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UNC-Chapel Hill POLI 287 - Brexit Draft 1

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1BrexitBrexit abbreviates 'British exit,' which refers to the UK's decision to leave the EU(European Union) after a referendum on June 23, 2016. The votes defied the expectations,roiling global marketplaces, and causing a British pound fall against the US dollar, the lowest inthirty years (Clarke,+et+al. 2017). David Cameron, the former PM (Prime Minister) who hadcalled this referendum campaigning for the UK to remain in EU, declared his resignation thenext day. From the UK's decision to exiting the EU, a question arises on how the relations wouldbe conducted subsequently. The UK and EU's negotiation objective ensures the best strategy for both the EU and UK and theobtained short and long-term advantages. Considering a game with the UK, another country X(that accepts the EU's deal) is the two players, whereby the EU only has two potential strategiesto offer. The EU may offer UK and Country X a bad or good deal (Busch,+et+al. 2016).Therefore, UK and Country X similarly have only two potential strategies to pursue; eitheraccept its negotiated deal or rejecting it and exiting the EU. The EU offers the deal for free tradeand free movement of people, and the UK decides to reject the offer and, therefore, no free tradeand no free movement for UK people. A pay-off can be used to compare UK and Country X. Inthe game theory, Country X is assigned 1 utility for gaining freedom of movement, 1 utility forgaining free trade, and -1 utility for free movement and no free trade. On the other hand, the UKis assigned 1 utility for free trading and no free movement and -1 utility for no free trading andfree movement. According to Brexit, UK's highest pay-off is 0 utility while Country X is 2utility.+2The Brexit theoretical game theory above suggests that the UK would be disadvantagedwhile Country X was advantageous (Kierzenkowski,+et+al. 2016). UK's economy would take adip, and therefore UK is at the losing end with its Brexit decision, which denies it theopportunity for free trade and freedom of movement, which would have increased the country'sGDP (Gross Domestic Product).+Notably, a multipolar world suggests that the UK is more substantial in terms of economyas a member of the EU than country X, and it has a contribution that the EU owns. Severaleconomic indicators also suggest that the worldwide influence and the bargaining power that theUK has are superior when merging with the other European economies. Generally, the EU isknown to have the most significant world GDP proportion and trade, and China and the USclosely follow it. Generally, after the Brexit, the EU's share would be lesser than those of Chinaand the US for GDP and overdue the US's trade. The proportion of the UK in the world GDP isbroad compared to that of country X, whereas the trade is the same as their average. Generally,the shares of the EU in the worldwide population and territory are not much, and the UKepitomizes below 1% of each share (Sampson, pg.165, 2017).Moreover, Brexit is of more risk to the UK than to country X. This is in terms of thereflection of the prices of the financial assets. Notably, Brexit's risk is positively reflected in theprices of financial assets. The cost incurred during the insurance of UK public obligation againstindependent default had experienced a rise as from October 14, when the EuropeanCommission's President gave a first warning about the progress that is only limited in dialogueswith the UK. As it is well known, the spreads of CDS remain relatively low to the period offinancial crisis their this increases that they have been observed as from mid-October ad it is anotable increase as well as a higher one than that of country X. Similarly, there is also the spread3of CDS that has edged up in the region of euro. For the UK's case, this particular rise reflects theinvestors' fear rather than a genuine risk of sovereign evasion after Brexit, given England's Bankthe ability to perform as a last resort lender. Compared to country X, the UK's equity prices andthose of the euro region have bounced back, but they remain intense as a large number of listedcompanies are international (Virdee, et al., pg.1810, 2018). Therefore, if the UK's Brexit decisionsucceeds, then the UK will be at a very significant disadvantage compared to country X; hence itwill lose many benefits that it would have received without having its Brexit decision.Support for Brexit would result in considerable uncertainty in the term that is almostapproaching, further raising the risk and hurting confidence. If exiting from the EU, theaftermath for the support would mainly cause additional volatility that is considered in themarkets of finance and an extended time of uncertainty concerning the developments of thefuture policy. In addition to that, negotiations that are undergoing the UK's withdrawal from theEU would require to occur over 2016 to 2018. It will be followed by negotiations of trade withthe EU and thus will occur in 2019 and take place until 2023. Notably, it is likely to result inenhanced uncertainty for a period that is extended. Former experience shows that a more massiveuncertainty, whether replicated in the Economic Policy Uncertainty Index, belongs to the UK ormarket volatility of the excellent stock, would be connected with higher corporate bond spreads.Generally, it would be possible for uncertainty to depress the prices of assets and reduce bankcredit availability. In addition to that, it would increase its own cost from the sector that isprivate. A success to confidence is also capable of leading households and businesses totemporarily postpone their spending decisions. These particular shocks will significantly impactthe UK compared to country X, and it would therefore be conveyed to other nations, primarily in4Europe. As the financial crisis globally and the euro area's crisis signify, adverse financial shockin one particular nation can spread quickly to the other nations (Colantone et al., 2019).As the initial shock directed to the conditions of finance continues to be morecomfortable, the trade would be capable of being achieved by 2019, the period that there is anassumption of the UK exiting officially out of the EU. Generally, the UK exiting the EU


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