Brexit risks: justified or overestimated; Part 4

In our previous parts to Brexit risks, available at http://www.econotimes.com/Brexit-risks-%E2%80%93-justified-or-overestimated-%E2%80%93-Part-1-140164 and http://www.econotimes.com/Brexit-risks-%E2%80%93-justified-or-overestimated-%E2%80%93-Part-2-140307 and http://www.econotimes.com/Brexit-risks-%E2%80%93-justified-or-overestimated-%E2%80%93-Part-3-141115, we discussed the very possibility of Britain's exclusion from European Union poses both risks and opportunity especially in Pound. However for which two question need to be answered or speculated upon -

• Will Britons vote to leave European Union or not?
• If they do, since it is not end of world.......is market overpricing risks?

First one, we have addresses in the second part of this small series and in third part we have shared the demands of Britain from European Union

Now, in this final part of the series, we are to discuss, second part of the question.

So, what is the biggest risks associated to Brexit?

Its uncertainty, which would be devastating for both European Union and Britain. However, according to us, it would be more for Britain than for the bloc as a whole.

Uncertainty will be stemming from the following -

Fate of United Kingdom, courtesy Scotland 

Back in 2014, Scotland had a vote whether to stay in United Kingdom or not. In which people voted in favor of staying but not in a very bright margin.

Scottish leaders have repeated warned against leaving the bloc, so if Britain choose to leave European Union, expect another Scottish Referendum over Scotland's independence.

Free Trade Agreement 

As part of the bloc, Britain has access to European Union's single market and European Union remains the source of largest share of UK exports. Almost all companies benefit from this FTA. As of latest data, European Union countries consume about 40% of UK's exported goods and services.

While it is more likely now that UK's demands would be met, if Britain do choose to leave, a FTA with Britain will less of a priority for EU.

Legal challenges 

As of now, UK is just holding talks over the negotiations of its demands with leaders of European Union. So larger legal complications if Britain leaves remain almost untouched.

• If UK gets out of European Union that means, it would be free from European laws. So urgently it would have to adopt several laws of its own, which might take months of negotiations in the parliament.

• If Britain do leave European Union, then Britons, who don't have permanent residency and benefits from single market and automatic EU citizenship will have to leave EU. Britain will have to renegotiate its work status with EU and if it chooses to reap benefits from EU citizens, it would face similar treatment.

• Companies in UK, would face severe uncertainties over new laws, and trade agreement with EU. It would hamper UK exports for months if not years.

• As part of the EU, Britain has auto-agreement with rest of the world, comprising 60 countries and 35% of the global trade. Britain will have to renegotiate with each countries.

Business investment 

UK likely to suffer major business spending cuts due to the uncertainties and business's exposures to overall European Union.

Political say -

Britain would lose its importance in global politics as EU would have much greater say in negotiations ranging from Syrian war to Russia-Ukraine tensions.

Above are the main areas, form where uncertainties would arise, however Brexit would be hampering beyond these to even minor issues such tourism, educations.

Considering the above risks, we feel Brexit is far from being price in, however market might be setting expectation that UK would vote to remain in EU.