The idea of European fusion began in the 1950s as a peace endeavor among European countries after two world wars.

It entailed economic integration, which ultimately developed into the European Union (EU).

The EU became an economic bloc, consisting of 28 countries, which represents a coherent integration example of free movement of goods, people and capital, and inspires other geographical areas as well.

However, Britain only joined the march of European economic integration as of January 1, 1973.

Essentially, Britain pursued the membership to be part of Europe, without incurring full liability for the European collective undertakings.

British political hard-liners who do not believe in the idea of Europe see that European institutions must be a servant — and not a master — of member states; they see no need to build a pan Europe system of central state socialism, because, in their opinion, this represents a return to a dark past.

Indeed, Britain was both outside of the monetary union (euro zone) and Schengen Agreement, and was exempt from many other European commitments.

Thus, Britain had independence in certain policies, e.g. monetary and fiscal policies.

Britain is the fifth-largest economy in the world (representing 4 percent of the global GDP in 2014) and second largest economy in the EU (15 percent of total GDP) second to Germany.

For nearly 43 years, Britain strongly benefited from its EU membership as its market continued to largely expand.

Nearly 45 percent of British exports target the EU.

On the other hand, there was a noticeable increase in the EU size during the past decade, especially in the years following the global financial crisis, when Europe’s public finances faced difficulties in member states including Italy, Spain, Portugal and Greece, due to high government debt ratios and lower credit rating, etc.

The EU size increase was similar to obesity, with the accession of Eastern European countries, and later on, the refugees issue.

Despite its privileged status in the EU, and as far as Britain was concerned, the failure of EU institutions to address several issues resulted in repercussions, including the influx of immigrants — particularly Europeans workers — to Britain, which was politically unacceptable considering the seriousness of the situation if it continued at the same pace. In particular, fiscal and social policies, especially with the worsening unemployment issue among British youths, and European common policies in various economic sectors, such as agriculture, energy, transportation, technology, health, environment, etc., which restricted British companies, were conclusive evidence on the failure of reaching consensus and agreement on a minimum level of cooperation; which fueled separatism within European political parties and selfish motives among Member States that consider themselves superior, and ultimately, the game of interests among member states at a time of cost-benefit imbalance.

Calculations of gains and losses, inter alia, were key influencing factors on David Cameron’s decision to activate one of the major tools in practicing democracy — the referendum — in which about 33.5 million British individuals participated (72.2 percent of registered voters).

The “Leave” camp led with 17.4 million votes (51.9 percent).

Some argue that the shocking vote in favor of Brexit was hijacked by David Cameron, who submitted his resignation after risking the future of the EU by resorting to this referendum which was conducted by a simple majority, leaving the burden on Prime Minister Home Secretary Theresa May, to trigger Article 50 of the Treaty of Lisbon, which regulates exit procedures from the EU and allows a maximum period of two years to conclude exit negotiations.

Britain is an old key player in shaping the Contemporary International Order, with a prominent global financial center and a strong economy that ranks among the world’s most competitive states.

Therefore, the presence or absence of Britain in the EU makes a difference that alters the balance of international strategic relations, not only in the EU, but in the world.

Once results were announced in favor of Brexit, significant losses occurred to property and capital markets and exchange rates of the Euro and Pound Sterling, among other immediate impacts.

Those impacts are, in fact, instantaneous reactions which create instability in the short-run. Long-run options, however, can take different paths. Looking along a secular trend, several questions arise.

First, will the rest of EU member states follow in Britain’s footsteps, weakening or dismantling the EU? (domino effect).

This is not highly expected due to the fact that the European experience is old. Germany will be leading the EU alongside France, which will become the second largest economy in the EU.

Second, what will happen to Britain’s relations with the EU? According to Article 50 of the Treaty of Lisbon, Britain will enter into negotiations to reach an agreement on concluding its exit from the EU.

Negotiations will specifically review all agreements, and determine whether to stay in / out / modify conditions of each of these agreements separately.

Negotiations and expectations must be inextricably tied.

Early expectations of the future will be misplaced due to the ambiguity of the transitional period – the period of exit from the exit.

There are positive convictions that markets will gradually restore self-confidence, as well as confidence in British economy until this critical phase has passed.

However, both old and new economic powers will be shaping the basic features of the future, including emerging regional blocs in global economy, such as BRICS, and Trans-Pacific Partnership, among others.

In general, British economy, and economies of the EU, will witness the beginning of a new chapter of economic actions, which target containment and minimization of losses, including tax cuts to ease the impact on corporate profits and encourage them to stay, with the possibility of the Bank of England cutting nominal interest rates, despite the threat of negative real interest rates if the inflation rates surpassed forecasts.

Additionally, Britain will preemptively move toward orchestrating and developing new trade and investment agreements in order to avoid the incidence of significant decline in the growth of global effective demand for its GDP in the long-run.

Politics or economic diplomacy will play a significant role in developments and have significant impact on economic decisions, and consequently, make the years 2017 and 2018 important on the international political and economic levels.

Saudi Arabia and Britain have strategic trade and investment partnerships and strong cultural relations.

Given the strong Saudi riyal (currently pegged to the US dollar) vis-a-vis the British pound sterling and the euro, it is expected that the volume of trade in goods (and service) between Saudi Arabia and Britain will increase, and cause the balance of trade (and current account) to be more in favor of Britain than it currently is.

Saudi Arabia is an emerging market attracting and exporting capital.

At the same time, it is undergoing major investments restructuring within the framework of the Saudi Vision 2030, whose ambition is to modernize and diversify the Kingdom’s economy.

The second pillar of Vision 2030 entails turning Saudi Arabia into global investment powerhouse.

To achieve this, Vision 2030 focuses on key strategic programs, including Saudi Aramco Strategic Transformation Program, the Public Investment Fund Restructuring Program, and the National Transformation Program 2020, among others the country has embarked on.

Hence, British economy will be promising for the future of wealth and investment management, for Saudi Arabia in particular, and the GCC in general.

Comparative analysis of long-term returns on investments indicates that Saudi Arabia provides a unique investment environment to Britain, just as Britain offers a unique investment environment to Saudi Arabia.

It is important to note that the Saudi government GBP-denominated assets in Britain mainly focus on commercial and industrial projects, as well as mutual funds, while there are huge investments in various sectors owned by Saudi citizens – both individuals and businesses alike.

The sensible balance for investors in the private sector would be to adopt a long-term perspective for financial and non-financial investments associated or non-associated with the residential real estate sector in Britain, despite the decline in its short-run profitability, and avoid panic and costly searching for other vessels to rush-swap or cash and stash them out of Britain.

— These are excerpts from ‘Economic Notes’ issued by the Center for Information and Research at the Council of Saudi Chambers. The views expressed are thoseof the authors and not necessarily those of the CSC.