BREXIT: Global Turmoil, India May Benefit!
BREXIT has put UK and EU in turmoil. The global stock markets are shivering. It is a historic event which will impact the world in many ways. The world had got accustomed to greater mutual dependence among nations. Globalization means the process of international integration arising from the interchange of world views, products, services, ideas and other aspects of culture. Like majority of the world citizens I was convinced that Globalization is so obviously beneficial for the world society that it is irreversible. BREXIT challenges this belief. In this blog we shall analyse:
- The formation of EU.
- What led to BREXIT?
- How it will impact the EU?
- How it will impact the world?
- What are the implications for India?
Formation of European Union (EU)
From Europe had originated the First and the Second World Wars. The idea of development of E U was built on the foundation that it would make war unthinkable and materially impossible. EU would also reinforce the principles of liberty and democracy among its members. The idea of EU started from European Economic Community (EEC) which was a regional organisation aimed to bring about economic integration among its member states in 1957. The six founding members were: Belgium, France, Italy, Luxembourg, Netherlands and West Germany. Denmark, Ireland and U K joined EEC in 1973. The Maastricht Treaty in 1992 created the EU. This in turn led to the creation of the single European currency, the euro (launched 1999). The Maastricht Treaty was later amended by the treaties of Amsterdam (1997), Nice (2001) and Lisbon (2007). The EU is a politico-economic union of 28 member states that are located primarily in Europe.
Switzerland, Norway, Bosnia-Herzegovina, Serbia, Kosovo, Albania, Macedonia, Ukraine, Moldova, Iceland, Belarus, Russia and Turkey are not in the EU.
What led to British Referendum?
The Conservative election victory last year activated a manifesto pledge to hold an in/out referendum on Britain’s membership of the E U. David Cameron made the promise when he was under pressure from Eurosceptic backbenchers within his own party – and when the Tories appeared to be losing votes to UKIP. He was desperate to ensure that Britain stays in the EU.
Analysis of BREXIT
BREXIT surprised not only the citizens of UK but the entire world. An analysis of BREXIT is vital to improve our understanding of the event and also to comprehend future democratic events better. It is important to realize that voting on issues depends not just on realities but perceptions and emotions created by opinion makers. This is not just true for a new democracy like India but even UK and USA. Let us see these major perceptions which led to a BREXIT vote.
EU law guarantees that citizens of one EU country have the right to travel, live, and take jobs in other EU countries.British people have increasingly felt the impact of this rule since the 2008 financial crisis. EU has struggled economically, and workers from countries such as Ireland, Italy, and Lithuania (as well as others like Poland and Romania that have not yet joined the common currency) have flocked to the UK in search of work. In recent times approximately 333000 immigrants have entered the UK work force. It has increased the strain on public services and kept the labour wages low. The blue collared native workers have tilted the vote for BREXIT. Unemployment is at an all time low of 5%. Reality is that immigration has overall helped the British economy; unfortunately the perception among those who voted for exit is that immigrants have adversely affected the legitimate rights of the native population.
EU treaties have shifted a growing amount of power from individual member states to the central EU bureaucracy in Brussels. On subjects where the EU has been granted authority — like competition policy, agriculture, copyright and patent laws — EU rules override national laws. This was an issue against continuing in the EU.
All members have to pay a fee. UK’s contribution is worth about $19 billion per year. While much of this money is spent on services in the UK, BREXIT supporters argue that it would be better for the UK to simply keep the money and have the Parliament decide how to spend it.
- England voted decisively for BREXIT: 53.2 for and 46.8 against.
- Scotland voted 38 for and 62 against.
- North Ireland voted 44.3 for and 55.7 against.
- 73 per cent of those aged 18-29 years voted to remain in the EU, while 63 per cent of those aged over 60 voted to leave.
- Majority of the educated and white collared workers voted to stay in the EU.
- The greatest uncertainty associated with leaving the EU is that no country has ever done it before, so no one can predict the exact result.
- Article 50 of the EU which will govern the terms of leaving the EU is not an elaborate document. It provides a period of two years for the process of separation to be completed.
- Germany is in favour of going slow, while France favours going fast on the process.
- There are talks of a re vote by a shocked Britain. Scotland is expected to vote for joining EU and separating from Britain. North Ireland may also opt for the same. Britain as an entity may undergo a change.
Pros of BREXIT
- Membership fee can be saved.
- Britain will have greater independence in conduct of foreign policy. Pro exit voters feel that Britain could reinvent itself as a Singapore-style supercharged economy.
- Immigration can be controlled.
Cons of BREXIT
- Europeans think the UK’s status as one of the world’s biggest financial centres will be diminished if it is no longer seen as a gateway to the EU.
- Tax revenues would drop if companies that do large amounts of business with Europe, particularly banks, move their headquarters back into the EU.
- Britain risks losing the negotiating position in trade relations by leaving the EU.
- In trade Britain needs EU more than EU needs Britain. It benefits from inward investment by EU members, over 50% of UK exports are to EU.This trade will suffer. Several foreign countries, including India, outside EU have invested in UK as it has been a traditional liberal gateway to Europe. This FDI will dry up.
- Britain’s economy would deteriorate. It will have to negotiate fresh deals with EU and other countries. Unemployment may rise as industry and services centre shift out of Britain.
- Security: Britain needs the collective weight of the EU when dealing with Russian aggression or terrorism. If Scotland leaves, Britain would weaken further.
Future Relations with EU
One possibility — the benign option, is that Britain remains integrated with Europe — is to model itself on Norway or perhaps Switzerland, two countries that are not part of the EU but maintain free trade within the bloc.
The only problem with that: The price of maintaining free access to the rest of the European marketplace for those countries is allowing free migration from EU member states and accepting EU regulations on businesses. To the degree that pro-BREXIT sentiment was driven by British opposition to immigration and regulation, this solution would not be what the voters wanted. Hence something else may need to be negotiated which will imply less than free access to EU. This will definitely have an adverse impact on Britain’s economy.
Impact on World
- In the short term there will be practically no impact; response of stock markets was due to the shock of uncertainty. The concept of “Globalization” would come under universal doubt. This referendum reflects a global sentiment: populist revolts against established political parties, led predominantly by older, poorer, or less-educated voters angry enough to tear down existing institutions and defy “establishment” politicians and economic experts. The demographic profile of potential BREXIT voters is strikingly similar to that of US supporters of Donald Trump and French adherents of the National Front.
- Departure of one of the EU’s most powerful economies would hit its finances and boost populist anti-EU movements in other countries. This would open a “Pandora’s box” which could lead to the “collapse of the European project”.
- The UK would then be seen as a safe haven from those risks, attracting investors, boosting the pound and reducing the risk that Scotland would “leave the relative safety of the UK for an increasingly uncertain EU”.
- Britain would remain a member of NATO and the UN, but it may be regarded as a less useful partner by its key ally, the US.
Impact on India
- Britain was highest recipient of India’s FDI & gateway to EU. This will change in due course.
- Britain will still need a steady inflow of talented labour, and India fits the bill perfectly due to its English-speaking population. With migration from mainland reducing, Britain would be able to accommodate migration from other countries, which will suit India’s interests.
- UK universities will no longer be obliged to provide scholarships to EU citizens, which will free up funds for students from other countries. Many more Indian students may be able to get scholarships for studying in the UK.
- Europe’s efforts to develop India as a strong trade and strategic partner would be accelerated. Europe needs to counterbalance U S and China.
- The slowdown triggered by BREXIT would lead to a fall in commodity prices like crude, which will help India lower the import bill.
The concept of “globalization” is in doubt. Britain has voted for an apparently stupid decision. US voters may be tempted to follow this stupidity by electing Donald Trump. France may follow the pattern. Britain would definitely suffer the consequences of the choice. India apparently stands to benefit from BREXIT.