Impact of Brexit on the European Union

Part of a series of articles on
Brexit
Withdrawal of the United Kingdom from the European Union Glossary of terms
Background Euroscepticism in the United Kingdom United Kingdom opt-outs from EU legislation Campaigns for a referendum People's Pledge Labour for a Referendum Bloomberg speech Project Fear Brexit: The Movie In or Out 2013–14 EU (Referendum) Bill (unsuccessful) 2015–16 EU membership renegotiation 2015 EU Referendum Act (Gibraltar) Opinion polling on the United Kingdom's membership of the European Union
2016 Referendum Issues Endorsements Opinion polling Results Causes for result International reactions Allegations of unlawful campaigning Immediate aftermath 2016 Conservative Party election 2016 Labour Party election 2016 UKIP election Department for Exiting the EU Department for International Trade Campaigns Leave campaigns Vote Leave (official) Business for Britain Conservatives for Britain Students for Britain BeLeave Leave.EU Bpoplive The Freedom Association Better Off Out Grassroots Out Labour Leave Get Britain Out Bruges Group Campaign for an Independent Britain Remain campaigns Britain Stronger in Europe (official) Labour In for Britain European Movement UK Britain in Europe British Influence Business for New Europe Nucleus
Notice of withdrawal Article 50 process R (Miller) v Secretary of State for Exiting the European Union EU (Notification of Withdrawal) Act 2017
Negotiations Negotiation positions EU negotiation mandate Chequers agreement Timeline: 2017, 2018, 2019
Withdrawal agreement Brexit divorce bill Irish backstop No-deal Brexit Continuing United Kingdom relationship with the European Union
Parliamentary votes Withdrawal Act 2018 (Gibraltar) Cooper–Letwin Act Benn Act Public Vote Bill (not passed) Terms of Withdrawal Bills (not passed) Scottish EU Continuity Bill (blocked) Withdrawal Agreement Act (Gibraltar) European Union (Future Relationship) Bill (pending)
Impact Impact on the Irish border Good Friday Agreement Effect on Scotland's constitutional position Impact on the EU Economic effects Effects on Gibraltar Scientific cooperation
EU–UK relations United Kingdom–European Union relations Trade deal negotiation between the UK and EU EU-UK Trade and Cooperation Agreement (TCA) Partnership Council Relations with EU Member States Austria Belgium Bulgaria Croatia Cyprus Akrotiri and Dhekelia Czech Republic Denmark Estonia France Germany Greece Hungary Ireland Ireland-UK Border British–Irish Council North/South Ministerial Council Italy Lithuania Malta Netherlands Poland Portugal Romania Slovakia Spain Status of Gibraltar Gibraltar–Spain Border Sweden Conjectured EEA membership
Opposition in the UK Post-referendum opinion polling New initiatives Change Britain More United Open Britain The New European Unite to Remain Led By Donkeys Revoke Article 50 petition Postcards from the 48% Proposed second Scottish independence referendum Calls for a second referendum People's Vote Britain for Europe European Movement UK For our Future's Sake Healthier IN the EU InFacts Open Britain Our Future Our Choice Scientists for EU Other organisations Best for Britain Bollocks to Brexit Change UK Liberal Democrats Right to Vote
Timeline Bloomberg speech Jan 2013 European Parliament election May 2014 2015 general election May 2015 Renegotiation begins Jun 2015 Referendum Act passed Dec 2015 Renegotiation concluded Feb 2016 Referendum held Jun 2016 Theresa May becomes PM Jul 2016 Article 50 judgement Jan 2017 Notification Act passed Mar 2017 Article 50 invoked Mar 2017 2017 general election Jun 2017 Brexit negotiations begin Jun 2017 Withdrawal Act passed Jun 2018 Chequers plan presented Jul 2018 Withdrawal agreement released Nov 2018 Meaningful votes Jan–Mar 2019 Brexit delayed until 12 April Mar 2019 Cooper–Letwin Act passed Apr 2019 Brexit delayed until 31 October Apr 2019 European Parliament election May 2019 Boris Johnson becomes PM Jul 2019 Prorogation & annulment Aug-Sep 2019 Benn Act passed Sep 2019 Withdrawal agreement revised Oct 2019 Brexit delayed until 31 January Oct 2019 2019 general election Dec 2019 Agreement Act passed Jan 2020 UK leaves the EU Jan 2020 Implementation period begins Jan 2020 UK-EU trade deal agreed Dec 2020 Future Relationship Act passed Dec 2020 Implementation period ends Dec 2020 New EU-UK relationship begins Jan 2021
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The UK's contribution to the EU budget in 2016, after accounting for its rebate, was €19.4 billion. After removing about €7 billion that the UK receives in EU subsidies, the loss to the EU budget comes to about 5% of the total. Unless the budget is reduced, Germany (already the largest net contributor) seems likely to be asked to provide the largest share of the cash, its share estimated at about €2.5 billion.[3]

As of March 2020, debate continues between those members who wish the budget to be limited to no more than 1% of members' combined GDP and those who want it to be 1.074%.[4]

As the EU's third most populous state, with over 12% of the Union's population, the UK was an influential player in the European Parliament and the Council of the European Union. Its absence will impact the ideological balance within the EU institutions.[7]

Council

In the Council, during the UK's membership there were two blocs, each capable of forming a blocking minority against the other: the protectionist bloc of mainly southern states and the liberal bloc of mainly northern states. As a member of the latter, the UK's departure will weaken the liberal bloc as the UK has been a sizeable and fervent proponent of an economically liberal Europe, larger trade deals with third countries and of further EU enlargement. While weakening the liberal bloc, it will also strengthen Germany's individual position in the Council through the loss of a key counterweight. However, Germany remains uneasy about this role lest other member states anxious of German dominance may be more tempted to ally against it.[7][8]

European Parliament

UK seats in EP groups highlighted in red (seat numbers based on EP groups in December 2017

In the European Parliament, Brexit led to Changes in group representation: Brexit gave 5 seats to the EPP and 3 seats to the ID, while 29 seats were lost by the NI (including Brexit party) 11 seats lost by the Renew Europe (LibDem) 7 seats losts by the green, and six seats lost by the alliance of socialists and democrats (S&D).

Similarly, a majority of the UK's representatives sat with right-leaning groups, namely the European Conservatives and Reformists and the Europe of Freedom and Direct Democracy, both of which were built around, and led by members of, the British Conservative Party and UKIP. The Progressive Alliance of Socialists and Democrats also lost its members from the UK's Labour Party, but on the whole would be left strengthened by the greater loss to the right, and thus able to form majorities without seeking support from the (conservative) European People's Party. This may lead to a Parliament which may:[7]

• be more willing to pass extra regulations;
• have less support for strong copyright protection;
• pass a smaller budget, but with increased member-state contributions;
• support tax harmonisation and a financial transaction tax (taxation is outwith current treaties);
• give less support to nuclear energy and shale gas in favour of renewable energy sources.

The UK was a key asset for the EU in the fields of foreign affairs and defence given that the UK was (with France) one of the EU's two major military powers, and had significant intelligence capabilities, soft power and a far reaching diplomatic network. Without the UK, EU foreign policy could be less influential.[7] The US saw the UK as a bridge between the US and Europe, and the UK helped align the EU positions to the US and provide tougher policy towards Russia.[8]

However, Brexit also produced new opportunities for the European defence cooperation, as the UK consistently vetoed moves in this direction, arguing it would undermine NATO. It attempted to do so again – even after its withdrawal referendum, in relation to the establishment of a military HQ.[9] With the UK's withdrawal and a feeling that the US under Donald J. Trump may not honour NATO commitments, the European Council has put defence cooperation as a major project in its [post-Brexit vote] Bratislava and Rome declarations and moved forward with setting up a European Defence Fund and activating Permanent Structured Cooperation (a defence clause in the Lisbon Treaty).[10][11]

Freedom of movement for workers is an integral part of EU policy and is a foundation of European Union ideals. In addition, the Schengen agreement removes the necessity for passports and visas for travel within the Schengen Area, thus allowing the free movement of people.[12] This concept is designed to benefit the various member states' economy and society by allowing for business to thrive in Europe and also for the EU to be more culturally interconnected.[13] (Visitors from outside the Area are subject to the usual passport and visa controls at the external border of any Area member state. Not all members of the EU are members of Schengen, and not all members of Schengen are members of the EU).

The relationship between euro and non-euro states has been on debate both during the UK's membership (as a large opt-out state) and in light of its withdrawal from the EU. The question is how Brexit might impact the balance of power between those in and out of the euro, namely avoiding a eurozone caucus out-voting non-euro states.

The UK had called for the EU treaties to be amended to declare the EU to be a "multi-currency union", which sparked concerns that to do so might undermine the progress of euro adoption in remaining countries.[15][16][17][14]

Professor Simon Hix contended that Brexit would strengthen the Eurozone, which may well replace the single market as the EU's core and driving force. In the pre-referendum negotiation, David Cameron emphasised the importance (in his view) of keeping the Eurozone clearly distinct from the EU. Following a British withdrawal, such pressure may well dissipate.[7]

After Brexit, the EU becomes UK's biggest trading partner, and the UK becomes EU's third biggest trading partner after the United States and China.

Some member states, notably Belgium, Cyprus, Ireland, Germany and the Netherlands, are more exposed to a Brexit-induced economic shock. The economy of the Republic of Ireland is particularly sensitive due to its common land border with the United Kingdom and its close agribusiness integration with Northern Ireland[18]

The reintroduction of a customs border would have been economically and politically damaging to both sides,[19][20] particularly because of the risk to the Northern Ireland peace process that a physical border presents.[21] Despite protestations of good will on both sides, it was not obvious how border controls could have been avoided unless the UK has a Customs Union with the EU.[22][23] Arising from the agreements made at the Phase 1 negotiations (after the DUP intervention), any arrangements to be made to facilitate cross-border trade in Ireland will apply equally to cross-Channel trade but the details remain unclear.[24] In October 2019, the UK and EU renegotiated the Northern Ireland Protocol of the draft Brexit Withdrawal Agreement so as to keep open the border in Ireland and to have a customs border between the island of Ireland and the island of Great Britain (leaving Northern Ireland 'de facto' in the EU Customs Union in some respects).

The sectors across the EU that would be most hit by the UK's withdrawal are motor vehicles and parts (the UK is a large manufacturer and depends on an EU chain of supply for parts), electronics equipment and processed foods. Export of raw materials from the Ruhr valley would also be impacted.[19]

Ferry companies DFDS and CLdN have announced plans for new or additional direct services from Ireland to the mainland, avoiding anticipated delays and disruption on the traditional route via Great Britain.[25]

The impact of this would be felt most on eastern European member states who have approximately 1.2 million workers in the UK by the end of 2015; the largest groups from Poland (853,000), Romania (175,000) and Lithuania (155,000).[3] A year after the Brexit vote, net annual immigration to the UK fell by 106,000 with most attributed to EU citizens leaving for other states, with the biggest drop among those from the western European states.[26]

The Polish government is encouraging its young emigrant workforce to return to Poland, but due to regulatory or political reasons many would either stay in the UK or move to other western cities such as Amsterdam or Berlin.[27] Other western European member states may see much of the flow coming from eastern states in future. The influx of workers from the east would be economically beneficial to countries such as Germany, but may be politically problematic.[3]

British residents in the European Union have lost their European Citizen rights but otherwise are to be unaffected because of the terms of the Withdrawal Agreement. However, according to evidence presented by lobby group "British in Europe" (representing British citizens resident in EU countries) to the Brexit Select Committee of the House of Commons in June 2020, "as many as 23 EU member states [had] yet to implement systems to document the future rights of the estimated 1.2 million British citizens already living on the continent, who are in the dark over their future rights and obligations".[28] "The UK launched its [registration] system for EU citizens last March [2020], with more than 3.3 million people granted pre-settled or settled status to remain in the country after Brexit", the Committee was told.[28]

At the end of the transition period, the EU's Dublin regulation – which specifies that political asylum should be claimed at the first point of entry to the Union – will cease to apply to the UK and with it any obligation on EU member states to accept return from the UK any asylum seekers that have transited that state en route to the UK.[29]

With the end of the transition period planned on 1 January 2021, companies operating business with British nations will need to change their trade mark, border and copyright policies to comply with new British procedures and their associated costs.[30]

The Brexit/trade agreement lead to a change in duty and in VAT. For instance, EU buyers of uk items now pay EU member state VAT rather than the previously applicable one.[31]

Until 2017, the UK had been hosting the European Medicines Agency and the European Banking Authority for many years. As an EU agency could not be located outside the Union, the Council began a process to identify new host cities for the agencies. Hosting an agency is seen as a valuable prize for a city, so the process was hotly contested by nearly two dozen cities not just on the objective criteria, but on political grounds. By November 2017, it was agreed that they would relocate to Amsterdam and Paris.[32]

The backup data centre for the security behind the Galileo satellite navigation system was also relocated from the UK to Spain due to Brexit.[33]

The UK was allotted 73 seats in the 751 seat European Parliament, which became vacant upon its withdrawal in 2020. 27 of these seats were redistributed to other countries, with the remaining 46 reserved for potential new member states, reducing the number of MEPs to 705.[34]

Under normal procedures, the UK's seats would have been redistributed between the remaining members according to the standard formula, but there were a number of alternative proposals. The European Parliament originally proposed that 22 seats would be redistributed and the remaining 50 would be reserved either for new members, or an additional transnational list of MEPs which would be elected across the Union in an effort to deepen a direct democratic link. This was a long-standing proposal, notably supported by the European Green Party and French President Emmanuel Macron. However, due to the legal uncertainty around Brexit, any bold moves were opposed by constitutional affairs committee chair Danuta Huebner.[35][36] Computations were proposed in a paper titled "The Composition of the European Parliament" on 30 January 2017.[37] The constitutional affairs committee eventually decided on 23 January 2018 that 27 of the UK's seats would be redistributed and 46 reserved for new member states and transnational lists.[38] On 7 February 2018, MEPs approved the redistribution of 27 seats, but voted against the introduction of transnational lists.[39] On 31 January 2020, all British MEPs vacated their seats; reallocation began on 1 February 2020.

Since Von der Leyen Commission the number of Commissioners has reduced to 27 from 28.

Charles Michel proposed a five billion euro fund which could be used to reduce the shock of the British divorce when the British transition period ends. This reserve is a part of the €1,074 billion European Union budget.[40]

Ireland and Netherlands are the countries which will have greatest benefit from the shock absorber.[41] According to the Scotish National Party leader in the House of Commons, Ireland "has received" [the equivalent of] one billion pounds from the reserve.[42] Other sources put the figure at €991.2 million.[43]

For the Netherlands, the allocation is 713,7 million euros.[43]

For Germany, the allocation is €429.1 million.[43]

For France it is €396.5 million.[43] Other sources suggest that France may receive more than €420 million.[44]

Belgium should receive up to €325 million euros from the EU budget for the impact of Brexit. This includes €200 million from the first tranche for Flanders.[45]