Brexit: The Journey In And Out
For the United Kingdom it surely has been a long journey full of ups and downs ever since the historical referendum of 2016. Elucidating on the same, the article gives a 360 degree tour around the various aspects of the contemporary world’s most heated topic ‘BREXIT’. Read on as the twisted tale of UK’s exit from the EU unfurls right before you.
An overview
In simple words, the term ‘Brexit’, an amalgamation of the two words ‘Britain and ‘exit’, is the impending withdrawal of the United Kingdom (UK) from the European Union (EU). The European Union is an economic and political partnership that took root after the Second World War, involving 28 European countries having its own currency, the euro. It has since grown to become a "single market" allowing goods and people to move around, basically as if the member states were one country. But, finally, on 23rd June 2016, UK put a full stop to the unsettled question looming over it since the first referendum in 1975- ‘whether to end its 45 year long membership in the EU or continue it?’ when by a very small margin, the decision was taken to exit the EU.
The great turmoil of the UK
The story dates back to 2012, when the then Prime Minister of the UK, David Cameron, suggested the possibility of a referendum regarding his proposed renegotiations of Britain’s relationship with the EU. What Cameron had in mind was only to ensure that UK’s renegotiated position within the EU had the full support of the British people, as reported by BBC. Little did he know that his plan would ultimately backfire upon him, when under pressure from many of his MPs and from the rise of UKIP, in January 2013, Cameron announced that his government would hold an in–out referendum on EU membership if elected in 2015. This is where the interesting part begins. Following the win of the Conservative Party in the 2015 general elections, the EU Referendum Act of 2015 was introduced in the Parliament to enable the referendum. Cameron wholeheartedly favored remaining in the reformed European Union, and sought to negotiate on four key points:Protection of the single market for Non-Eurozone countries, Reduction of "red tapism", Exempting Britain from "ever-closer union", Restricting EU immigrationEverything was going according to plans when in December 2015, opinion polls clearly indicated a majority in favour of remaning in the EU. In a speech to the House of Commons on 22 February 2016, Cameron announced a referendum date of 23 June 2016. He also announced that just in case, things took a downturn, he would step down from his post and trigger Article 50 of the Lisbon Treaty which states the procedure for any member state to leave the EU.
The referendum of 23/6
After announcing the referendum date, Cameron started on a tour of EU capitals as he sought to renegotiate Britain’s terms of membership, but vowed to campaign with his “heart and soul” to keep Britain in the bloc. Even as the count was underway, UKIP’s Nigel Farage said it looked as if “Remain will edge it”. But, alas, Cameron’s confidence and faith were both short lived. The very next day, the Referendum results came out and much to everyone’s shock revealed that the Leave campaign had won by 51. 9% to 48. 1%, a gap of 1. 3 million votes, prompting Cameron to resign as prime minister and UK to officially and finally leave the European Union after almost half a decade of membership.
The D-day
Post the referendum, Theresa May won the leadership election to become the new Prime Minister of Britain, and started the process of the withdrawal of the UK from the EU.
Article 50 of the Lisbon Treaty gives the two sides two years to agree the terms of the split. May triggered this process on 29 March, 2017, which means that UK is scheduled to leave EU finally at 11pm UK time on Friday, 29 March 2019. A transition period has been set from 29 March 2019 to 31 December, 2020 for all deals, negotiations to get settled between UK and EU. There would be free movement during this period and UK will be able to strike its own trade deals - although they won't be able to come into force until 1 January 2021.
Market reactions to the vote
Ex RBI Governor, Raghuram Rajan has very aptly put it, “Uncertainty of any sort results in voltality, and Brexit would be no exception”. The Brexit referendum has affected several markets worldwide, especially the European economies. The British Pound crashed by 11. 8% against the USD- recording its all time low with regard to a one day fall. The euro also fell against the dollar, dropping 4. 2%. Equities also suffered the brunt as shown by the 8. 7%, 10. 1% and 3. 8% fall respectively in FTSE, S&P and DAX indices, with many German, Italian, Greek, British, Irish banks facing double digit hits as well. The shocks were suffered all throughout, with banks in America also taking the hit, although with much lesser intensity than the European ones.
Economic and financial implications of the move
As suggested by many economists and researchers, Brexit has had deep repercussions on UK’s economy which is clear by the pound getting weakened. This fall in pounds value emerged as a boon for some as British manufacturers' wares became more attractive to foreign buyers. Nearly 44% of manufacturers reported higher purchasing costs, because of the high import prices following the drop in the pound. As per reports, this high price of imports was passed onto consumers; CPI inflation was 2. 9% in the 12 months to May 2017, a four-year high that well exceeds the Bank of England's 2% target and outstrips regular wage growth of 2. 1% (as of March 2017).
Banks have already begun to announce plans to shift some operations to Dublin, Frankfurt and Paris. 57% businesses have developed contingency plans related to Brexit. The aviation industry has also stated its concern "If there is no agreement between the UK and EU by March 2019, other sectors fall back on World Trade Organisation rules but we have no legal framework under which to fly. ” International trade is expected to fall due to Brexit, even if Britain negotiates a raft of free trade deals. Monique Ebell, associate research director at the National Institute of Economic and Social Research, forecasts a 22% reduction in total British goods and services trade if EU membership is replaced by a free trade agreement. In its July outlook, the IMF cut projections for British GDP growth in 2017 to 1. 7%, from 2. 0%. Its 2018 estimate is unchanged at 1. 5%.
Better prospects for exporters
A weak currency would be a boon for industries that export heavily in the UK. In 2015, the top 10 exports from the UK were (in USD):
- Machines, engines, pumps: US$63. 9 billion (13. 9% of total exports)
- Gems, precious metals: $53 billion (11. 5%)
- Vehicles: $50. 7 billion (11%)
- Pharmaceuticals: $36 billion (7. 8%)
- Oil: $33. 2 billion (7. 2%)
- Electronic equipment: $29 billion (6. 3%)
- Aircraft, spacecraft: $18. 9 billion (4. 1%)
- Medical, technical equipment: $18. 4 billion (4%)
- Organic chemicals: $14 billion (3%)
- Plastics: $11. 8 billion (2. 6%).
In addition to these, a soft and weak pound would also benefit sectors like service industry, tourism and energy sector.
Brexit’s impact on the indian economy
In May 2016, the State Bank of India, stated that Brexit will actually prove to be beneficial for India in economic terms. Leaving the Eurozone would entail UK no longer having unconstrained access to Europe's single market, and on the flipside it would also mean that India would be the recipient of much more focus and emphasis. Added to this, India would also get a greater part in maneuvering of the trade between the two countries.
Weighing Brexit monetarily
The EU has made it certain that UK will be settling all the outstanding bills before the transition period ends. In light of this, comes the concept of the ‘Divorce Bill’ or the ‘Brexit financial settlement’ which constitutes the sum of money demanded by the EU as Britain leaves the union. The bill covers pension payments to EU officials, the cost of relocating London-based EU agencies and outstanding EU budget commitments. Though, initial estimates were made at £39 billion but the cost of Brexit to the UK economy is already £40bn and counting, as told by the Governor of the Bank of England. But, the exact amount of the UK share would be based on numerous factors like exchange rates, interest rates, the number of financial commitments that never turn into payments, etc. The UK says that if there is no deal agreed on Brexit it would pay substantially less and focus only on its "strict international legal obligations".
The today and tomorrow of Brexit
Over the last few months, both parties of the deal have worked out quite a few matters encompassing 12 major areas viz a viz. goods, agriculture, finance, automobiles etc. as enlisted below:
Regulations: It was determined that Britain will lose its vote in the union but for the time being will continue to abide by EU rules and remain under the jurisdiction of the European Court of Justice. The UK Government estimates that there are more than 12, 000 EU regulations currently in force. During the referendum campaign, Brexiteers argued that leaving the bloc would mean that the UK will be able to remove this red tape and decide its own rules.
Residency: EU citizens arriving in Britain will retain the possibility of securing permanent residence.
The Divorce Bill: Britain will pay a £39 billion ($55 billion) “divorce bill” to settle London’s past financial commitments.
Northern Ireland border: British negotiators have also promised to avoid setting up a hard border between the Republic of Ireland and the UK province encompassing much of Ulster on the island.
Automobiles: Britain seems determined to cut special deals for aircraft and autos, the former because it is a particular strength of British industry, the latter because of the need to retain Japanese car manufacturers that had set up in Britain when it was an EU member to gain access to all of Europe.
The Chequer’s Bill: Under the Chequer’s plan, decisions by UK courts would involve "due regard paid to EU case law in areas where the UK continued to apply a common rulebook" aligning the UK to EU rules on goods and agro-food. Both sides have said that they seek zero tariffs on goods and agriculture. Still, the EU has made clear that if the UK insists on its own product regulations, it will insist in turn on border controls for even the simplest products.
Freedom of movement: David Davis has claimed that the EU is trying to restrict British expats' rights of voting and freedom of movement while in Europe. As UK will leave the single market, it will lose the freedom of movement. Also, it is considering restrictions to deter all but highly-skilled workers. This could include limiting residency to two years for low-skilled EU migrants.
Citizen Rights: Citizen Rights is one issue that has not been settled so far. Over one million Brits live in other EU countries, while over three million EU citizens live in the UK. Brexit throws their EU-guaranteed rights into uncertainty.
Security: Whether it’s terrorism, rogue states, Russia or cyber security, the UK and the EU have similar security aims and work together to secure them. There are fears that Brexit could disrupt this, but both sides have expressed a desire to maintain this essential relationship.
Fisheries: Under the EU Common Fisheries Policy, member states can fish in each others’ waters. This proved hugely unpopular among Britain’s fishing communities in the referendum campaign, who think that EU fishing quotas and rules damage their livelihoods.
Agriculture: The EU’s Common Agricultural Policy means that UK farmers benefit from billions of euros in support each year. Some are nervous about what Brexit will mean for their finances, even though the UK has hinted that it would match such financial support.
The road ahead
On one hand, exiting the EU would enable Britain to re-establish itself as a truly independent nation with its own connections with the rest of the world. But, then again, it would result in the country giving up its influence in Europe, turning back the clock and retreating from the global power networks of the 21st century.
Though, the most likely outcome, as stated in The Economist, would be that Britain would find itself “a scratchy outsider with somewhat limited access to the single market, almost no influence and few friends”. But, what it would actually turn out to be, still remains an uncertain mystery, yet to unfold as and when the most awaited event of our era finally takes place and marks a new chapter in World history.
