What UK and EU risk if Brexit “wins” these elections

Mr Cameron is surely undergoing some big stress in view of Thursday's elections. This photo of Mr Cameron, UK's current Prime Minister is taken at last EU Council in April (Council TVNewsroon, 23/04/2015)

Mr Cameron is surely undergoing some big stress in view of Thursday’s uncertain elections. This photo of Mr Cameron, UK’s current Prime Minister is taken at last EU Council in April (Council TVNewsroon, 23/04/2015)

The British general elections are just a few hours away, and uncertainty is bigger than ever. The people and – above all – the governments of Europe are watching anxiously, eager to know what the future will bring to one of the most populous and powerful countries of the continent, as well as one of the leading economies in the bloc. The UK has been often under the spotlight in the past twelve months for the possible post-election scenarios and where the various coalition makeups might take the country itself and the whole European Union.

A hung parliament to come?

On a more political side, we can say that this is most likely going to be one of the tightest elections in UK’s history, which could trigger an unprecedented phase of political instability for the country. With neither party likely to gain an absolute majority, governing will likely require the support of other parties to form a coalition or minority government. The final Opinium/Observer poll before Thursday’s general election, which was recently published by the Guardian, found that the country is firmly on course for another hung parliament with the Tories and Labour neck and neck.

What polls are saying

The Guardian’s poll findings show how the Conservatives are on 35% while Labour is on 34%. Nigel Farage’s Ukip is reportedly stable on 13%, well ahead of Nick Clegg’s Liberal Democrats on 8%, with the Greens on 5% and the pro-independence Scottish National Party on 4%. It’s clear how this situation would eventually trigger days or even weeks of turmoil with both sides fighting to persuade small parties to support them in government, something the UK is not exactly used to, unlike other EU members like, for instance, Italy.

What UK-EU relations to come?

Experts say Britain will look quite different after the election depending on whether the Conservatives or Labour get in. The weight the “winner” will have inside a coalition is the main point of the whole question. As broadly discussed and largely renowned, the upcoming vote has a crucial importance for the role that the UK will play inside (or outside!) the EU, as the whole “Brexit” matter – and so the chance of Britain quitting the European Union will largely depend on the outcome of the general election.

David Cameron’s promise

If the UK’s two-party system was still intact, the analysis would be quite easy to be done. Now, if the Conservatives are still in government after May 7, current Prime Minister and conservative leader David Cameron has promised to renegotiate Britain’s relationship with the EU and then give the people a vote on whether to stay in. He has repeatedly vowed in the past months that he is determined to seek a better deal from the EU and so to re-design Britain’s involvement in the bloc’s affairs. If a Labour-shaped coalition will guide the Country after May 7, the UK will likely be more leaning towards EU.

What the markets perceive

Given those preconditions, it is clear that the markets are looking at the UK elections nervously. As reported by Bloomberg, Moody’s Investors Service said last month that while uncertainty over the election outcome isn’t affecting Britain’s credit profile, an increased likelihood of leaving the EU “could result in negative rating pressures over the medium term”. Another hefty example could be that, only last month, HSBC, one of the world’s biggest bank, said it was considering moving its headquarters outside UK, partly because of the EU debate.

Nervous Sterling

Moreover, as unveiled by the International Business Times, the British Pound has erased most of its April gains in the last week, as investors weighed risks of a hung parliament and the UK leaving the European Union ahead of the election. Last Wednesday (27 April), the sterling touched a two-month high of 1.5499 against the US dollar where the pair was up 2% from the previous week’s close. However, the GBP/USD dropped to 1.5133 as of Friday’s (1st of May) close, translating to a 0.36% loss on the week. Traders said that such heavy fall is related to the doubts around UK’s membership of the EU after the election. These are all signs that cannot simply be ignored around Westminster.

Do the Brits want to stay?

From a more “European” perspective, the question does not look less complex. Historically, Britons have mostly desired to remain part of the EU. A poll conducted by Ipsos MORI last October found that the majority of UK’s citizens would vote to stay in the European Union in a referendum, indicating the highest support for British membership since 1991. Some 56 percent of respondents said they would vote to stay in a referendum, while 36 percent would vote to get out. This translates to 61% support for Britain’s EU membership and 39% opposing after excluding ‘don’t knows’.

It’s a matter of conditions…

With that being said, it’s also deserved to say that while the U.K.’s EU membership comes with advantages – like the access to a 13.9 trillion euro ($15.5 trillion) market, with Britain sending almost half of its exports of goods and services to the EU (227 billion pounds last year) – it also comes with conditions that many in Britain are now finding too onerous. Particularly for the British voter it is one of the EU’s founding principles, the one that allows citizens of any EU country to live and work in any other member state. After the EU expanded into former communist countries of Eastern Europe in 2004, Britain saw a huge increase in migrants seeking work, something that during the long economic crisis has played an important role in gathering support for a Brexit. The EU simply cannot ignore those signs too.

Long time coming story

The variables to consider are uncountable in such a matter, but I guess it would be no mistake to say that exiting the EU would be bad for Britain and for the EU as well. A British exit from the EU could cost the UK as much as 14% of GDP, according to a German study published by the Guardian, and on the other hand it would divide Europe both economically and politically. The EU would lose one of its most significant members, and the UK would probably lose the chance to be a player in the largest economic and political stage of the world, as a resident.

Almost 27 years ago, in 1988 Margaret Thatcher said: “Britain does not dream of some cosy, isolated existence on the fringes of the European Community. Our destiny is in Europe, as part of the Community”. However, she also added, very carefully: “That is not to say that our future lies only in Europe”. Maybe the whole question began a long time ago after all.

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