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12 Sep 2016

Brexit Signals a Changing Europe

Michel albouy

The Brexit marks the end of a taboo. The vote to leave the European Union has sent a strong message and demonstrates that is in fact possible to break away from the union. Does this vote cast doubt on the European system? What will be the impact on the balance of power in Europe? We speak with  Michel Albouy, a professor of finance at Grenoble Ecole de Management.

What will be the long term impact of the Brexit on the British economy? Can we expect exports to increase despite the global economy's fragile situation?

The impact of the Brexit will take time to evaluate. Short term challenges such as the drop in the value of the pound and the financial market’s reaction after the vote are factors that were anticipated. However, the full extent of the consequences will only be revealed over the long term.

There is still a lot of uncertainty about how the U.K. will leave the EU. As a result, the long term impact will depend greatly on how the EU and the U.K. negotiate the Brexit over the next two or more years.

The U.K. and France are major economics partners and the U.K. is one of the few countries with which France has a positive economic relationship. The drop in the pound has a direct impact on France as it increases the cost for British consumers to buy French goods.

How do you see Europe after the Brexit? Does this vote call into question the European model?

Yes, the Brexit calls into question the European model because the British people sent a very powerful and democratic message. The Brexit demonstrates that it is possible to leave the EU, which has been a taboo subject until now.

This vote also sanctions Europe’s way of functioning. The EU is considered to be too bureaucratic and removed from the people of Europe. For example, the question of expanding the EU was never open to public debate.

The EU will be unbalanced by the U.K.’s departure as the British were a liberal force that counterbalanced Brussels’ technocratic organization. Without them, this technocratic penchant could intensify. In addition, without the U.K., Germany’s influence will be reinforced and the center of the EU will gravitate towards the East.

However, the Brexit has also served to slow down any desire by other countries to exit the EU. They are now waiting to see how the Brexit will turn out as it will give them a concrete example of what might happen if the Union disintegrates. Currently, we have a single market. Even though this is the EU’s primary success, it appears to be such a natural thing, that we generally take it for granted. Thanks to the Brexit, people will also be able to appreciate what the EU has to offer.

What answers need to be provided by European institutions and governing bodies?

That is a vast and complex question, especially because each country has its own vision of the challenges that lie ahead. Some want to build on the Brexit to tighten ties within the Union while others would prefer to limit Brussels’ power. So it would seem as if Europe will be moving forward at different speeds.

But, two places to start would be for the EU to be more open with its citizens and for its institutions to follow the principle of subsidiarity. The European Commission is too preoccupied with small details and does not focus enough on the bigger picture. For example, the dossier on the financial status of member states is still unresolved despite the fact this is an essential issue if Europe wants to move forward. As we have all seen, it is difficult to implement regulations related to budgetary constraints (a deficit under 3% of GDP) and debt because these issues impact each country’s sovereignty.

The issue of immigration and the Schengen territory will gain importance as the European structure evolves. Issues concerning the EU’s security are also fundamental questions for European citizens.

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Michel Albouy

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