Should British Expats Be Concerned About A Potential Brexit?
Should British Expats Be Concerned About A Potential Brexit?
23 June 2016
It’s a question that is probably on the minds of millions of British expats living in the EU, and with polls now suggesting the vote could go either way, a Brexit could be more of a reality than originally thought. So, just how worried should you be?
The main areas of impact will be the exchange rate, the legal rights of expats and possibly the ease and cost of travel. With so many unknowns it is difficult to comment specifically about the impact of Brexit on expats, however on balance it appears any possible positive aspects are likely outweighed by the negative consequences.
What will happen if the UK decide to leave the EU?
What we do know is that David Cameron has stated Article 50 of the Lisbon treaty will be invoked. This is the official process of withdrawing from the EU and during this period, the UK has a minimum 2 years to withdraw and re-establish new trade deals with the EU, or look elsewhere. It should be pointed out that the UK is not party to the negotiations and the EU will present a deal.
Chris Grayling – leader of the House of Commons has already set out a timetable for withdrawal but the bottom line is that there is no certainty in these plans since much depends on unknowns. Namely the reaction from the EU in its treatment of the UK who have stated they will not be lenient and will be seeking to dissuade other members from leaving the EU. This was echoed by German Finance Minister Wolfgang Schauble who has warned against the UK leaving the EU, stating that the UK will have to “abide by the rules of a club that it wants to withdraw from”.
The pound is likely to devalue sharply, some have predicted up to 15% which could see GBPEUR hit lows not seen since 2009! Currency is an important consideration for expats since it dictates their income if reliant on a UK pension. A weaker pound also makes it more expensive for family members to come and visit. With currency there are always two sides however, any expats holding Euros wanting to holiday or visit the UK will find the pound cheaper. Any expats selling a property overseas will find their Euros go further too, however despite these positive aspects a weak pound is generally seen as bad for expats.
What if the UK joined as a member of the EEA or EFTA?
The Leave campaign has campaigned heavily on immigration, which may prove interesting when we come to any negotiations. Both Switzerland and Norway are outside of the EU but have trading arrangements with the EU which require they adhere to free movements of person arrangements. This would actually be good for expats since it would mean they can still move freely around without requirements for extra visas or documentation.
According to experts at the National Institute of Economic and Social Research (NIESR), becoming a member of the EEA (European Economic Area) would “pose the least economic risk severity”. But what does becoming a member of the EEA entail and how different is it to full membership of the EU?
Being a member of the EEA excludes the UK from certain EU rules, such as justice, fishing and agriculture. However, the UK would still have to abide by rules on free movement of persons, a move that would not be welcomed by voters concerned with immigration.
Does the end justify the means? EEA membership offers very little that the EU doesn’t. The UK would still be responsible for contributing to the EU budget and perhaps could rebuild its fishing and farming industries with less red tape. But those hoping to escape the EU in an effort to bring back British sovereignty will find themselves short-changed unless David Cameron is able to re-negotiate terms, which is unlikely to be impactful as a member of the EEA.
If the UK re-joined as a member of the EFTA (European free trade association), similarly to Switzerland, although it’s possible that bilateral agreements could take longer to negotiate extended past the 2-year withdrawal period.
Switzerland, has bilateral agreements in place with the EU to allow for free trade, but still adheres to free movement of persons. It’s important to note also that being a member of the EFTA would still require the UK to pay into the EU albeit less, but would allow the UK to charge its own custom duties on imports from non-EFTA members and negotiate its own set of agreements elsewhere.
The UK would therefore have to renegotiate most existing arrangements with the EU in an effort to build a set of bilateral agreements which would likely take time to plan, propose and finalise with the other state-members. If the EU agree to such terms article 50 of the Lisbon treaty would most likely be extended beyond the 2-year period.
On the positive side, these outcomes may be the most ideal for British expats and any signs of the UK re-joining as a member of the EEA or EFTA could be a sigh of relief for you.
This may be the most logical outcome following a Brexit. Not only for British expats living in the EU, but also for British businesses, holidaymakers, international students and importantly, the UK economy. And for the EU, they can continue to benefit from the UK’s financial contribution.
But what if the UK weren’t offered a deal? What if the EU wanted to make an example of the UK in an effort to prevent other members leaving the EU? The upshot is we just don’t know what will happen, which means expats could be in for a tough time trying to figure out just what is around the corner.
Other Issues on the UK’s ‘new relationship’
The EU would have a huge financial gap to fill if they did not want to deal with the UK, not to mention the hundreds and thousands of EU expats living in the UK who could be left in limbo. If the UK were unable to re-join as a member of the EEA or EFTA, a longer period of uncertainty could take place.
The UK would still remain a member of the WTO (World Trade Organisation) and would have to introduce trade agreements with the EU, which will likely have tariffs and therefore cost implications. It could however, decide to trade with China, India and South America without the EU trade barriers.
The UK could also set up its own import tariffs on goods, but would have to be competitive with the EU for it to be effective, otherwise trade negotiations with other nations would be less attractive.
Being outside of the EU completely is where expats are vulnerable. It’s not to say your rights as an expat would be lost, but it’s possible that taxation, healthcare and travel would be impacted.
The impact of a Brexit on exchange rates
Irrespective of the deal the UK strike after the referendum, a Brexit will most likely have negative implications for Sterling short term. You only have to look at the change in polls to understand the correlation between concerns for a Brexit and Sterling weakness.
In the event of a Brexit, I suspect for the foreseeable future that GBP/EUR rates may fall to the 1.10-1.15 range. Whilst not unusual, this could have repercussions on those looking to buy within the EU or receive payments in Sterling whilst living in the EU.
This does however make selling Euros more attractive, and those looking to return to the UK may find this a positive opportunity.
On the other hand, a vote to remain could see significant strength for the Pound, potentially pushing GBP/EUR rates into the mid-1.30s as investor confidence is restored.
The EU referendum – Conclusion from both sides
We cannot say exactly what the Brexit will bring for expats because there is very little being laid out in terms of plans at this point. Despite what limited plans there are, the UK is subject to the will of the EU in its deal, a deal that the UK will not be party to, as per Article 50 of the Lisbon Treaty. Yes, the EU needs the UK and it is no one’s interest to be particularly unfair but the UK is highly unlikely to be in a better position as a result of the negotiations. The Leave camp’s arguments state we will strike up new deals and this will help make up the shortfall but there are no guarantees.
A vote to remain could signal confidence, a continuation of existing agreements and probably a sigh of relief from expats. A vote to leave will see Sterling weaken and the UK’s relationship change with the EU forever. The hope is that common sense will prevail in any negotiations but from the assessment of existing arrangements and options, it is difficult to see any outcome that immediately benefits expats.
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