The United Kingdom's exit from the European Union (Brexit) in January 2021 was a significant event in the modern history of the UK and the EU.
Brexit reshaped the economic relationship between the UK and the Eurozone, influencing various parts of the economy, such as trade and financial settlement, as well as the rights of citizens in both locations.
Brexit and Exchange Rates
The proposals for the UK to exit the EU began many years before 2020; between 2016 and 2017, the UK decided to vote but eventually extended the exit date. The GBP, however, fell 11% between May 2016 and March 2017, shortly after the country voted to leave the EU. Currency traders on platforms like the MetaTrader 5 would have noticed a similarity in the GBP’s slump against the Euro within that period akin to 2008, which saw the GBP fall 28%.
Brexit also impacted the Eurozone in various ways, ranging from a change in migration laws to business relationships within the EU and with other countries. The far-reaching effects of Brexit offer many advantages and disadvantages for trade relationships in the EU. These include:
Increased GDP Contribution from EU Countries
The UK, pre-Brexit, contributed about 16% of the EU’s GDP, and when it left the Union, the gap was noticeable. The EU, in response, had to cut spending and increase the contributions from member nations. The global economic slump in 2020 meant more challenging conditions, such as the UK's GDP growth of -9.396%. The EU had to respond by improving trade relationships with non-EU countries to spur economic development within the Eurozone economy.
EU countries with close trading ties to the UK experienced a higher barrier to capital flows, labor, and trade caused by the new migration and economic laws between the EU and the UK. On the other hand, EU countries with trade ties to other EU countries saw increased ease of capital flows and trade.
More EU countries are collaborating to improve international trade within the Eurozone and lower the costs of doing business, with the ultimate aim of enhancing the GDP and the EU economy at large. For example, Norway increased its crude oil exports while France and Germany held more talks for economic partnerships.
Decreased Reliance on the UK
Brexit forced the EU to ramp up investments in renewable energy, food, and other agricultural products to reduce its reliance on the UK, one of its major trade partners. Russia was one of the largest fuel suppliers to the EU, followed by the US, which ramped up supply following Brexit. Since 2022, the importation of crude oil in the EU has changed significantly, with the US becoming the largest supplier, followed by Norway.
This has led to an increased investment in renewable energy in the EU as authorities seek to mitigate the energy crises. Other areas of capital investments include food, agriculture, and services within the Eurozone, as the EU seeks alternative sources of much-needed materials for its economic processes.
EU Trade Relations Improved After Brexit
The EU turned its attention to other countries to build trade and economic ties. For example, there are now more trade agreements and talks between the EU and its member nations and countries like Vietnam, China, Canada, the US, and Mexico. These are targeted towards improving the movements of goods and services at lower costs and building influence with other countries.
The EU is now focused on trading with blocs and countries outside Europe and stands to benefit from the long-term impacts of such trades. However, it has only partially been successful, as the EU-Australia free trade deal recently collapsed; this may push the EU to other countries in search of trading agreements.
Brexit and the Future of EU Trade Relationships
The EU remains committed to improving its trade relationships with EU and non-EU countries. The process is complex and ongoing, but early trends indicate a push for non-EU trade relationships, as well as changes to laws governing the economy, businesses, trade, and investments within the Eurozone.
The push for more partnerships will also open up more non-EU markets, expanding the reach and influence of the EU. Businesses and individuals looking to trade may benefit from the potential advantages such as a more robust economy, strong exchange rates, and increased revenue.
Although Brexit impacted the UK’s economy in diverse ways, the EU also had to cope with losing a large economy that contributed massively to its GDP and market. The UK’s exit increased the demand for commodities, goods, and services and also created more bottlenecks in cash flows and trade processes. The EU, in response, turned to other countries to improve trade relationships and meet the increased demand for energy, food, and other commodities.
