Impact of Brexit on the European Union

Budget

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 euros.^[3]

To help fill the gap, the European Commission has looked at reductions in regional spending of up to 30%, which has concerned some of the poorer member states which rely heavily on the regional funds. However the EU has been under-spending on regional funds to the extent that €7.7 billion of unpaid funds was paid back to member states in 2017 (in addition to several billion more that came in due to cartel and anti-trust fines). The result may be that most of the savings in the EU budget could be located in regional funds which are being under-spent regardless.^[4]

Ideological shift

As the EU's third most populous state, with over 12% of the Union's population, the UK is 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.^[1]

In the Council, during the UK membership there have been two blocs, each capable of forming a blocking minority against the other; the protectionist bloc of mainly southern states and the liberalist bloc of mainly northern states. As a member of the latter, the UK's departure would weaken the liberalist 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 would also strengthen Germany's individual position in the Council through the loss of a key counterweight. Despite this, Germany remains uneasy about this role lest other member states uneasy about German dominance may be more tempted to ally against it.^[1][6]

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

Similarly, a majority of the UK's representatives sit with right-leaning groups, namely the European Conservatives and Reformists and the Europe of Freedom and Direct Democracy, both of which are built around, and led by members of, the British Conservative Party and UKIP. The Progressive Alliance of Socialists and Democrats would also lose 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:^[1]

• 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.

Defence and foreign affairs

The UK has been a key asset for the EU in the fields of foreign affairs and defence given that the UK is (with France) one of the EU's two major military powers, has significant intelligence capabilities, soft power and a far reaching diplomatic network. Without the UK, EU foreign policy could be less influential.^[1] 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 responses to Russia.^[6]

However Brexit also produced new opportunities for European defence cooperation, as the UK has 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.^[7] 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).^[8][9]

Eurozone

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 planned 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.

UK had called for the EU treaties to be amended to declare the EU to be a "multicurrency union", which sparked concerns that to do so might undermine the progress of euro adoption in remaining countries.^{[11][12][13][10]}

Simon Hix contends that Brexit would strengthen the Eurozone, which may well replace the single market as the EU’s core and driving force. Tim Oliver agrees, stating that Brexit would allow the Eurozone and the EU to ‘more neatly align’. 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.^[1]

Trade with UK

While the trade impact of Brexit on the UK is likely to be significantly negative, its impact on the EU is also expected to be negative, but small. The UK and the EU would become each other's biggest trading partner but 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 agribusines integration with Northern Ireland^[14] The reintroduction of a customs border would be economically and politically damaging to both sides,^[15][16] particularly because of the risk to the Northern Ireland peace process that a physical border presents.^[17] Despite protestations of good will on both sides, it is not obvious how border controls can be avoided unless the UK has a Customs Union with the EU.^[18][19] 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.^[20]

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.^[15]

Migration

The UK's aim is to have as much access to the EU market without accepting free movement. 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.^[21]

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.^[22] 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]

Agencies located in the UK

In 2017, the UK was currently hosting the European Medicines Agency and the European Banking Authority. 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 relocated to Amsterdam and Paris.^[23]

The backup data centre for the security behind the Galileo satellite navigation system was also relocated from the UK to Spain due to Brexit.^[24]

European Parliament seats

The UK is allotted 73 seats in the 751 seat European Parliament, which are likely to become vacant just before the 2019 elections. Under normal procedures, these seats would be re-distributed between the remaining members according to the standard formula, but there have been a number of alternative proposals. The Parliament has proposed that 22 seats would be redistributed and the remaining 50 would be reserved either for new members, or an additional trans-national list of MEPs which would be elected across the Union in an effort to deepen a direct democratic link. This has been 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 are opposed by constitutional affairs committee chair Danuta Huebner.^[25][26]

Computations were proposed in "THE COMPOSITION OF THE EUROPEAN PARLIAMENT WORKSHOP" paper on 30 January 2017.^[27]