Editor's pick: Originally published June 17.
Perhaps you've been distracted by the U.S. presidential race or by recent stock market volatility and haven't been watching what's happening in the U.K. You should pay attention to that country's coming Brexit vote, though, because the referendum is a big deal, and not just for Britain.
In brief, Britons will go to the polls next Thursday, June 23, to decide whether Britain stays part of the European Union or leaves it. In the past, Britons have voted for closer ties with other European countries. In 1975, a strong majority supported the U.K. staying in the European Economic Community, the predecessor to today's European Community. (The U.K. had joined the EEC in in 1973.)
Support is not nearly as strong now, however. Polls reveal that the chances of the U.K. exiting the EU -- a possibility that has come to be known popularly as Brexit -- have strongly increased. One of the U.K.'s top-selling newspapers, The Sun, has urged its readers to vote to leave the EU.
The importance of this event outside the U.K. was underscored this week by comments from Federal Reserve Chair Janet Yellen, who said at a news conference, that a Brexit "could have consequences in turn for the U.S. economic outlook."
Here are three reasons why the June 23 vote is so important.
1. Weaker Global Position
While the U.K. would survive outside the EU, its international standing would weaken.
As an example, its ability to get favorable trade deals done would diminish.
In an interview with the BBC earlier this year, President Obama said, "The U.K. would not be able to negotiate something with the United States faster than the EU. We wouldn't abandon our efforts to negotiate a trade deal with our largest trading partner, the European market." Obama also said that the U.K. would have less influence in Europe and, because of that, less influence around the world.
2. Financial and Economic Volatility
An exit from the EU could become a messy affair for businesses in the U.K. and in other parts of Europe. It could also affect investors who hold shares of those businesses or exchange-traded funds that track European stocks. Already, just the prospect of a Brexit has put significant pressure on global stock markets. The U.K. holds a significant role in the EU, and its exit would adversely affect trade and investment on the continent.
We've already noted how U.S. Fed Chair Janet Yellen has said how a Brexit could affect the U.S. economy. In May, the U.K.'s central bank, the Bank of England, warned warned that a vote to leave the EU could create uncertainty and have an effect on the economy. The policy statement by the BoE stressed that Brexit could " alter the outlook for output and inflation, and therefore the appropriate setting of monetary policy. Households could defer consumption and firms delay investment, lowering labour demand and causing unemployment to rise."
3. It Won't Resolve the U.K.'s Immigration Debate
The Office of National Statistics revealed that the long-term net migration (the number of people coming to the U.K. minus the number leaving) rose to 333,000 in December 2015 (a 3% increase from September 2015).
Part of popular support for a Brexit is frustration over immigration. Earlier this year, The Guardian published results of a survey about Britons' feelings toward Europe. "Immigration" ranked highest among "the most important issues" facing the U.S.
True, under the EU regulations, people from EU member nations are allowed to live and work in the U.K. with no visa formalities.
But interestingly, even though the U.K. faces mass immigration, a majority of it is not coming from the EU. According to a recent survey by the Independent, around 76% of net migration over the past 25 year is by non-British citizens from non-EU countries. The survey shows that it is the migrants from India, Pakistan and China that have added to the increasing numbers, with very few leaving the country.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.