IMPACT OF BR€XIT: ROAD AHEAD

Brexit, the nickname of British exit of the European Union after a clean verdict given by the referendum of British people on 23rd June, 2016, whereby those for “leave” won by 52% to those who were for “remain” voted 48%. The referendum turnout was 71.8% with more than 30 million people voting.

However the pattern of voting within the UK was different across the four geographical regions as per the table given below –

The above turnout broadly indicate that Scotland and Northern Ireland are in favour continuing with EU whereas England and Wales want to leave the EU. It is worthwhile to note that Scotland has renewed its demand for a fresh referendum to be separated from Britain and to remain with EU. In the meanwhile the Labour party has passed a no-confidence vote against its Leader of Opposition Jeremy Corbyn on the ground that he failed to do enough campaign to ‘remain’ with EU. In other words, the spirit of the House of Commons representing majority of the Parliamentarians from the ruling Tory Party as well as the Labour Party have a feel that the referendum has not been in the national interest of UK. The Prime Minister Cameroon has declared to resign and has stated that the fresh negotiations in terms of Article 50 has to be done by the new incumbent after the fresh election in October.

UK will have to follow the principles and provisions of the Lisbon treaty in order to leave the EU. Steps to be followed by UK to leave EU are illustrated below.

However the divorce between UK and EU may not be easy as both side is trying for mutual cooperation and bondage.  UK may continue for a deeper economic  co-operation with EU just like Netherland. But in any event, EU which has two permanent seats in Security Council of United Nations will get divided as only France will remain as part of EU with UK having an independent seat outside the EU. Similar will be the situation in WTO and at other International Organisations where EU was a stronger negotiating partner alongwith UK. There will be however some organisations within Europe which will remain unaffected. For example, European Patent Office (EPO), which is an inter-governmental organisation, will have no effect from Brexit.

Brexit is not just a an event in isolation but is the manifestation of the strong feelings about the national sovereignty, its identity and to a large extent against the process of globalization which per se advocates about a borderless world and a complete integration of economic, political and social integration. The voice of Brexit will find its echo against the free trade agreements, regional trade agreements, multi-lateral agreements, and will definitely come adversely in the way of the Trans–Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP) immediately after the Presidential election in US in November 2016.

BRIEF ABOUT EU

The European Union, known as EU, is an economic & political partnership involving 28 EU countries and act a single market with free movement of goods, services and of its people without any kind of residential visa requirement or for job. It has its own currency known as Euro which is used by 19 of its member countries. UK and Switzerland had been using its own currency alongwith some other countries who are members of EU-28 group but have not joined Euro. EU has its own Parliament with its headquarters in Brussels.

The EU has grown gradu ally from its six founding members to 28 countries. Belgium, France, Germany, Italy, Luxembourg and the Netherlands signed the European Economic Community, or Common Market in 1957. Britain, Ireland and Denmark joined in 1973, followed by Greece in 1981, Portugal and Spain in 1986. Eastern Germany joined after unification and Austria, Finland and Sweden became part of the EU in 1995. The biggest membership came in 2004 when 10 new member countries joined. Romania and Bulgaria joined in 2007 and Croatia was latest to sign up in 2013. 

 ECONOMIC IMPACT OF BREXIT

Brexit will open a new chapter in the process of globalisation  including revisiting Bretton Woods system and relooking for international currency of reserve. The global financial architecture in the form of IMF, World Bank and other allied organisations need reforms and transparency with more democratisation. The basic change which has triggered the mind of the people is the national identity with the unbridled globalisation which has adversely affected the demography, the culture, and the national identity.

The epicentre of economic power is changing from West to the East. The Brexit will have long term impact on the economic hegemony of the Western powers which has a shadow axis between Europe, UK, and the US, and is likely to be gradually weakened in favour of emerging economies led by Asia. It will also turn the history pages belying and demystifying the statement of Mr. Churchill who said in March 1947 “In handing over the Government of India to these so-called political classes, we are handing over to men of straw, of whom, in a few years, no trace will remain”. The below graph shows a rising China and India over the economy of UK which is an indication for the future course of the global economy.

The value of the currency of Pound Sterling has gone down from 99.58 to 90.83 respectively (see GBP Rate Comparison table below) since the Brexit Referendum. However it may have the cascading effect on the economic growth and employment of both, UK and EU. The impact on the three veins of the monetary economy i.e. exchange rate, interest rate and inflation rate may cause uncertainty in the global financial market for some time. However the overall impact on the Indian economy is going to remain positive mainly because India will be in a better bargaining position to negotiate on the trade and investment issues with UK and EU separately.

The Indian capital market which had declined by almost 4% on 24th June 2016 has already recovered and has made some positive gains on the optimistic future outlook and on all time high since 26th October, 2015.

In the short term the imports from both the region will be cheaper as Indian rupee has already gained almost 9% against sterling pound and approximately 1.6% against Euro. The IT companies like Infosys, TCS and other pharma companies may suffer some jolts as their foreign exchange earnings will be lower from both EU and UK for the time being until the turmoil and the uncertainty in the foreign exchange market is settled down. The gold prices have gained substantially and may continue to serve as a safe heaven for the investment basket. Brexit however has opened many speculations for the future.