The ‘Brexit’ saga..

The European Union, is an economic and political partnership involving 28 European countries. It began after World War II to foster economic co-operation, with the idea that countries which trade together are more likely to avoid going to war with each other. 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. It has its own currency, the euro, which is used by 19 of the member countries, its own parliament and it now sets rules in areas such as – the environment, transport, consumer rights,etc.

Why UK wanted to leave the European Union?

  • UK pays around 55 million pounds per day towards EU membership fee. This finance part of the EU budget is used for economic growth and other development initiatives of the members including that of UK. The proportion of EU spending on UK is far less than what UK pays as membership fees.
  • UK wanted to add a provision to the European treaties to ensure that the EU is a multi-currency bloc. That way the Pound and Euro could both be identified as major currencies, but the European union never agreed to this.
  • Britishers favoured lower level of migrants to UK from member countries whereas European Union supports free movement of people within its member states (https://en.wikipedia.org/wiki/Schengen_Area). Influx of low paid EU migrants to the UK cluster were increasing unemployment and poverty. They were also competing with Britons for jobs, hence, putting pressure on publicservices.
  • Almost, half of the UK’s export goes to EU. However, Britain wants to secure trade deals with countries including the U.S. and China, which if done will hurt other EU members interests.
  • Britain wanted to re-frame responsibility between the Bank of England, the Euro-zone, and the European Central Bank (ECB). This was aimed to stop further encroachment of EU authority over London’s banks. But the ECB wanted more influence over London, its main financial centre.

 

So, Britain just polled in a referendum to decide on Brexit..

A referendum – a vote in which everyone of voting age can take part – was held on 23 June 2016, to decide whether the UK should leave or remain in the European Union. Leave won by 52% to 48%. The referendum turnout was 71.8%, with more than 30 million people voting. For the UK to leave the EU it has to invoke an agreement called Article 50 of the Lisbon Treaty which gives the two sides two years to agree the terms of the split. Theresa May, the current Prime Minister of Britain has said she intends to trigger this process by the end of March 2017, meaning that the UK will be expected to have left the EU by the summer of 2019.

The After-shocks of Brexit..

  • The pound remains near a 30-year low.
  • Britain also lost its top AAA credit rating, meaning the cost of government borrowing will be higher.
  • The Bank of England cut interest rates from 0.5% to 0.25% – a record low and the first cut since 2009.

 

Expected negatives post Brexit..

  • Exports to Europe are expected to become expensive, as more tariffs will be imposed by the EU; this would negatively impact UK’s current account deficit, which is currently at 7% of GDP.
  • UK’s unemployment should inch higher as some businesses would move to EU countries due to unfavourable trade norms. UK’s unemployment rate is currently at 5%.

Expected positives post Brexit..

  • Britain would save $12 billion a year in EU budget payments.
  • Freed from the cumbersome EU regulations, Britain would attract greater investment and become a more dynamic economic hub — particularly if it still had full access to the EU’s tariff-free single market.
  • Leaving the EU would allow Britain more control over how many migrants are allowed to enter the country.

Effects on Global economy post Brexit..

The fact that there will now be considerable uncertainty in EU-UK economic linkages, overall global growth is also likely to be affected adversely. IMF lowered its global growth projection in April to 3.2% YoY (from 3.4% YoY previously). Consequently, against the backdrop of Brexit, global growth projections may see further downside.

Brexit was not a hasty decision, rather it’s seeds were sown in 2012. Leaaders like David Cameroon and Theresa May were against Brexit, hence this shows the deep roted problems that Brexit may pose in the future for Britain.

Hence we are all hoping for a ‘soft Brexit’ that protects the global interests !

 

(Please like and share your comments on Brexit)

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2 thoughts on “The ‘Brexit’ saga..”

  1. There are some other issues as well. England is not a good invst destination as it is very costly. So they wanted to stop the immigration.. major issue behind it. Also it wanted everything as per it’s own whims and fancies which obviously economic powers like Germany wouldn’t accept. Also i feel that EU is not a stable organization.. when only 2-3 countries in the entire union are stable and growing the block will disintegrate

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