Brexit’s Economic and Political Impacts on EU

Brexit has been a big part of the news in 2016 and 2017. So far, the main focus has been on how the UK will be affected by its decision to leave the European Union. Will its economy and political environment suffer or see a positive turnaround? The other side of the coin, however, is how will Brexit affect the rest of Europe? Considering that Britain was the EU’s second largest economy, the new EU is going to be hit quite hard by the UK’s decision.


The EU has offered its members many benefits in trade, especially with open market trade. But now that the UK has given its formal decision to leave the EU, trading is going to be a bit different. Under Article 50 of the Lisbon Treaty, Britain, and the EU will have two years to renegotiate new trade deals. However, an extension can also be allowed. These renegotiations will revolve around the export and import of good such as food and cars. New regulations will be decided such as passport control and regulations on health and safety standards. As to the effects, it is predicted that a demand shock will lead to a reintroduction of tariffs which will reduce the GDP of the EU.


 The UK receives the majority of the EU’s foreign direct investment.  UKTI

The UK receives the majority of the EU’s foreign direct investment. UKTI

The UK is the largest recipient of direct foreign investments from outside the EU. The rest of the EU members don’t even receive half of the amount of foreign investment that the UK receives. With the EU’s biggest investment attraction gone, the EU could experience considerable losses in investment.


Britain has undoubtedly been one of the biggest contributors to the EU budget. In 2016, it contributed 19.4 billion pounds, including customs duties and rebates. Regarding Britain’s regional and agricultural subsidies, it provides around 7 billion euros worth of subsidies and leaves about 5% of the EU budget to be filled up. Germany is the EU’s second biggest contributor, so it will have to step up and fill these big shoes. Again, the GDP of the EU is expected to go down.

 British citizens protest against immigration.  The British Voice

British citizens protest against immigration. The British Voice


Migration was a political as well as economic factor in Brexit. Many people voted for Brexit as they were against the Eastern European workers who flowed into Britain for work. These workers will most likely make their way to other big economies in the EU, especially Germany. This might make the political environment a little strained, but it will benefit Germany economically.


Upcoming elections

Upcoming elections in different EU countries are going to be rather eventful. Hungary, on its Prime Minister Viktor Orbán’s initiative, will be holding a referendum to overturn the EU- mandated quotas for resettling migrants in the country. Italy’s referendum on constitutional changes could threaten the country’s Eurozone membership if the constitutional changes are rejected. Austria will also be having elections as its last one ended in a tie. This could give rise to Norbert Hofer from the Freedom’s party, a far-right Austrian political party.

Featured Image Source: Independent