6/14/2016

Brexit:EverythingYouNeedToKnow(ButWereAfraidToAsk)|Investing.com

www.investing.com/analysis/brexit:everythingyouneedtoknow(butwereafraidtoask)200135741

Brexit:EverythingYouNeedToKnow(ButWere
AfraidToAsk)
ByInvesting.com|3hoursago
ByClementThibault

Injustafewdays,itsconceivablethattheEuropeanUnionspoliticalandeconomicfuturecouldbereshapedbytheUKsJune23
scheduledreferendumvoteregardingwhetherBritainshouldretainmembershipin,orexit,theEU.PopularlyknownasBrexit
shorthandforBritainExitthevoteoutcomecouldhavefarreachingconsequencesfornotjusttheBritishandEurozoneeconomies,but
alsoforglobalcurrencyandequitymarketsinparticular.

Overthecourseofthreearticles,publishedwithinthenextweek,welltakeadeeperlookatwhatthevotemeansforallinvolved.Todays
articlewillexaminethereasonsforthereferendumPartII,whichwellpublishlaterthisweek,willconsidertheconsequenceseithera
remainorleaveoutcomemighthaveonmajorcurrenciesandPartIII,whichwellpublishearlynextweek,willdetailtheaffectthevote
willlikelyhaveonglobalandUKstocks.

WhatExactlyIstheEuropeanUnion?
TheEuropeanUnion(EU)isaneconomicandpoliticalunionof28freestates,locatedprimarilyonmainlandEurope.Eachmemberstate
acknowledges,uponjoiningtheEU,thattheyhaveenteredtheinternationaltreatiescoveredbytheUnionoftheirownfreewill,without
beingforcedtodosobyathirdpartyorsuperpower.TheUnionsstrengthandironicallyitsfragilitycomesfromthatveryfact.

UnderArticle50oftheEUtreaty,"AnyMemberStatemaydecidetowithdrawfromtheUnioninaccordancewithitsownconstitutional
requirements".Todate,noneoftheEUsmemberstateshaseverelectedtoleavetheUnion,whilethewaitinglisttojointheEUis
lengthy.AdecisionbytheBritishpeopletobecomethefirstcountrytoleavetheEUcouldhaveramificationsnotonlyfortheUK'sfuture,
butalsoseriouslytarnishtheEU'sprestigeandpoliticalpower.

PriortotheEuropeanUnionsfoundingonNovember1,1993,BritainwaspartofthemuchsmallerEuropeanEconomicCommunity
whichitjoinedin1975.TheEECoftenreferredtoastheCommonMarkethad9memberstatesandwasprimarilyatrading
arrangement.

SimilartotheEEC,theEuropeanUnionrepresentsasinglemarketforitsmemberstates.Butunliketheearlieraccordithasevolvedinto
amuchbroaderandmorepoliticalentitythatsheadquarteredinBrussels,Belgiumandalongwithtraderelatedissues,legislates
overimmigrationandvisaissuesaswell.

FormanyintheUK,thatsattheheartofthecurrentproblem.

WhydoespartoftheUKwanttoleave?
Reasonsvary.Politically,somecitizensareconcernedabouttheevergrowingpoweroftheEUoveritsmembercountries.TheEUhas
exclusivelegislationpoweroverareassuchascommoncommercialprocedures,transportpolicies,evenrulesofcompetition.This
essentiallymeansmemberstatesnolongerhavetherighttointroducetheirownlegislationintheseareas,whichmanyseeas
weakeningindividualsovereignty.

Economically,somebelievethatthefreemovementofpeopleandgoodsacoreprincipaloftheEUishurtingBritain'sowneconomy,
asitsgovernmentisunabletocontroltheinfluxofmigrantworkersintothecountry,andbusinessesarefreetomoveelsewhereintheEU
atwill.Thebordercontrolargument,whichhasbeengoingonforanumberofyearsnow,hasgainedgreatertractionrecentlyandisnow
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alsobeingusedinasecuritycontext,sincesomebelievethatdisengagingfromtheEuropeanUnion'spolicytowardstheSyrianrefugee
crisiswouldbenefitUKsecurity.

Additionally,theUKcontributesbillionstotheEUbudgetbutgetsquiteabitlessinreturn.Howmuchlessisthesubjectoffiercedebate.
Accordingtofullfact.org,theUKpaysanannual13billion poundsterling infees(approximately$18.4B),whileitgetsback
approximately4.5billionpounds(approx.$6.4B)inEUspendingontheUK,leavingthebalanceatminus8.5billionsterling
(approximately$12B)fortheUK.

Whywouldotherswanttostay?
Ofcourse,thosewhowishtoremainintheEUhavetheirownsetofarguments.

Politically,theywanttostayintheEUbecausetheybelieveunited,eachmembercountryisstrongerthanitwouldbeonitsown.TheEU
hasalwaysseenitselfasaglobalsuperpower,astatusthatcurrentlywouldbeunattainableforanyofitsindividualmembercountries.

Indeed,whiletheUK,Germany,andFrancehavefarreachingpoliticalinfluenceinmanydifferentpartsoftheworld,eachcouldnotrival
theUSsforeignpolicycloutontheirown.Thisargumentalsoservesstaysupporterswhendiscussingsecurityissues,astheybelieve
thatstrengthinnumbersiscrucialfordealingwithfuturethreats.

Economically,EUmembercountriesareabletoexportwithintheEUatnocost,boostingsalesofBritishproductstomainlandEurope.
TheEUisalsoabletonegotiatebettertradedeals,asaccesstotheentireEuropeanmarketisanattractivepropositionforexternal
tradingpartners.

StaysupportersarguethattheUKwillneverbeabletonegotiatebettertermsonitsown.Forexample,theTTIP,TransatlanticTradeand
InvestmentPartnership,whichiscurrentlyundernegotiationbetweentheUSandtheEUcouldbecomethebiggesttradeagreement
everformed.ShouldtheUKleavetheEU,itwouldhavetonegotiateonitsown,forbetterorforworse,dependingononesperspective.

Finally,whileimmigrantworkersareseenasdetrimentaltotheBritisheconomybysupportersoftheleavefaction,thosewhowishtostay
claimyoungimmigrantshelpspurgrowthwhichwillonlystrengthenthecountry'seconomy.

MacrovsMicro

Everythingdiscussedsofarconcernsthemacroeconomy.ButisthereawaytoprepareyourindividualportfolioforapossibleBrexit?
Yesandno.

Itsimpossibletoforeseeallofthedifferentways'Brexit'couldaffectonespersonalinvestments.However,therearewaystoguard
againstaswellashedgeagainstthepossibilityofaUKexit.

InpartIIofthisseries,tobepublishedlaterthisweek,welltakealookathowthepoundsterlingmightbeaffected,aswellasthe
USdollar andsomeoftheotherFXmajors.

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DonaldCastle 29minutesago
InorderforyoutotellmewhatI'mafraidtoask,youwouldneedtoknowsomething.Whichisclearyoudonot!
Reply

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BradSmith 2hoursago
TheargumentoftheUKbeingatadisadvantagewhennegotiatingisnotentirelytrue.ManyoftheEUmembersexporttotheUK
farmorethantheoppositewiththeexceptionofGermany.ThiswouldgivetheUKafairlysubstantialleverageinnegotiating
tradedeals.ThetradedealwiththeUS,however,isanentirelydifferentcasethatputstheadvantageonthesideofEU.
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