negotiations in the coming few days will show whether the path of the EU and Great Britain will remain a common one.

Prof. Dr. Wolfgang Zirus
About Prof. Dr. Wolfgang Zirus 22 Articles
Prof. Dr. Wolfgang Zirus studied Business Adminstration at Regensburg and subsequently worked for Dresdner Bank in the credit auditing department for several years. He eventually started as a freelance lecturer for Munich Business School amongst others before becominig a regular MBS lecturer. He did his doctor’s degree at LMU Munich focusing on problem-oriented learn ing environments.Today, Prof. Dr. Zirus is module leader and lecturer for financial subjects at MBS and alongside works as a freelance lecturer.
Prof. Dr. Heiko Seif
About Prof. Dr. Heiko Seif 21 Articles
Heiko Seif teaches as professor for International Management and his academic emphasis at Munich Business School is on Innovation, Industry 4.0 and Sustainable and International Management. After graduation, Seif taught at various German universities, and his field of activity was primarily concentrated on consulting the automotive and aircraft sectors. He founded the management consultant office CNX Consulting Partners and presently works as senior manager in the field of IT Management at UNITY AG.