London May Become Independent City-State in Wake of Brexit
Cointelegraph investigates the economic impacts of Britain’s exit from the EU and the case for ‘Londependence’.
In the wake of Britain’s exit from the EU, there have been calls from many for ‘Londependence’, the Brexit-esque name for a referendum of London’s membership of the United Kingdom.
Londoners voted 59.9% to 40.1% to stay in the EU. Cointelegraph investigates the economic impacts of Britain’s exit from the EU and why this extremely radical idea may actually be a potential solution.
The pro-Remain metropolitan capital
In a graphic published by the Telegraph outlining the vote breakdown on the EU referendum by regions, it is plain to see that Scotland, London and Northern Ireland were all in favour of remaining in the European Union.
Within hours of the result being published, a petition calling for Sadiq Khan, the new Labour Mayor of London, to “Declare London independent from the UK and apply to join the EU” emerged on change.org. The petition has already gained just over 60,000 signatures at the time of writing in less than 12 hours.
The sentiment felt by many Londoners was aptly expressed by petition supporter, John Gowers, who lives in Bath:
“One pound in every five earned by Londoners is used to fund the rest of the UK. In a typical year, London contributes £10 to £20 billion to the rest of the UK and receives nothing in return. Even though the Houses of Parliament are situated in London, Londoners are only able to elect around 11% of MPs in the commons; Londoners have *no say* in how the vast majority of MPs are elected, yet they are still subject to their laws.
London has *no control* over its borders while it remains a member of the UK. Since 2007, there have been more people coming into London from the UK than there have from the rest of the world combined. An independent London would be able to impose an Australian-style points-based immigration system at its border, if that were not such a terrible idea. Even better, it would be eligible to apply to join the EU and the Schengen Area, allowing free movement into London from the EU and helping to facilitate the diversity of which Londoners are so proud.
Of course, by far the best argument for London independence is the economic one. As part of a post-exit United Kingdom, London faces economic instability and the cessation of trade deals with the EU. As an independent city-state and the newest EU member, London could reassert its status as one of the financial capitals of the world.”
Or as another supporter, Paul Trynka, more succinctly put it:
“I don't want our kids to be dragged down by old people who've spent all their money and sabotaged their future.”
Demographic data published by the Financial Times will only serve to reinforce a notion that the majority of Londoners already believed, that less educated people in poorer regions of the country who in fact benefit from the EU the most, despite not being European travellers themselves, have caused Britain to leave the EU simply because they outnumber those in London who are often too young to vote.
However, it is also important to note that, as is always with global voting trends, despite younger people voting overwhelmingly for remain, they voted in far fewer numbers than those of older generations, and as such some blame must lie with young people for their seeming indolence, and by the same token, apathy.
Economic impact of Brexit
“In the short term, the vote to leave the European Union is going to commence a period of disruption and uncertainty in which foreign direct investment in the UK takes a temporary pause while investors wait to find out what the long-term situation will look like.” This was the view expressed by the vast majority on both the Leave and Remain sides, as outlined by Matthew Yglesias in his article for Vox.
However, while pro-Leave would argue that this will only be temporary, and ‘once the world realises that nothing much has changed’, any market changes will revert to their pre-Brexit levels, pro-Remain argued that this period of economic downturn could last for many years, even decades.
Capital Economics, a London-based economic research consultancy, said of the economic impact:
“The outcome clearly creates considerable short-term uncertainty which is likely to weigh on the UK economy in the coming quarters. Nonetheless, we maintain the view that the ultimate damage will be rather smaller than some of the more pessimistic projections have suggested. After all, the UK will remain inside the EU for at least two years and possibly longer.”
Britain’s beneficial relationship with the EU
However, I would contend that although Britain may eventually recover from this ensuing economic strife, in 50 years time, had we never left the EU, we would be in a better position financially, and the facts tend to agree with me. In an article published by the Financial Times, the truly horrific economic impact on Britain is outlined in a series of graphics.
Prior to Britain’s joining of the EU in 1973, it was widely regarded to be the “sick man of Europe”, with its annual growth in prosperity lagging behind other major European powers, such as France, Germany, and Italy in the G7 list of leading economies. However, within 43 years, after its joining of the European Economic Community, it had risen from the bottom of the list to the top.
Although it is incredibly important not to confuse correlation with causation, with many pro-Leaver economists arguing that the absolute growth rates were lower after 1973 than before and that the main reason for Britain’s improved performance was Margaret Thatcher’s reforms, not EU membership, it demonstrates that the EU is not a hinderance to the development of the British economy, by any means.
In addition, in the most detailed assessment to date, Britain’s leading economic historian, Professor Nick Crafts of Warwick University, estimates that the EU directly raised UK prosperity by about 10%, largely due to increased competition and better access to the single European market.
Although it is true that Britain did make net contributions to the EU budget of £8.5bn in 2015, amounting to about £163 million a week, Britain still receives large contributions from the EU to farmers, poorer regions and science. The pro-Leave campaign has repeatedly said that this money saved could be spent as Britain wished, with suggestions that it could go into funding the NHS.
In reality, this net contribution is roughly only £1 out of every £100 the British government spends every year, so any savings would be rather negligible. Furthermore, the Institute for Fiscal Studies, an independent economic research organisation, has pointed out that leaving the EU would lead to slower economic growth, and as such the net savings would be wiped out through lower tax revenues and higher benefits spending, even if the growth reduction was as low as 0.6%, a rather conservative estimate. As if this wasn’t enough, the unavoidable collapse of the pound would further wipe savings. The IFS estimates that leaving the EU would cost UK taxpayers between £20bn and £40bn per year.
The Canadian investment bank and financial services provider, TD Securities, said of the economic downturn:
“We see the odds of a UK recession within the next 12 months as now 60 per cent. We pencil in year-end targets for GBPUSD of 1.20 and 0.50 per cent lows in 10-year gilts, and shift the next Fed hike to June 2017, with a 30 per cent chance of a rate cut but only if downside risks materialise, with these forecasts remaining fluid.”
Analysts at the Swiss global financial services company, UBS, added:
“Anticipation of further QE, intense domestic safe-haven demand, and lower nominal growth expectations are likely to compress Gilt yields, more than offsetting any upward pressure on yields from possible negative ratings action, higher government borrowing, and a drop in overseas investor demand.
Sterling has already fallen in response to the Leave vote, we have estimated previously that in the near-term it could trade to the 0.84-0.89 range. From a longer term perspective, we think sterling could head towards parity against the euro and 1.20 against the US dollar.”
To conclude, I will let this graphic speak for itself about how world economists’ believe Britain’s exit from the EU will impact Britain’s economy long-term. Given that London is the financial hub of the UK and generates approximately 22% of the UK's GDP, a British economic downturn will impact London the most, and as such an independent London could provide a solution.
Impact on cryptocurrency
Obviously, as Cointelegraph has discussed in previous articles, Britain’s exit from the EU will lead to, and has already led to, a surge in the price of Bitcoin and other cryptocurrencies as disillusioned Brits flock to more steadfast stores of value than the collapsing pound. Although for the majority, more traditional stores of value such as gold bullion will serve this purpose.
However, for those looking to profit off of this swift Bitcoin price surge, it would be wise to consider the fact its speed could very well be attributed to a fear-based reaction from the British public. The price increase will likely last only a few weeks, if not days, as the pound begins to recover from its lowest level since 1985 while panic trading peters out and tensions subside.
Scotland, Northern Ireland, Wales, and the collapse of the EU
Although somewhat unrelated to the topic of this article, I felt I had to mention the referendum results of Scotland, Northern Ireland, and Wales, and how they might impact a London exit from the UK. Since Scotland will undoubtedly be holding a second referendum on their membership of the UK, and this time, they will most likely leave, this will pave the way for the breakup of the UK, and as such, an independent London.
In addition, a referendum on Northern Ireland’s membership of the UK spearheaded by the ultra-nationalist left-wing Sinn Féin which is sure to take place in the coming years, could only serve to cement the view that the UK can be broken up.
Wales’ logic-defying decision to leave the EU doesn’t even bear speaking about considering “through the EU Structural Funds, Wales has benefited from just over £4bn since 2000, supporting business, research and innovation, helping people into work, increasing skills, improving transport and digital networks, regenerating our communities, and enhancing our environment,” and, “since 2007, EU projects have created 11,925 enterprises and 36,970 (gross) jobs, assisted 72,700 people into work, 229,110 to gain qualifications, and 56,055 into further learning,” with the EU “providing around £200m a year in single farm payments to more than 16,000 farms in Wales.”
Wales was without a doubt a net beneficiary of the EU and their ‘Leave’ vote only serves as testament to the misinformation perpetuated by the pro-Leave campaign, the failure of pro-Remain to highlight Wales’ reliance on the EU, and the older generation’s ignorance to and outright denial of the facts surrounding immigration.
Concerning the potential collapse of the EU, Kit Juckes, a strategist at Société Générale, a French multinational banking and financial services company, had this to say:
“The UK economy enters a period of huge uncertainty — and weakness as a result — and despite the 9.8 per cent fall in GBP/USD that we have seen overnight, there is a grave danger of further weakness in the weeks ahead. Indeed, the view of policymakers will be that a weaker pound is a vital economic shock absorber.
Concern about the economic fallout in Europe is likely to see the euro fall further in the weeks ahead too — it has actually held up rather better than I for one expected but a drop to 1.06 in EUR/USD seems likely. Political fallout has already seen Scandinavian and CEE currencies fall on concerns about what this means for the EU.”
I thought I’d close with a extract from a small political analysis blog that foresees the downfall of the EU in great detail. Writing from the perspective of someone having borne witness to the downfall of the world’s most successful economic bloc on June 23 2041, following the ensuing exits of Greece, France, and Spain from the EU, he writes:
“With the exit of Europe’s second largest and fastest growing major economy, the European Union lost not only the influence and impact of one of its great contributors, but it inspired a wave of member withdrawals in the subsequent years, lasting up to this very day.”