BREXIT: THE WORD FOR BRITISH EXIT FROM EUROPEAN UNION MADE QUITE A NOISE, HERE IS AN ACCOUNT OF THE EVENT
On Friday, June 25th, the sterling lost its’ sheen hitting a 31-year low as Briton voted to exit the EU (European Union). The United Kingdom had voted to leave the European Union by 52% (for) to 48%(against). The volatility of the market, perhaps dampened the spirit of the pro-Brexit lobby, leaving the world to understand the rippling effect it might bring in. Beyond short-lived market volatility, the long term economic prospects of Britain remain high, notably in terms of Country Attractiveness and Foreign Direct Investment. Would UK still be as attractive to its investors not being a part of EU, is what everyone seems to be asking? As the terms of newly instated Article 50 are still to unfold, the clarity of the true nature of the exit would perhaps take another two .
The Reasons for the Exit
Had the French President, Charles de Gaulle, been alive today, he would have probably smirked at the turn of events and said “I told you so”. Back in 1957 when the UK was not a signatory to the Treaty of Rome which created the EEC now EU, the then President of France, Charles de Gaulle, ostensibly vetoed against British’s application to join the organization in 1963 and again in 1967, by stating that “a number of aspects of Britain’s economy, from working practices to agriculture have made Britain incompatible with Europe” and that Britain harboured a “deep-seated hostility” to any pan-European project. Now, after almost 5 decades the major reasons cited by the pro-Brexit group for exiting from EU were:
- The EU threatens British sovereignty
- The EU is strangling the UK in burdensome regulations
- The EU entrenches corporate interests and prevents radical reforms
- The EU was a good idea, but the euro is a disaster
- The EU allows too many immigrants
- The UK could have a more rational immigration system outside the EU
- The UK could keep the money it currently sends t o the EU
The Ripple Effect
One of the most visible impact was the resignation of the British Prime Minister David Cameron and the reaction of the market. The implications of a falling pound would have a rumbling effect, ripping up layers from the economy. The imports will become more expensive – leading to price rises on the High Street. In 2015 the UK imported more than $625bn (£474bn) of goods and services; mainly from Germany, China, the Netherlands, the United States and France.The rather sensitive issue of the residence rights of existing British expats in EU member countries –and EU expats in the UK – would be a matter of urgency, and would be clarified in the negotiations, post the official exit. A recent House of Commons Library briefing document called Exiting the EU, acknowledges that “sudden curtailments of immigration status or mass expulsions could create significant costs and upheavals”, adding: “One possibility is that EU/EEA citizens would continue to be allowed to live in the UK on the same basis after the UK’s exit and vice versa, if they had a ‘right to reside’ in the UK at the time.” If that was agreed then the same would apply to Britons already living in other EU states.
‘Article 50’ and the procedure for leaving the EU
Article 50 was inserted fairly recently by the Lisbon Treaty in 2007, before which the treaties were silent on the possibility of withdrawal from the European Union. Article 50 states that: “Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.” According to the article, once a member state has notified the European Council of its intent to leave the EU, a period begins during which a leaving agreement is negotiated setting out the arrangements for the withdrawal and outlining the country’s future relationship with the Union.For the agreement to enter into force, it needs to be approved by at least 72 percent of the continuing member states representing at least 65 percent of their population, and the consent of the European Parliament. The treaties cease to apply to the member state concerned, on the entry into force of the leaving agreement, or in the absence of such an agreement, two years after the member state notified the European Council of its intent to leave. This period can be extended by unanimous agreement of the European Council.
The Road Ahead
The “four freedoms” that underlie the EU’s internal market are the freedom of movement of goods, workers, services and capital. Now, it remains to be seen how the newly sworn-in Prime Minister Theresa May who stated that “Brexit means Brexit, and we’re going to make a success of it. (sic) “, would negotiate the terms of the exit.The long term ripple effect might follow dependent on how the terms of the exit would look like as the right-wing Dutch populist Geert Wilders proposed that Netherlands should follow Britain’s example and hold a referendum on whether Netherlands should stay in the European Union.
Brexit’s Effect on India
The bilateral trade between India and the UK stood at USD 14 billion in 2015-16 as against USD 14.33 billion in 2014-15 and in turn, India is the third-largest investor in terms of number of projects into UK.Brexit’s effect on India and its economy is expected to be minimal owing to the macro-economic fundamentals, comfortable external position, commitment to fiscal discipline and declining inflation. The Development Bank of Singapore (DBS) has marked Brexit as a ‘tail risk’ for India. Commerce and Industry Minister Nirmala Sitharaman had said India and the UK were exploring the possibility of a free trade agreement following the Britain’s decision to exit from the European Union. Reworking of proposed India-EU free trade agreement is dependent on the conditions of UK’s withdrawal arrangement from the European Union.Overall, the impact of Brexit on India would not be impacted directly, however the effect might percolated into the overheated overseas market which would impact the global economy on the whole.
Text: Madhulika Ra Chauhan Photos: Various Sources