Thursday 4 January 2018

Brexit: Read in short but know it completely

What is the European Union?

The European Union can be described as a single body which has 28 countries within its purview. It was created post World War II to increase economic and political friendliness among European countries by introducing the concept of free trade and free movement of people across borders of its member countries.

So, if one towel is made by a brand in one country it can be sold in any of the member countries without custom duty, tariffs and taxes.

Suppose, if a towel is made by a reputed brand in India and it were to sell in Sri Lanka then its cost will increase due to numerous tariffs and custom duties, lowering the margin of the company and so, lowering the profit.

The towel will not be able to compete in the local market due to high costs and the brand won't be able to obtain the profit it would have in India.

On the contrary, if a towel is made in any of the countries of EU then it can be sold in any other country at the same cost, thus the margin in the home country and any of the other 27 countries remain the same and thus the profit.

The borders of the countries are also not sealed for each other which means that a citizen of France going to Germany will not be subjected to the checks and formalities, which he would go through while visiting The United States.

The euro is the official currency of European Union. 

19 of the 28 member states have adopted euro as their official currency and it is the most traded currency in the foreign exchange market second to the US Dollar.

Below are the member states of EU with underlined states having their official currency as Euro.

Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain , Sweden, United Kingdom

What is Brexit?

As you already know, Brexit is the combination of 'Britain + exit', referring its exit from the European Union. 

Britain is still a part of European Union and is going to officially leave EU on 29th March 2019 almost 2 years after the current PM of Britain Theresa May gave nod to the exit process.

Now, a question would pop up in your mind why after 2 years? The answer is because of 'the Article 50' which came into effect in 2009 especially for the member countries. 
Let me make it clear that before 2009 there was clear provision for any of the member countries to leave EU.

So, under Article 50 the minimum period of separation is 2 years which can be extended too depending on the negotiations involved.

The negotiations are particularly related to how much the countries owe to each other, the rights of the citizens (in this case the UK people living in the EU countries and the EU people who migrated to UK)

Why Brexit?

Britishers who voted for Brexit feel that their jobs are taken by the immigrants. The immigration is quite easy due to free movement of people, goods, services etc across the EU countries .

This means that any person residing in Austria can come to Britain and work there if he is willing to live a more prosperous life basing his decision on the strong currency power of the GBP.

The EU created a single market. In a single market the services, goods, products and people can move freely between the two countries. 

The idea behind single market was to keep the prices as low as possible, create jobs and facilitate trade among the countries.

When there is a free movement of people, generally talented people from poorer countries than Britain emigrate there and take up the jobs of average Britons which creates antipathy towards the immigrants.

The Britons also blame the foreign students who occupy the seats - which they think belong to them - in reputed educational institutions of Britain.

3 universities in top 10 universities of the World are in Britain; the facts and figures also indicate that most of the noble laureates have studied in British Universities. 

Also, the quality of the education provided in Britain is exceptional. These are reasons enough to attract students from around the world to study in Britain.

Surveys have indicated that it is this antipathy towards immigrants that is majorly responsible for the majority voting in favor of the Brexit.

For and Against Brexit

A referendum poll was held on 23rd June 2016 in which about 72% of the population came out to vote in favor or against Brexit.

The then prime minister of Britain David Cameron was against Brexit as he held the view that it would negatively affect Britain’s economy and would make its GDP plummet.

However, the view of David Cameron and other economists couldn’t stop the majority from going in favor of Brexit. About 52% voted to leave the EU and around 48% were against it.

On losing the poll, David Cameron resigned from the seat of the Prime minister and Theresa May took over as the new Prime Minister of Britain. 

Initially, she was also not supportive of Brexit but eventually she agreed with the majority.

Political Factor on Brexit

History indicates that Britain has always preferred a separate national and social identity. It joined the EU in 1973 much later than 1957 when the EU was actually formed.

Britain never accepted euro as its currency. 
Britons perceive Britain as a separate continent altogether separated by the English Channel from the rest of the Europe.

Britons while narrating their vacation plan do not explicitly mention travelling to France and Switzerland rather they mention going to Europe. Even local travel companies on their street hoardings use texts such as ‘4 days 3 nights in Europe’.

These reasons reflect that apart from xenophobic sentiment there is a political desire to materialize the notion of being a separate identity.

Speculation on the economy

Economists and political officials who were against Brexit speculated that Britain would fall in an immediate economic crisis as Europe is Britain’s important export market and a phenomenal source of FDI.

Exiting the single market would mean impacting the trade with other countries, surging of the prices as well as losing FDI too.

The immigrants also form a large chunk of the labour force. With the free movement of people stopped, the labor force will be impacted in medium to long term.

But, on the contrary, the speculation of immediate economic crisis proved to be incorrect. 

The GDP growth in 2016 came out to be stronger post Brexit referendum with Q3 and Q4 showing an increase in GDP compared to previous quarters.

Only the pound fell sharply against the dollar with rising inflation halting the consumer spending.

The number of employed personnel kept increasing with employment rate currently standing at 75.1% in 2017. 

The unemployment rate witnessed a continued decrease from 8% in 2013 to 4.3% in 2017.

Many forecasters and Economists believe that the economic circumstances will change in 2017 and 18 with Brexit impairing the growth in medium to long term.

Northern Ireland Border dispute

There were 3 issues which needed to be sorted in phase 1 of the talks. Two of them, financial settlements and citizens’ rights have already been sorted but the third one which is still under arguments and discussions is the Northern Ireland border dispute.

The Northern Ireland separated from the Republic of Ireland in 1922 and since then 
it has been a part of UK. 

A lot of trade happens between the two countries and the border is open for the people to travel freely between them. Daily thousands of citizens of both the countries cross borders for trade and travel purposes.

However, with Brexit in picture, UK will exit the single market which will stop the free movement of people between the two countries which will mean a lot of check posts to be installed and the entire border to be sealed.

This will negatively impact the export market of the Northern Ireland, 25% of which is dependent on the Republic of Ireland.  

This will result in a hike in prices by imposing of new tariffs for sure reducing the trade.

Also, the government of the republic of Ireland fears that the installation of a hard border will not be taken well by the local traders and will result into protests.

An alternative approach was proposed which marked Britain to exit the EU but not exit the single market and the customs union but this proposal was rejected by the British government in order to honor its commitments of a complete Brexit.

Unless and until, the Northern Ireland border issue is resolved Brexit will not move into phase II which will make things more difficult considering in picture the deadline of 29th March 2019.

Second Referendum

Opinion Polls held in Dec’2017 revealed that the opinions of the majority of Britons and the UK government have started parting ways.

The negotiated amount of 50 billion pounds that UK will have to pay to the EU on leaving has created an opposite sentiment among the masses of UK.

According to the latest Survation survey, around 50% of Britons now think that a second referendum should be held after the government’s final negotiations with the EU, 34% are still in favor of Brexit and 16% had no answer to this question, however, the government is still fixed on its stance of a hard Brexit.

Whatever it may be

No one can exactly predict what the condition of the Britain’s economy will be after Brexit. 
Will it have to start over? Or will it get better with controlled migration, more jobs and education opportunities for the locals?

Well, our agenda in this article is not to express any opinions. 

But, no one has stopped you from expressing yourself in the comments section.

So, did you understand all about Brexit?

Was it properly explained in the article?

What are the chances that you would be referring this article to friends and family?


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