Everything You Need to Know About Brexit Deal

On Jan 15, 2019, Prime Minister of Britain Theresa May’s Brexit deal has been rejected in British House of Common. This article provides the detail of Brexit: What is the issue, why this issue is now in News.

Introduction

Brexit is a term coined to define the United Kingdom (UK) leaving European Union (EU). A referendum was held on 23rd June 2016 where 51.9 percent of those who voted supported Brexit. Eurosceptics both left-wing and right-wing supported Brexit while Pro-Europeanists supported continued membership. The terms of the exit deal is currently been negotiated between UK and European Parliament.

European Union (EU)

The European Union or EU is a political and economic partnership between 28 countries of Europe. After World War II a need was felt to improve economic co-operation among some European countries. The idea was with more trade there will be less war. EU has since grown to become a “single market” making the movement of people and goods among member countries very easy. 19 member countries use a common currency, the Euro. EU has its own parliament and it now sets rules in a wide range of areas.

What does Brexit mean?

A shorthand way of saying the UK leaving the EU – merging two words Britain and exit to get Brexit.

What is a referendum?

A referendum is an alternative to parliamentary voting. For instance, when the government has to take some decision they put that proposal for voting in parliament. But in case of referendum proposal is put to the citizens of the country for voting and all eligible voters vote for that. For instance, in the present case, all eligible British voters were asked to vote whether they want Britain to be part of the European Union or not. All voters need to answer “Yes” or “No” to this question. As said above 51.9% were in favor of British to be exit from European Union.

Constitutional Provision of Brexit

A member country can exit EU by using the provision of Lisbon Treaty (Article 50). Article 50 allows members to withdraw from the EU in a specified manner. Any member country willing to exit EU has to first negotiate a deal with EU. Once the Article 50 is triggered when there is a time window of two years during which Country has to come up with the deal agreed to European Union. EU makes sure that the cost of leaving the EU should be high which is necessary to avoid any easy leaving of EU.

Accordingly, Britain has to come up with the deal by March 31, 2019. However, British PM has negotiated the deal with EU. This deal has been put for vote in parliament (House of Common) of Britain. This deal was rejected by 230 votes. This is the largest defeat for sitting Government in history.

What will happen Now

In case Britain does not come up with any deal the Britain May have to exit from EU with “No Deal”. This will be very disastrous for the British Economy.

As only 2.5 months are left to come up with the deal, so there may be an extension of the timeline to come up with a deal from March 31, 2019, to some later date. However, this has to be agreed by EU.
There is the voice that in Britain there may be again referendum to decide on Brexit.

An opinion of Political Groups

  • Nigel Farrage of Independence Party led the “Leave” campaign of UK.
  • Jeremy Corbyn of Labour Party led the “Stay”’ campaign of UK.
  • David Cameron, ex PM and leader of conservative party was in favor of staying in EU.

Why the clamor for Brexit?

Economic Reasons

  • Brexit supporter’s thinks UK loses more than what it gains.
    High membership fees – about 340 pounds per year per household.
  • Protectionist EU’s policies hampers UK’s economic competitiveness.
  • After Sovereign Debt Crisis in many European countries, tight fiscal measures were introduced by EU impacting national budget of UK.
  • Germany’s proposal to levy taxes on financial transactions was criticized by Brexit supporters.
  • UK can negotiate independent trade deals with countries like China, India and USA.
  • Saved money can be used for scientific research and for promoting new industries.
  • By leaving EU, UK can have stronger influence over free trade and commerce.
  • The bailout package for countries like Greece was criticized by Brexit supporters.
  • Ill effects of globalization –Brexit supporters feel that globalization has increased inequality, eroded profits and job opportunities.

Immigration Issues

  • More than half of UK’s legal migrants come from EU, and a growing feeling that immigrants were hampering job prospectus of local population.
  • Local population’s fears were accentuated because of the fact that from 1997 onwards, 3/4th of jobs was taken up by EU immigrants.
  • EU’s obligation to accommodate more refugees was also criticized by Brexit supporters.
  • Refugee influx in EU is at the peak because of multiple crises in the Middle East and Africa.
  • A growing perception that refugees pose big threat to national security.

Sovereignty Issue

  • EU is a transformative idea but it weakens national sovereignty.
  • Increasing decision making powers of European Parliament, while reducing the authority of British Parliament.

Impact of Brexit

On UK

Economic

  • EU is a huge market; it is UK’s largest exporting market, 45% of UK’s exports are in EU countries.
  • EU is the major source of UK’s imports.
  • Except Germany and Sweden, UK has a trade surplus with all other countries of EU.
  • UK is a major financial hub. After Brexit, the financial sector in UK would take a hit.
  • London Exchange was down after Brexit supporters won the referendum.
  • British Pound would take a steep decline.
  • EU has educated and skilled workforce which had positive impact on Britain’s economy. That advantage will be lost by UK.

Geopolitical

  • Future of Scotland and Northern Ireland – They were willing to be part of UK with the precondition of UK remaining a part of EU.
  • There is a demand of referendum in Scotland to consider their future in UK.
  • In Northern Ireland violence erupted after Brexit vote.
  • In a globalized world, being a member of multilateral organization is important for making key policy decisions.
  • Pursuing sovereignty in an interconnected world is a utopian idea.
  • Britain is represented by EU at many important world forums. Britain now has to appoint new representatives and define new aims for these forums.

On EU

  • The very idea of European Union is being challenged.
    Domino Effect – with UK exiting EU, there is a possibility that other countries like Greece etc may leave EU.
  • EU is currently facing financial slowdown and security challenges, with Britain leaving it this could accentuate.
  • The costs of trade would increase because of the reduced market and restrictive trade policies of UK.
  • EU has to handle a resurgent Russia without an important member like UK.
  • After Brexit, there will be uncertainty in the value of Euro.

On India

Negative Impact

  • The immediate effect of Brexit will be increased risk aversion in capital investment. This will increase FPI outflows by foreign portfolio investors.
  • Rupee may depreciate because of less FPI.
  • Less access to European markets – India enjoys a trade surplus with Britain and India is the 3rd largest FDI investor in UK.
  • Access to large European markets was the key motivator for Indian companies to set up shops in UK.
  • Britain coming out of EU will negatively affect these companies.
  • A recent report of Nasscom predicted a negative impact of close to $108 billion for the IT sector of India due to Brexit.
    Sectors like auto, metal, tour and travels and education would be adversely affected by Brexit.
  • Because of greater volatility of pound, there will be negative impact on Indian stock exchange.
  • Establishing different offices and hiring different professionals for the UK and the EU would increase the expenditure of Indian companies.

Positive Impact

  • British companies might increase investment into India because of uncertainties in European countries.
  • Britain might provide Indian companies tax incentives, lesser regulation and other financial incentives to boost investment. This will help Indian companies.
  • This could improve bilateral trade between India and UK.
  • After Brexit, UK would strive for stronger relationship with other countries for strategic and political purpose, and India is a great option.
  • Reduced skilled workforce from EU would create opportunities for Indian youths in UK. India can get concession for Indian workers and students in UK; this will also improve foreign exchange reserves of India.
  • Britain is very keen in forging an FTA (Free Trade Agreement) with India, post Brexit this can gain momentum.
  • Brexit has reduced fears of a US Fed rate hike and this would help in lowering commodity prices.
  • Devaluation of rupee would help Indian exporters.

Brexit has re-emphasized the universal law that – “change is the only thing which is constant”. Treaties which suited a particular country at a certain time may not necessarily suit them in another. Brexit can be explained as the emergence of Rightist mindset in various countries of the world, which has included the aspect of anti-globalization and protectionist policies in its ambit.

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