United Kingdom held a referendum on 23 Jun 2016 and voted to leave the European Union (EU). The next day, it was confirmed that 51.9% of British population had voted in favour of leaving the Union. This decision taken through a simple majority, wherein 48.1% had voted to maintain status quo, shook the international financial world.
The EU is a politico-economic bloc of 28 member states that are located in Europe and has an estimated population of over 508 million. The Union is founded on the principles of respect for human dignity, liberty, democracy, equality, rule of law and human rights including the rights of persons belonging to minorities. The EU traces its origins from the European Coal and Steel Community and the European Economic Community, formed in 1951 and 1958, respectively. The community grew in size and power with the joining of new member states and addition of policy areas. The Maastricht Treaty established the EU in 1993 and introduced European citizenship. A monetary union, comprising 19 EU member states that use the euro currency was established in 1999 and came into force in 2002. The Constitution of the EU was last amended vide the Treaty of Lisbon that came into force during 2009.
The EU operates through a hybrid system of intergovernmental decision-making. This function is performed by seven principal decision-making bodies, known as the Institutions of the EU. It enacts legislations on common policies on trade, agriculture, fisheries, legal, home affairs and regional development. These policies are aimed at ensuring free movement of people, goods, services and capital within the internal market. The EU has thus developed a single market based on standard laws that apply to all member states. Passport controls have been abolished for movement within the member states. The EU comprising less than one tenth of the world population, generates nearly one fifth of the global GDP. Baring a couple of exceptions, the EU member countries have a very high Human Development Index. The Union was awarded the Nobel Peace Prize during 2012. It also plays an assertive role in external relations and defence based on its common Foreign and Security Policy. The Union has established permanent diplomatic missions throughout the world and represents itself at the United Nations, World Trade Organisation, G8 and G20. The EU has almost, earned the status of a superpower because of its global influence.
Now, the United Kingdom government will consider leaving the EU by invoking Article 50 of the Lisbon Treaty as apparently in British opinion, the Union has failed to deliver prosperity to them, a premise for its creation. This separation is likely to disturb the existing world order. It may also be the beginning of collapse of EU, as Italy, France and Netherland may also seek similar referendum and destabilise the Union. Otherwise, impact of only BREXIT will calm down with time. Germany is a big driving force behind sustenance of EU. It is the biggest economy of EU with half of its GDP being export oriented. France is the second major economic power of EU. UK is also a big economy and third largest partner. London like New York is the Global Financial Capital. British Bank is an important institution for canalising investments in EU. Germany and France will therefore yield more power as these countries will be the natural contenders to expand and fill the void created with BREXIT.
Fate of nearly three million EU nationals living in Britain and 1.2 million Britons who live on the continent will hang on the deal, Britain extracts from the EU. The future migrants would be subject to tougher laws and family members of current EU migrants may not be allowed in to Britain. Many EU migrants may be able to stay back legally but some may decide to leave in the emerging environment. A spurt of racist and xenophobic attacks on immigrants may well be on the cards. After the referendum there has been a spike in the number of Britons applying for Irish passports. Nearly, a tenth of Britons meet the eligibility criteria for this passport having been born on the Island of Ireland or having an Irish parent or grandparent. Since, Britain and Ireland had come closer to each other within the EU, very few of them had bothered to apply earlier. A rush for the passports now, is an unholy sign of impending divisions. Scotland is heading for another independence referendum. Northern Ireland’s peace settlement is also hanging precariously. The pound has tumbled in favour of important currencies and US dollar that will keep getting stronger until Britain initiates measures to retrieve. This turbulence, presently though sentimental, will manifest in full bloom as agonising details of divorce and alimony get inked on spread sheets over the next two- three years along with the associated speculation and drama. Decisions on sensitive political acts and important investments have got suspended for now. Some Firms may move from Britain to Ireland in order to stay within an English speaking EU member and some others are already talking of moving operations overseas.
Europe is a major ally and trading partner of USA. Therefore any economic turmoil and political navel-gazing in Europe, especially Britain is unwelcome by America. Britain shares America’s basic instincts about the world, like no other nation and Europe is needed to act as one ‘Free West’ for its foreign policy assertions. Presently, even the simplest trade deal between America and Europe takes two to three years to fructify. In case Britain decides to leave EU, it will entail larger incubation period as they need to first start recruiting trade negotiators. Britain may go alone in-competition or together in-cooperation with the EU as the best way of enlarging its transatlantic trade. However, running negotiations in parallel will risk creating clutter on the connecting cables at both ends. Washington will, therefore urge the British not to leave and may caution that an independent Britain shall stand relegated in the preference when it came to striking trade deals with America because efforts in Washington are focused on expanding trade with whole blocks of countries in Asia and the EU. Other countries will of-course reorient their economic policy decisions, as per the emerging situations.
Indian economy is largely domestic and less foreign trade driven. Thus, the impact of BREXIT will be limited to rumblings in British Pound and other major currencies. Import and export oriented industry such as IT and some capital goods manufacturers will be impacted. While a small number of individual firms trading with UK may lose, more are likely to see windfall gains as the Pound softens. Contracts will have to be renegotiated in an environment favourable to India. EU and Britain will have to maintain easy monetary policy in view of Global Growth Challenges. This will ensure adequate foreign investments in India. Stable macro- economics and prospects of growth in Indian economy will rivet Britain to India as valuable trading partner.
Lastly, it is unfortunate that decision for BREXIT will be taken on the basis of simple majority vote by common men and women of UK, who baring a small percentage, may be neither fully aware nor competent to understand the ramifications of such a pull out. A citizen is more engaged in practicing and mastering his profession, earning livelihood and raising a family. His judgement is largely influenced by opinion makers and based on mundane yet significant routine experiences of housing, education, jobs, traffic, medical facilities, domestic help and law and order, as he perceives these. He has minimal or dismal understanding of impact of international coalitions on national socio-economics, politics and security. The separation is likely to manifest more to the detriment of Great Britain than EU or the world order. It should therefore have been the prerogative of the bodies of experts to make recommendations on such an intense, technical and vexed issue after in-depth deliberations. Thereafter, the government must ensure that decision to severe the chord is taken near unanimously. Let no one forget that the UK has played pivotal role in the shaping of EU, without any referendum. Ultimately, when the Great Britain will ‘shut-out’ other member states, she will also be ‘shut-in’; heralding the beginning of the second fall of the erstwhile great empire where sun never set, within less than a century.
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