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What would Brexit mean for global mobility?

ECA International

It's less than a week until the UK votes on whether to remain part of the European Union, with the latest polls putting the "Leave" campaign narrowly ahead. What would Brexit mean for expatriates from the UK and elsewhere and the people that manage them?

The economy and cost of living

The mere prospect of Brexit has been having an effect already, mainly by making currency and other markets more volatile. Markets that were already nervous about slowing growth in China and the pending decision from the US Federal Reserve regarding interest rates have been increasingly jittery in the run up to the referendum. Fearing currency devaluations and recession following a vote to leave, investors have been increasingly turning to safe havens such as the Japanese yen and government bonds, yields for the latter reaching record lows (returns on 10 year bonds from the German government turned negative for the first time this Tuesday). These sentiments are not confined within the boundaries of the EU; oil prices also fell for the fourth straight day in a row this week.

The pound had been weakening even before market factors intensified this week, and has now fallen 7.35% against EUR and 3.4% against USD since the start of the year. In the short term this means that Brits paid in sterling but working in the Eurozone and many other parts of the world have been experiencing rising living costs, whereas many expatriates coming into the UK will have experienced the opposite. A vote to leave would cause the pound to fall further still and exacerbate these effects. However, they may be tempered by rising inflation in the UK as the prices of imported goods increase.


Longer term, a weaker currency should make the UK’s exports more competitive, but once the UK has fully seceded from the EU, any gains could be offset by the potentially higher tariffs that might now be charged by its biggest trading partner. Higher inflation in the UK would have the positive effect of reducing the real value of the UK’s considerable debts but could be destabilising and discourage foreign investment if it goes too high. 

The truth is that nobody knows what will happen if the UK leaves the EU, and this uncertainty could be sufficient to push the UK and EU back into recession. International companies, particularly those in the financial services sector, will currently be weighing up whether or not to retain their operations in the UK if it is no longer going to be a tariff-free gateway into the biggest single market in the world. Further, the UK’s departure from the EU would surely undermine investor confidence in the stability of the union long term. The size of this market is such that a recession here would have a negative impact on other markets worldwide. The outcome of a referendum in one country could have global consequences.

Companies often predict a need to reduce their expatriate numbers to manage costs in the event of an economic downturn, but in reality many companies continue to mobilise their staff as they seek to invest in other parts of the world that are faring better economically. If Brexit makes the UK a less attractive proposition for foreign investment and companies move their European headquarters away from the UK in order to trade with the single market more easily, then companies will likely need to assign fewer people from other countries to work in the UK but will still need to move them elsewhere. British companies will also still have a need to assign people to the EU and further afield -  assuming they are able to of course.

Freedom of movement

On which note, fears over unchecked immigration may be behind much of the Leave campaign’s momentum, but migration between the UK and EU would not come to an abrupt halt on 24th June if the UK votes to leave. A vote to leave does not automatically trigger “divorce” proceedings; the British government would have to invoke Article 50 of the Lisbon Treaty to make the UK’s intention to leave the EU official. 

As a vote to leave would most likely make Prime Minister David Cameron’s position untenable, this first formal step probably wouldn’t happen until the government finishes electing their new leader for a post-EU Britain, which could take months. Until the UK officially leaves the EU, it remains bound by its rules, including those which govern freedom of movement.

Article 50 states that EU treaties will cease to apply two years after this intention to leave has been communicated, unless the UK and EU negotiate an alternative time frame for withdrawal. At this stage of course no-one really knows what the withdrawal framework would look like, but it’s fair to assume that, as with any long-term relationship, the separation process would be long and complicated, not least because all the individual member states would need to be in agreement on the terms. Many experts estimate that secession would take at least a decade to complete.

In the short-term then we could expect migration of EU and UK citizens between each other’s countries to continue freely as before, perhaps for two years or more. In the longer-term, being able to control migration from the EU may be what motivates many Brexiteers, but freedom of movement could well continue depending on the terms the UK is able to negotiate in any trade deal with the EU. Norway, for example, has access to the single market by virtue of being signed up to the European Free Trade Agreement, which has a formal agreement with the EU to create the European Economic Area. Switzerland has taken a different approach and negotiated individual bilateral trade agreements with the EU over many years. In exchange, both are required to accept the rules regarding freedom of movement and make contributions to the EU budget. 

A post-Brexit EU will be looking to hold the remaining union together at all costs and unlikely to be receptive to giving the UK a deal on better terms than it has agreed with either of these examples (Switzerland suffered repercussions recently when it tried to cap EU immigration). The UK could end up continuing to abide by the same regulations on freedom of movement but with a worse trade deal than it had as part of the EU.

As referendum day approaches it seems the only thing we can be certain about is the uncertainty resulting from a “Leave” vote, the repercussions of which are already affecting the region and the global economy to some extent before the vote has even happened. Will British voters decide further uncertainty is a risk worth running to gain the perceived benefits of greater independence? Or will they decide that the UK is stronger within the EU? We will find out soon enough.

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