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Why a Brexit Could Be a Losing Proposition for Everyone

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Why a Brexit Could Be a Losing Proposition for Everyone

Why a Brexit Could Be a Losing Proposition for Everyone

After two days of intense negotiations, British Prime Minister David Cameron has proposed a new agreement that could allow Britain to stay in the European Union. Although not all of his demands were met in full, the potential deal focuses on migrant workers, protecting the pound and London’s financial sector from regulations, sovereignty, and competitiveness.

It may be just enough of a carrot to dangle in front of the “Euroskeptics”, or Brits that are skeptical of the benefits that Britain receives from EU membership.

However, the split between “stay” and “leave” is still very even according to polls:

Polls: Stay or Leave Europe

With polls close and the “Vote Leave” campaign now in full gear for the referendum on June 23, investors around the world are trying to figure out the potential economic and political impact of a British exit from the EU.

Here’s What’s at Stake

The Bertelsmann Foundation, a non-profit foundation from Germany dedicated to European unity, has come up with a fairly compelling case against a Brexit.

Shown in today’s infographic, the impact of the UK leaving the economic union creates a situation where everyone loses.

While its true that the UK would have greater control over its own immigration and regulations, the downside is largely economic. Britain could avoid making payments to the EU budget, which works out to ยฃ350 million per week, but this would be likely outweighed by the increase in trade barriers. Currently 45% of the UK’s exports go to Europe, and without direct access to the single market, the cost of both imports and exports would likely go up.

The costs of trade policy isolation affect the United Kingdom, where GDP could drop from 0.6% to 3% lower by 2030, compared to if it remained in the EU. Bertelsmann warns it could be even worse once the effects of economic isolation factor into investment and innovation behavior, with the GDP dropping up to 14%.

Britain is not the only country that would be affected. As a result of a Brexit, the GDP per capita of Ireland (-2.66%), Germany (-0.33%), Netherlands (-0.35%), France (-0.27%) and Spain (-0.32%) could all also be impacted.

Does the financial community share these concerns? If the pound is any indication of Brexit fears, the currency is currently trading at seven-year lows.

GBPUSD

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Chart of the Week

The Best and Worst Performing Wealth Markets in the Last 10 Years

This telling chart shows how national wealth markets have changed over the past decade, highlighting the biggest winners and losers.

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The Best and Worst Performing Wealth Markets

A lot can change in a decade.

Ten years ago, the collapse of Lehman Brothers sent the world’s financial markets into a tailspin, a catalyst for years of economic uncertainty.

At the same time, China’s robust GDP growth was reaching a fever pitch. The country was turning into a wealth creation machine, creating millions of newly-minted millionaires who would end up having a huge impact on wealth markets around the world.

The Ups and Downs of Wealth Markets (2008-2018)

Today’s graphic, using data from the Global Wealth Migration Review, looks at national wealth markets, and how they’ve changed since 2008.

Each wealth market is calculated from the sum of individual assets within the jurisdiction, accounting for the value of cash, property, equity, and business interests owned by people in the country. Just like other kinds of markets, wealth can grow or shrink over time.

Here are a few countries and regions that stand out in the report:

Developing Asian Economies
In terms of sheer wealth growth, nothing comes close to countries like China and India. The size of these markets, combined with rapid economic growth, have resulted in triple-digit gains over the last 10 years.

For the world’s two most populous countries, it’s a trend that is expected to continue into the next decade, despite the fact that many millionaire residents are migrating to different jurisdictions.

Mediterranean Malaise
European nations saw very little growth over the past decade, but the Mediterranean region was particularly hard-hit. In fact, eight of the 20 worst performing wealth markets over the last decade are located along the Mediterranean coast:

Rank (Out of 90)Country% Growth (2008-2018)
89๐Ÿ‡ฌ๐Ÿ‡ท Greece-37%
87๐Ÿ‡จ๐Ÿ‡พ Cyprus-21%
86๐Ÿ‡ฎ๐Ÿ‡น Italy-14%
85๐Ÿ‡ช๐Ÿ‡ธ Spain-13%
84๐Ÿ‡น๐Ÿ‡ท Turkey-11%
82๐Ÿ‡ช๐Ÿ‡ฌ Egypt-10%
80๐Ÿ‡ซ๐Ÿ‡ท France-7%
76๐Ÿ‡ญ๐Ÿ‡ท Croatia-6%

European Bright Spots
There were some bright spots in Europe during this same time period. Malta, Ireland, and Monaco all achieved positive wealth growth at rates higher than 30% over the last 10 years.

Australia
While it’s expected to see rapidly-growing economies as prolific producers of wealth, it is much more surprising when mature markets perform so strongly. Singapore and New Zealand fall under that category, as does Australia, which was already a large, mature wealth market.

Australia recently surpassed both Canada and France to become the seventh largest wealth market in the world, and last year alone, over 12,000 millionaires migrated there.

Venezuela
The long-term economic slide of Venezuela has been well documented, and it comes as no surprise that the country saw extreme contraction of wealth over the last decade. Since war-torn countries are not included in the report, Venezuela ranked 90th, which is dead-last on a global basis.

Short Term, Long Term

In 2018, global wealth actually slumped by 5%, dropping from $215 trillion to $204 trillion.

All 90 countries tracked by the report experienced negative growth in wealth, as global stock and property markets dipped. Here’s a look at the wealth markets that were the hardest hit over the past year:

Wealth MarketWealth growth (2017 -2018)
๐Ÿ‡ป๐Ÿ‡ช Venezuela-25%
๐Ÿ‡น๐Ÿ‡ท Turkey-23%
๐Ÿ‡ฆ๐Ÿ‡ท Argentina-20%
๐Ÿ‡ต๐Ÿ‡ฐ Pakistan-15%
๐Ÿ‡ฆ๐Ÿ‡ด Angola-15%
๐Ÿ‡บ๐Ÿ‡ฆ Ukraine-13%
๐Ÿ‡ซ๐Ÿ‡ท France-12%
๐Ÿ‡ท๐Ÿ‡บ Russia-12%
๐Ÿ‡ฎ๐Ÿ‡ท Iran-12%
๐Ÿ‡ถ๐Ÿ‡ฆ Qatar-12%

The future outlook is rosier. Global wealth is expected to rise by 43% over the next decade, reaching $291 trillion by 2028. If current trends play out as expected, Vietnam could likely top this list a decade from now with a staggering 200% growth rate.

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Map: A Visual Guide To Europeโ€™s Member States

Europe has members in at least four major treaty groups. This map shows how these groups fit into the big picture of Europe’s member states.

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Europe's Member States share

Map: A Visual Guide To Europeโ€™s Member States

EU, NATO, and Schengen, oh my!

Amidst whispers of Brexit and potential changes within NATO, you might be wondering how these organizations fit into the big picture of Europe’s member states.

Europe has members in at least four major treaty groups, each of which governs a different aspect of the region’s infrastructure.

Let’s break down each group:

European Union (EU)

The European Union is primarily a political organization. It promotes economic, social, and political cooperation among its member states, encompassing more than 510 million citizens. The last nation to join was Croatia in 2013, while the United Kingdom will be the first to officially withdraw on March 29, 2019.

The EU is governed according to a supranational parliamentary system, with representatives elected by member states. The union maintains common policies on trade, agriculture, and regional development. It also enacts legislation on justice and home affairs, ensuring the free movement of people, goods, services, and capital within its borders.

The EU was awarded the Nobel Peace Prize in 2017 for its contribution to the “advancement of peace and reconciliation, democracy, and human rights in Europe.”

North Atlantic Treaty Organization (NATO)

NATO is a military alliance between the United States, Canada, Turkey, and 26 other European countries.

Established in 1949 as a response to post-WW2 Soviet aggression, NATO exists for the collective defense and security of the group. Members share few laws and regulations, but an attack on one constitutes an attack on all, and member states are obligated to act in defense of one another.

Iceland remains the only member without armed forces. Their strategic geographic location earned them a spot as a founding member of NATO, but they have no standing army and joined on the condition they would never need to establish one.

Eurozone

The Eurozone is a monetary union of 19 EU nations which have adopted the Euro as their common currency.

Established in 1999 to control inflation, the Eurozone is managed by a board of central banks, but members share no fiscal policies. The remaining EU members are obliged to adopt the Euro at some point in the future, except for the UK and Denmark, who are exempt and permitted to retain a unique currency.

The Euro is also used in a number of non-EU states. Andorra, Monaco, San Marino, and Vatican City obtained formal agreements to issue and use their own Euro coins. Kosovo and Montenegro also adopted the Euro, but without formal permission, meaning they cannot legally issue currency.

Schengen

This grouping of 26 European states abolished passports and other types of border control at their mutual borders in 1995. For travel purposes, Schengen states function as a single country with a common visa policy.

This visa doesnโ€™t cover residency or work permits, but allows tourists and visitors to obtain a single visa for the entire area, making border restrictions virtually non-existent. While travellers face stringent controls when entering or leaving the Schengen zones, visa holders can pass between Schengen countries without a passport or ID.

Monaco, San Marino, and Vatican City are not formally part of Schengen, but maintain open borders within the Schengen area.

The map of Europe’s member states has changed constantly over thousands of years. As political shakeups continue and the United Kingdom prepares for their exit from the EU, it might be interesting to see how different this map looks a few years from now.

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