Written By – Ronak Pol
Published on 2nd July 2016
BR-EXIT is a word that is used as a shorthand way of saying the UK leaving the European Union – merging the words Britain and exit to get Brexit. A referendum was held on Thursday 23rd June, to decide whether UK should leave or remain in the European Union. Leave won by 52% to 48%, referendum turnout was 71.8%, with more than 30 million people voting,highest turnout in a UK-wide vote since the 1992 general election.
To be fair David Cameron did try to renegotiate the terms of the UK’s membership ahead of a referendum.
Understanding the European Union.
European Union(EU) is a Politico-Economic Union of 28 member states with a current population of more than 500 million covering 7.3% of world population and accounting for approximately 24% of global nominal GDP. It has grown to become a “single market” allowing goods and people to move around,as if the member states were one country. The Union grew after world war-II out of a desire for peace in a war-torn and divided continent. UK was not one of the founding members of EU, but one of three new members to join the first wave of expansion in 1973 and was never a part of EuroZone which is a block of 19/28 EU countries that share a common currency called Euro.
Why did Britain want to leave EU
Britons decision to leave boils down to 3 main issues
- Immigration (xenophobia) &
The Economics of Brits leaving the EU is highly debated and widely criticized by world leaders, including the current UK prime minister David Cameron & current US President Barack Obama and also many Economists around the globe, stating that it might have a higher long-term damage than stated by the Pro-Brexit campaigners lead by the far right UKIP and their leader Nigel Farage who with his implicit racist overtones can give Donald Trump a run for his money.
The Immigration controversy follows a similar tone, because of the way EU function it lets people from any member country to relocated and work in UK without a work Visa, Most Economist would argue that this is good for the economy, but the right wingers complain that non-UK citizens are coming in and using up already-scarce public resources, like the National Health Service and welfare. Rising imigration has highly influnced the political debate in UK.
The Identity crisis is the most difficult to rational with, at its core lies the fact that people in the U.K. don’t generally see themselves as European, and the question of British identity within the EU is a complicated one.
Whats next for Britain
For the UK to leave the EU it has to invoke an agreement called Article 50 of the Lisbon Treaty. Cameron or his successor needs to decide when to invoke this – that will then set in motion the formal legal process of withdrawing from the EU, and give the UK two years to negotiate its withdrawal.The article has only been in force since late 2009 and it hasn’t been tested yet, so no-one really knows how the Brexit process will work .In the best-case scenario, Britain may be able to negotiate access to the European market that isn’t that different from what it has now, but this seems highly unlikely.EU law still stands in the UK until it ceases being a member – and that process could take some time.
Economic impact of leaving EU
A short-term analysis done by HM-Treasury on the immediate economic impact of leaving EU concludes that a vote to leave would represent an immediate and profound shock to the economy. That shock would push Britain into a recession and lead to an increase in unemployment,while GDP would be 3.6% smaller, average real wages would be lower, inflation higher, sterling weaker, house prices would be hit and public borrowing would rise compared with a vote to remain.
They grouped the short-term effect into 3 broad factors
- The transition effect
- The uncertainty effect
- The financial conditions effect.
In the report the Chancellor George Osborne comments “A vote to remain in the EU, however, would be the best way to ensure continued growth and safeguard jobs, providing security for working people now and opportunity for the next generation.”
A long-term analysis simply states that, families would be substantially worse off if Britain leaves the EU. All this from a department that is more often accused of being Eurosceptic. A similar dynamic study by researchers at the Centre for Economic Performance, London School of Economics (LSE), came up with even bigger losses.
The financial conditions effect validating these analysis were already seen on Friday when British pound hit its lowest in the last three decades of its value since Thursday’s vote, and Britain’s FTSE 100 stock index lost nearly 3 percent of its value in trading. When you consider that the FTSE is priced in pounds, that means British stocks are down more than 10 percent in real terms.
The country has also lost its credit rating with agencies like S&P and Fitch downgrading the country, this means that the government would now have to pay higher to borrow money in international markets.
However even after continued economic evidence against Britain leaving EU, a vote to leave prevailed, making a discussion that goes beyond simple economic rational even more important.
Political impact on United Kingdom and the EU
Brexit could also change the United Kingdom in a more fundamental way. It’s called the “United” Kingdom because it’s made up of four “countries” — England, Wales, Scotland, and Northern Ireland. But with Britain now on its way out of the EU, there’s a danger it won’t stay united for very long.Scotland supported remain on Thursday by a margin of 62 percent to 38 percent. And the Scots in particular have never been entirely satisfied with English domination, as shown by the 44 percent of Scottish people who voted to make Scotland an independent country in 2014. They like having the UK be part of the EU in part because it provides a counterweight to English power within the UK.
So Britain’s exit from the EU could strengthen the hand of Scottish separatists. A key Scottish leader has already signaled that she wants to hold a second referendum on Scottish independence. If that vote succeedes, Scotland would likely petition for admission to the EU in its own right.
A similar, but possibly more troubling, situation could emerge in Ireland, which has long been divided between a protestant North that’s part of the UK and an independent Irish republic in the South. Tensions across the border have been minimized by EU rules guaranteeing the right to move across the border. But if the UK withdraws from the EU, the border could become more important and tensions over territory could flare up.Perhaps for this reason, voters in Northern Ireland supported remain 56 percent to 44 percent. There’s a chance that a UK exit from the EU could provide renewed momentum for Northern Ireland to try to leave the UK and unify with the rest of Ireland.
Britain’s decision to leave affects not only UK but is a further blow to the confidence and coherence of the block. The full-scale disintegration of the EU is now a real possibility.
Amidst all this, when UK with its new leader invokes the Article 50 of the Lisbon treaty they might have to negotiate really hard to have a favourable deal,but there is no reason why EU might now want to make an example out of this situation to deter other countries from leaving the Union.
Hence it can be argued that leaving the Union was not a politically sound decision, it highly affects International relations between the UK and other European countries and builds a sense of high uncertainty within the UK.
Many of the observable effects of Brexit can be credited to rising uncertainty,Britons decision to leave the union is essentially a leap into the unknown, this will cause businesses and investors to be more cautious when it comes to long-term investments as they are unaware who will be the next Prime Minister and also what would be the next governments agenda, hence the natural course of action would be for them to disinvest from sterling, signs of which we have already seen, hence it is highly likely that we will observe sustained low growth period in UK.
Brexit is proving to be a political and economic experiment that the world might not be ready for but is already amidst, and at the center of it all lies Britain.From a purely economic point of view all present statistics and data shows that a Brexit was not the most optimal decision,from a political standpoint Britain risks damaging long-term international ties with Europe and has risked the bilateral trade impacts of leaving a single market.
Immigration remained at the heart of a leave vote, Raising questions about the future of over 3 million EU citizens living in Britain. Reports of hostality towards the migrant population in the UK makes the news every single day. There is a need for quick decision before things get worse.Questions on how far right politics is shaping the world also remains unanswered,Donald Trump has already praised the leave vote, and we can look at the US presidential race for further answers.
This can be the worst decision that Britons might have ever made,splitting the UK and also leading to increased turmoil in Europe, or we might witness a more unified Union and a Britain that grows faster than ever. Whatever might be the future, Brexit proves to be an inflection point for the world.