During the Napoleanic era in the early 1800’s, Napolean used an economic tool called the “Continental System” which was meant to cut off trade with Britian thus weakening her economy. With the continental system of 1806, it became clear that Europe would be at a standstill without Free trade with Britian and this consquently led to the Pennisular war and Moscow campaign due to defying of the continental system in Spain & Russia respectively.
Today Britian voted to leave the European Union and i can relate the consequences of this action to the Continental system. Both actions aim/aimed at restricting Free trade or what economists term as “Protectionism Policies”.
However the pulling out of Britian from the EU should not come as a surprise because Britian has always pursued an “Isolationist Policy” right from the time of tge 1789 French revoluntion. After the defeat of Napolean, a congress system was set up to protect the resoluntions of the Vienna Settlement with countries like Russia, Austria, Prussia Britian and later France in 1818. However Britian isolated the interests of other countries in the Congress System as George Canning the then British PM quoted “Every man for himself and God for us all”. This meant that the Congress system was bond to fail and it became a reality in 1825.
Throughout the revoluntionary era between 1830-1875, Britian remained silent on forces of liberalism and nationalism because of its non-interventionist policy. Therefore what we just witnessed today was not a surprise but this is a culture Britian has always believed as George Canning quoted. The bigger question that remains is, “Did Britian pull out because of selfish interests or because it fears to conflict the interests of other powers.
ECONOMIC IMPACT IN BRITIAN, EUROPE & THE REST OF THE WORLD.
Today for the first time since 1985, the pound has weakened and what economic impact will this bear.
One, this means it will cheaper for other currencies to buy a pound, a fact that will make British goods cheaper. And on the other side, goods purchased out of Britian will be more expensive in the British market. In simple economics, we call this “Beggar My Neighbour” policy where Britian tends to benefit from other economies while harming them.
This means that foreign investors will be discouraged from investing in Britian because by protecting the British market, it means that there will be a reduction in market among EU members. For example take a look at investors in the English football(Premier Leagea), it means they will cheaply see thier players to other countries however they will buy non-British players expensively.
This also will affect investors who import raw-materials from the other EU members at high prices because of a weak pound and similarly they would sell thier products to other countries at a high price.
Secondly, this is a sign that Britian is sacred of competition that is meant by engaging in international trade. Britian believes that its not gaining from EU but this is partly due to competition from other members like Germany.
To shy away from competition means that Britian lacks the capacity to utilise its domestic resources and put them into good use. For example it discredits the education system in Britian because the majority that voted to leave complained that they have lost local jobs to foreigners. This literally means that foreigners are more qualified than the natives. More to that due to lack of competition, there is a likelihood of a rise of Monopoly powers among the British domestic firms and this will consquently lead to a riise of domestic prices and production of poor quality goods.
Thirdly, this will automatically increase government expenditure in an attempt to stablise the exchange rate. For instance the governor of Bank of England said that the bank has €250billions to cope up with the situation. This money will also be used to subsidise domestic firms. Therefore with an increase in the governments expenditure, we must carefully look at the sources of revenue which i believe will be narrow given the fact that most investors will be discouraged from investing in Britian.
Lastly, it is likely to cause retaliation among the EU members. Harsh measurea may be taken in an attempt to protect thier economies from Britian.
This is likely to cause surplus output due to limited market both in Britian and among EU members and as a result, prices of commodities are likely to decline which discourages further investment. In this case, serious investors will opt to invest outside Europe. This is likely to cause economic stagnation.
In conculsion therefore, Britian’s action of isolating itself from the European Union is likely to do more harm than good not only in Britian but also in Europe as a continet and the world at large.
Britian would have found measures to cope up with the competition with EU members than quiting because by quiting it has made it clear that it lacks soluntions to cope up with the increasing pressure in world trade.