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For the United Kingdom, it surely has been a long journey full of ups and downs ever since the historic referendum of 2016. Elucidating on the same, this 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 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 the UK’s renegotiated position within the EU had 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 favoured 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 immigration

Everything was going according to plans as of December 2015, when opinion polls clearly indicated a majority in favour of remaining 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, both were 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 the 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 with the terms of the split. May triggered this process on 29 March 2017, which means that the UK is scheduled to leave the EU finally at 11 PM UK time on Friday, 29 March 2019.


A transition period has been set from 29 March 2019 to 31 December 2020 for all deals and negotiations to get settled between the UK and EU. There would be free movement during this period and the 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 put it very aptly, “Uncertainty of any sort results in volatility, 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 regards 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

Since the very beginning of the entire story, one of the most hotly debated topics in the Brexit case has been the economic impacts of the exit and even two years after the leave vote this unsettled debate still continues. In July 2016, the IMF released a report warning that “‘Brexit’ marks the materialization of important downside risk to global growth”. There is a broad consensus among economists that Brexit’s most significant effect would be a reduction in the UK’s real per-capita income level. A 2017 survey of existing academic literature revealed a consensus that in the long run, Brexit will make the United Kingdom poorer because it will create new barriers to trade, foreign direct investment, and immigration. However, there is substantial uncertainty over how large the effect will be, with plausible estimates of the cost ranging between 1 and 10 per cent of the UK’s income per capita.


Daily Consumables

Following the drop in the pound, most of the manufacturers were left grappling with higher purchasing costs, because of the high import prices. But, as one would expect, the final burden in this case too passed on to the ultimate consumers at the end. Much to the dismay of the common man in the UK, CPI inflation hit 2.9% in just a matter of 12 months following the referendum, a four-year high that exceeded Britain’s target of 2% by quite a notable margin. It had already been forecasted by the London School of Economics well before the vote that food prices, notably prices of dairy products could rise significantly and food supplies could become less secure if Britain leaves the EU under WTO trading arrangements.


Real Estate

As suggested by many reports, Brexit has increased the risk in UK property markets by creating new uncertainties, thereby dissuading prospective investors from ploughing their funds into property in the UK.


Commercial Banks and Financial Institutions

Clearly, the aftershocks left no sector untouched, even the commercial banks in Britain have already begun to announce plans to shift their operations to Dublin, Frankfurt and Paris. Share prices of the five largest British banks fell an average of 21% on the morning after the referendum. All of the Big Three credit rating agencies reacted negatively to the vote: Standard & Poor’s cut the UK credit rating from AAA to AA, Fitch Group cut from AA+ to AA and Moody’s cut the UK’s outlook to “negative”.


Industries And Trade

In addition to this, more than half of the businesses have already 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 Organization 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.


Joy For Exporters

The only silver lining here seems to be that this fall in pound’s value emerged as a boon for some as British manufacturers’ wares became more attractive to foreign buyers. Some of the benefitting sectors being: engines, gems, vehicles etc. In addition to these, a soft and weak pound would also benefit sectors like the service industry, tourism and energy sector. Although, the exports of machinery, pharmaceutical supplies and aircraft resulted in the ballooning of trade deficit.

But, keeping all these in view, it won’t be wrong to say that the banes definitely outweigh the boons. Indeed, the momentous decision by Great Britain has taken a huge toll on every square inch of the British economy. The International Monetary Fund in its July outlook has projected that the GDP growth of Britain is expected to cut down to 1.5% this year from the 1.7% growth in 2017.


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 the UK no longer having unconstrained access to Europe’s single market, and on the flip side, 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 the manoeuvring of the trade between the two countries.


For students from India aspiring to opt for higher studies in the UK, the impact is very little, although, with a weaker pound, education will become cheaper in comparison to the past. With GBP-INR rate falling, Indian students can save a lot in the study cost which makes it a likely choice for students moving abroad for education.


Weighing Brexit Monetarily

The EU has made it certain that the 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, the cost of Brexit to the UK economy is already £40 billion 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 on turning 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 the UK will leave the single market, it will lose 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 or cybersecurity, 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 the World history.


By Aradhana Pandey

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