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How quickly the unthinkable became the irreversible

The United Kingdom European Union membership referendum took place on 23rd of June 2016 and Pandora’s Box has been opened. The sterling posted its worst week in more than seven years as anxiety that the UK will leave the EU pushed the currency to its lowest level since 2009. The consequences of this historical decision are numerous and momentous. Voters ignored the warnings of economists, allies and their own government and, after more than four decades in the EU, are about to step boldly into the unknown. However, as Green mentioned “a vote for Brexit will not be determinative of whether the UK will leave the EU”, since the referendum result is not binding for the Parliament.

Implications for Cyprus
Cyprus is one of the countries that the UK has strong bilateral relations, reflecting the historical ties between the two countries. Brexit has dimensions that raise many concerns for Cyprus, especially given the fact that Cyprus is still recovering from the crisis. The depreciation of the British pound will certainly have an impact on tourist arrivals as well as trade between the two counties. Additionally, the purchasing power of British foreigners that live in Cyprus has been significantly reduced. The effect on tourism for 2016 will likely go unnoticed, especially given the strong numbers achieved this year. However, should the British pound weakness persist and given that arrivals from the UK comprised 39% of total arrivals last year, the impact on the economy can be significant.

Tourism
The tourism sector in Cyprus plays a significant role in the economy. According to WTTC, the direct contribution of Travel & Tourism to GDP in 2015 was approximately 7.6% of GDP. This is forecast to rise by 4.3% in 2016. Meanwhile, British citizens keep a leading position in the number of arrivals for holidays. Most visitors (1.041 mn.) in Cyprus in 2015 were from the United Kingdom. Following the announcement of the referendum result and subsequent depreciation of the British pound, it is much more expensive for British people to travel to Cyprus and any other EU countries. In addition, possible changes to the current free movement of people between the two countries might cause a negative effect on tourist arrivals/departures from/to the UK.

Trade Sector
The UK and Cyprus have close economic relationship. UK is one of the main partners of Cyprus, together with Greece, Israel, Germany and France. Exports of Cyprus to the UK comprise 10% of the total exports of the country and trade in services between countries equals to 20%. UK’s decision to leave EU will certainly affect Cyprus’ exports both in the long and short term. “Brexit could pose unpredictability in the trade sector and negative consequences on trade agreements”, Cyprus High Commissioner to the UK, Euripides Evriviades, had said before the referendum

Interpersonal relations

It is estimated that around 270,000 Cypriots currently live in the UK and approximately 12,000 Cypriot students are currently enrolled in British universities. At the same time, there are between 60,000 and 70,000 British people living in Cyprus. Restrictions on the free movement of EU citizens from and to the UK may arise, depending on the UK’s exit negotiations. Implications will be greater for people who plan to permanently stay and work in the UK. Cypriot students in the UK will be called to pay the increased tuition fees to their colleges/ universities, with a direct impact on their households.

Cyprus Problem

In addition to the above, while the Cyprus problem still remains and is currently under negotiation, the UK and the EU seem powerless, fearful and concentrated more on the Brexit issue and Britain is looking for a new leader since the prime minister resigned and the country is divided by the referendum.

With an eye to the future

The UK has not invoked Article 50 of the Lisbon treaty, i.e. the formal announcement of its intention to leave the EU. The Brexit will be in process and will not conclude earlier than 2019 according to the Lisbon treaty.

While the UK wishes to maintain free trade and free movement deals with Europe, it is unlikely that the EU will offer easy access to the free market. EU is set on making an example out of the UK, partly to deter other countries from considering an exit. As such, the UK will face difficulties maintaining its current trading status with the EU.

Published in  Delfi Partners