24 June 2016
The U.K. Just voted for something called 'Brexit', which is actually a cute name given to the phrase 'British exit from the European Union'. Odds are until this morning you weren't paying much attention to it. Odds are, if you have stocks, or a TV, or read the news, you are now very aware of it. This is intended to be a BRIEF overview of what just happened, and why people suddenly care.
So let's take this in steps. To begin with, the U.K. Was (technically still is, until all the details get worked out) a member of the European Union (the EU). The EU consists of most of the countries of Europe, and it is a sort of club. The members of the club make decisions together, and while it isn't the most exciting club to be a member of, it has a couple of really good things going for it. The first is the free movement of goods: stuff made in the EU can be sold in the EU, generally without a lot of hoops to jump through. The second is the free movement of people: citizens of an EU country can live and work in any EU country. There's also an EU currency, the Euro, but Britain didn't want to join that, so no change there.
So we can see a couple problems looming right off the bat: if goods (and services) move freely between EU members, what happens when a member quits? Well, that's a good question, and right now nobody knows. Probably the UK will need to negotiate with the EU, and it's easy to imagine the EU might not be very forgiving of someone who took their marbles and went home.
But it's actually a bit bigger than that, because every trading partner of the EU will also need to negotiate a new trade agreement with the U.K. This is what makes this a global weirdness - previously, if we were a country outside the EU and we wanted to trade with the U.K., we negotiated an EU wide trade agreement, and got access to all the member countries at once. Now we need to negotiate twice. Or decide to forego trade with either the UK or the EU. And, of course, where we once had one set of rules for everyone, now there will be two sets of rules - one for the EU, one for the UK.
There's also a bit of a problem deciding what to do with all the people who were traveling and working freely across the EU. Do they all have to go home? If so, what if they have a job? There will probably be new rules put in place making it harder to hire UK people in the EU. And since UK people speak English, for US companies they've been a very helpful asset in working with the EU. Obviously this is a huge oversimplification- many people in EU countries speak English better than some native speakers, but in general, the U.K. Has been a go-to for American companies, and it used to come with a whole bunch of other countries thrown in for free. And now, apparently, that's not true anymore.
So it's easy to see why things are a little weird right now. It's likely if we all just sit tight for a while things will smooth out, but at the same time there are some very real costs here, and that's why the news is suddenly treating this as a Very Big Deal.
For a more detailed look at things, also targeted at Americans, The Guardian has done an article.
David Barber is a freelance economics writer. He can be reached at firstname.lastname@example.org.
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Content by David Barber