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Thursday, June 30, 2016

Brexit and its Immediate Aftermath

Recently the citizens of the United Kingdom had collectively voted in favour of Exiting the European Union. During the build-up to the voting day of the Referendum, economic experts worldwide had predicted tough times for the UK as a whole if they chose to exit the EU. But, in spite of all this, the citizens of the UK still chose to leave the EU which has pretty much caused widespread turmoil & uncertainty across the globe. Major Stock Market Indices across the globe have lost a ton of value. 
This is going to be the first among many upcoming articles on this topic. We will be starting with the immediate Aftermath mainly for the UK and the EU Nations. In upcoming articles we will take a deeper look at more topics. 

Before we Begin: Predicting the Aftermath of the Brexit with Accuracy is something that Experts across the globe are scrambling to do and even they are unable to say with certainty as to what will exactly happen. I will try my best to explain the situation in an easy to understand manner and hopefully you will find this article useful… 

What is the European Union? 

The European Union - often known as the EU - is an economic and political partnership involving 28 European countries. It began after World War Two 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 a wide range of areas - including on the environment, transport, consumer rights and a lot more. 

Why the Brexit? 

Great Britain or United Kingdom as they are commonly referred to has been one of the pivotal members of the EU throughout the existence of the EU. UK is by far the largest and wealthiest members of the EU. Citizens of the UK have been unhappy over their participation in the EU for a few primary reasons:

- People felt that Great Britain was bearing a huge burden by trying to economically support the EU Nations and they would be better off by themselves. They feel that the amount the UK contributes to the EU budget could be useful if spent in the UK itself- People felt that the EU Membership allowed members of other EU nations to freely enter and seek employment in the UK thereby impacting native citizens - People feel that the EU is actually threatening the British Sovereignty because the EU regulations would override national laws 
Is the UK exiting the EU Confirmed? 

Actually, the whole referendum/vote is not legally binding. There are a few ways whereby this whole Exit from EU could actually be blocked or overturned but the chances of this happening are very slim to none. 

Article 50 of the Treaty on European Union establishes the procedures for a member state to withdraw from the EU. It requires the member state to notify the EU of its withdrawal and obliges the EU to then try to negotiate a withdrawal agreement with that state. Britain's "Leave" vote, however, does not represent that formal notification. That notification could take place within days or British officials might wait a few months to pull the trigger. 

Once Britain invokes Article 50, it will have a two-year window in which to negotiate a new treaty to replace the terms of EU membership. Britain and EU leaders would have to hash out issues like trade tariffs, migration, and the regulation of everything from cars to agriculture.

Anyways, it would be political suicide for people who push for the same because it would be considered as if they are going against the will of the majority public.

Now that we have covered the basics, let’s talk about the Immediate Aftermath… 

1. Political Uncertainty in the UK 

As soon as the Leave vote in the Referendum was finalized, the British Prime Minister David Cameron declared that he would resign by October of this year. Cameron was one of the strong supports of Staying in the EU while many members of even his own party were actually against it. 

No one really knows exactly what is going to happen in UK politics. Maybe, he would be replaced by Boris Johnson who was formerly the Mayor of London and one of the strong proponents of the leave EU side. It is also possible that the ruling conservative party could split into groups and may not be in a position to claim a full majority in which case we may see Early Elections. 

Note: UK Just had elections in 2015 when the David Cameron led Conservative Party had won with Majority. Another election this year or even in the next year could cause a lot of problems for UK. 

2. Economic Problems in Britain 

In the short run, uncertainty about Britain’s future relationship with the EU, its largest trading partner, could push the UK into a recession. The Stock Markets in the UK have been extremely volatile over the past week losing a ton of value. The GBP has lost a lot of value too. To help you understand better, 1 GBP was trading @ over 100 rupees last week while as of this writing it is trading at around 89-90 rupees per Pound. That is over 10% erosion in value in just a week – that too against a currency like Indian Rupee. If we compare against a stronger currency like USD the loss is over 11%. Experts predict that this trend will most likely continue. 

This volatility and fall of the Pound reflects the market worries about more severe consequences in the months ahead. With Cameron out of power, Britain’s prospects of negotiating a favourable deal with the EU could be weakened. The EU may decide to strike a hard bargain to discourage other countries from leaving the EU. Or the UK’s new leader might not be willing to accept the kind of restrictions that come with a Norway-style deal. And that could create serious problems for businesses based in the UK. 
Experts predict that this leave EU vote could impact the British Economy sizeably. They are predicting that the British Economy could be smaller by up to 8% by 2030, depending on how well the exit negotiations happen. The actual % varies from one economist to another but everyone unanimously agrees is the fact that the UK Economy isn’t going to grow in the coming decade or so. 

3. Uncertainty for Migrant Workers 

As with any economically advanced nation, the UK has been a hotbed for Immigration. People from across the globe especially the EU Nations have been venturing to the UK for many years. Though citizens of other nations have to go through a lengthy visa formality in order to be eligible to work in the UK, citizens of EU Nations did not. A citizen of one EU Nation is free to live & work in any other EU nation. This Exit from EU could change all that.

Statistics indicate that about 3 million immigrants from different EU nations actually live & work in the UK. Considering the fact that immigration has been one of the key driving forces behind this leave EU. On the other side, the same statistics also indicate that about 1.2 million Brits are actually living/working in various EU Nations. 

It’s possible, of course, that Britain could negotiate a new treaty with the EU that continues to allow free movement between the UK and the EU. However, one of the key driving forces behind this leave EU referendum has been the rising resentment against immigrants especially from poorer & economically struggling nations like Poland or Lithuania. So, the British Government will be under immense pressure to tighten the rules on immigration. But, on the flip side, if Britain restricts EU Nationals, they would reciprocate the favour which would impact the Brits who are employed in the EU. The EU Nations may go one step further and make it harder for British businesses to operate in the EU Region.

4. A Potential Break-up of the United Kingdom

Most people think that the names United Kingdom, England, Britain are pretty much one and the same. Actually, Not many people are actually aware of the fact that the United Kingdom actually is comprised of 4 countries.
1. England
2. Scotland
3. Wales &
4. Northern Ireland 

The overall vote on the Referendum was 52% in favour of leaving the EU while 48% voted to stay in the EU. England voted strongly for Brexit, by 53.4% to 46.6%, as did Wales, with Leave getting 52.5% of the vote and Remain 47.5%. However, Scotland and Northern Ireland both backed staying in the EU. Scotland backed Remain by 62% to 38%, while 55.8% in Northern Ireland voted Remain and 44.2% Leave. Now with this overall vote in favour of Brexit, leaders from both Scotland and Northern Ireland who voted to stay in the EU could want to split away from the UK. 

One key Scottish Leader has already indicated that Scotland would like to hold a referendum about whether Scotland should become an independent nation and be separated from the UK. If that votes succeeds, Scotland could potentially petition for an EU membership as a separate nation. 

The situation on the Irish side is even more troublesome. Ireland 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 once again. 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.

Some Last Words:

As you can see, this Brexit is going to have serious consequences to the United Kingdom. Though the citizens of the UK have the right to be unhappy about their membership in the European Union, I feel this was more of a knee jerk reaction by the citizens of the UK who weren’t entirely aware of the consequences of this EU fallout. Am gathering data/statistics on a more detailed impact to the UK as well as the EU as a result of this Brexit and you can expect a few more articles soon. 

Until then, let’s hope for the best…

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