So it happened, the Brexit referendum took place and turns out the Britons have voiced their opinion in favor of resorting to isolation. Here is all you need to know about Brexit (Britain+exit, simple, yet not-so-simple):
- The European Union(EU)
The EU is a partnership of 28 European countries which was formed by its six founder nations, Luxembourg, Italy, Germany, France, Belgium and the Netherlands with a unanimous objective of pooling resources and establishing a single market for free movement of goods and people under the name of European Economic Community(EEC). After the Maastricht Treaty in 1993, EEC was renamed as the European Union(EU). Nineteen members of the bloc went a step further and adopted a common currency Euro. All member countries contribute different shares to fund the EU mechanism.
- The EU-UK situation
The United Kingdom joined the EU in the year 1973. It has long enjoyed special right within the structure. The UK has not adopted the practice of Euro and has retained its Pound Sterling even though the EU recognizes the common currency as one of its goals. Certain EU laws are not automatically enforced in the UK (opt-outs). Conversely, the country can apply EU measures in certain policy areas as per its own convenience (opt-ins). In recent negotiations with the EU, the British PM David Cameron secured the right to decline full social benefits payments to immigrants from other EU countries.
- Then why Brexit?
The key argument behind Britain exiting the bloc is that EU regulations paralyze the British economy. Brexit supporters quote that the UK contributions are too high and rewards are too meager. Also, being a part of the 28-member bloc will mean exposure to mass immigration threats. The UKIP (UK Independence Party) which had got 13% votes in last year’s general election strongly campaigned for leaving EU on an anti-immigrant platform.
The main cross-party group campaigning for UK to remain in UK was called ‘Britain Stronger in Europe’ headed by former Marks and Spencer chairman Lord Rose. On the opposite side, the Brexit campaign was spearheaded by ‘Vote Leave’, again a cross-party group.
- Aftermath of Brexit
Brexit has caused a state of panic and a global economic turmoil till now with share markets hitting new lows across the continents. Global indices may experience volatility and it’s overall a bad news for the international trade and investments.
- Effects of Brexit on the UK
The British would be required to withdraw from the single market within two years of leaving EU. With Brexit, there are two possibilities, one is that the UK will have to negotiate independent trade agreements with other countries which will go on over a period of time and will cause uncertainty in the market. Another possibility is that despite leaving EU, it remains in the European Economic Area (EEA) which is unlikely given that 80% of the EU rules apply on EEA and hence it would be thwarting the purpose of Brexit. The insiders believe that EU won’t make it easy for Britain to return to the single market to avoid strengthening anti-EU movements in other countries.
- Effects on India
Brexit is believed to have no major long-term impact of India. India’s strong macroeconomic fundamentals, huge forex reserves, low current account and fiscal deficits and moderate inflation will attract investors in medium to long-run. Nonetheless, the near-term uncertainty and the shrinking of the British economy will adversely impact the exporters of products such as garment and agricultural products and the IT sector, for which UK accounts for 17% of the net exports.
How ironic it is that the country which played divide and rule for centuries ended up dividing itself! Now amidst the piling petitions to conduct a second referendum, the British policy-makers have to lead the country through new economic reforms and arrangements. It’s going to be a tough path ahead, indeed.