With the upcoming French presidential election this Sunday, the future of France – and the EU – are at stake. Should Marine Le-Pen wins, France is one step closer to abandoning the Euro and reviving the Franc.
Yet, this phenomenon is not new. The foreshadowing has been in existent since the ‘Grexit’ speculation in July 2015. Indeed, I suspected the trend to continue ever since Brexit occurred and have written my thoughts on it. However, due to the high uncertainty then, I did not bring myself to post the writing as I believe it was imprudent to exaggerate a speculation.
Yet, with Europe continuously changing its political landscape and economic future, I do believe it is wise to revisit the reasons why it has been happening and what the challenges are. Without further ado, this is my thought on the new face of Europe.
June 25th 2016 – It was a beautiful Saturday morning. The sun was peeking through the clouds, offering a touch of warmth amidst the cold winter breeze. I sauntered to my favourite McDonald’s joint and ordered a Bacon & Egg McMuffin with an Espresso Pronto Latte – with extra sugar, of course. It was a quiet morning – just the way I like it. I grabbed a Herald Sun newspaper as I was sitting down. Scanning through the front page, a headline caught my eyes, my attention and my calm – “UK to Leave EU after Shock Vote”. What a way to start the day!
Surprisingly, that was not the first time a separation issue had arisen. In July 2015, Greece was standing on a precipice when the public rejected a bailout offer for their national debt. It led to speculation and fear of a ‘Grexit’ – Greece might choose to leave the EU if its national debt remained unpaid. Even today, the possibility still looms as Greece tries to pick up the pace on its economic development. Another similar case arose in September 2014. However, instead of voting out of the EU, it was a scenario on whether Scotland should remain a part of the UK or not. The majority voted to remain as part of the UK but nevertheless, it was quite the roller coaster ride.
So, why exactly are countries walking away from long-established relations? There are many plausible explanations but they can generally be narrowed down into three different reasons – a craving for sovereignty, membership obligation and internal dissatisfaction.
Being a member of a collective means giving up part of your control. This holds true even for a union of countries. Being a part of the EU means that the UK must abide by the rules set out by the rest of its members, be it in terms of trade, immigration or tax. This subsequently confers less power to the British Parliament to decide its own best course of action. Take the EU’s trade policy as an example. Articles 28 – 33 of The Four Freedoms state that all member states must levy a uniform tariff rate for trading with non-member countries. This deprives the UK of the freedom to set variable tariff rates to different nations and may result in less trade income. Moreover, autonomy over its North Sea oil is also a significant factor in Scotland’s decision for independence in 2015.
As an EU member, the UK is subjected to fees determined and made compulsory by the union. By choosing to quit the EU, the UK may be able to cap its cash outflow. According to Full Fact, the UK government spent around £8.5 billion net payment for EU membership fee in 2015. This is equivalent to approximately 7% of how much the government spend for NHS annually – and it is only a membership fee! Of course, it also means that the UK will be subjected to new fees such as import tariffs from the EU should it opt out of the union. However, should the £8.5 billion be more than the total import tariff s imposed, the UK may fare better by walking out of the EU.
At one point, the citizens may feel that their country’s status quo is in shambles – thus prompting them to take unprecedented action, hoping for a change. A Free Trade Zone naturally encourages free and unrestricted flow of member countries’ workers and refugees. This means increased competition in securing a job and lower wage, much to the displeasure of the citizens. This dissatisfaction is very similar to the sentiment currently ongoing in the US, which is culminating in the rising popularity of Donald Trump. It is neither xenophobia nor racism, it is purely the downside of FTZ being internalised. Should this sentiment continues, the European continent may be facing a future that challenges the structure and economic diplomacy of its union.
There are both advantages and disadvantages from leaving a Free Trade Zone. The advantages include better control over national affairs, less pressure to conform by the collective norms and internal satisfaction. However, it is also prudent to assess the challenges and disadvantages that may arise from leaving a union. This can generally be categorised based on its impact in the short and long run.
In the short run, a country will need to restructure its market and re-evaluate its expenditure.
Both market restructuring and expenditure re-evaluation are necessary because the privileges enjoyed by becoming a member of a trade group is now nullified. Members of the EU enjoyed tariff-free trade and unrestricted travel amongst themselves, notwithstanding the UK. Now that the UK is no longer a member, it will need to pay tariffs to the EU members for imported goods and implement visa requirement for travels. This means previously imported goods may become much more expensive and hence, unprofitable. A travel restriction also potentially dampens the travelling appetite, resulting in less tourist and national income. At the end of the day, the UK will have to outsource its imported commodities from different countries and establish travel incentives, changing its market structure and incurring additional expenditure into its national account.
Should a country succeed in tackling its short run challenges, it will stand a better chance in resolving its long run challenge – standing on its own two feet. Separation means the possible loss of support from bloc allies. A country needs to be capable and competitive. It may need to forge new alliances or find new trading partners – ultimately ensuring its survival in the years to come.
Heraclitus once said that “Change is the only constant”. I believe this is what the European continent is experiencing right now. Will it be for the worse, or will it be for the better? Though the answer still eludes me, I do hope it is for the latter.