As Prime Minister May and the Conservative Party scramble through the cumbersome Brexit process, it is vital to assess the economic impact Brexit brings along. It has the potential to not just weaken the British political and economic pillars, but also to jeopardise the world economy. Will its impact be really global, as they say? Let’s find out.
“Cadbury stockpiles ingredients in case of hard Brexit”, “UK driving licence may not be valid in the EU after Brexit”- this is what headlines read today, apart from the palpable unrest in the political and economic realm. Ever since the former Prime Minister of UK, Mr David Cameron held a referendum back on 23rd June 2016 pertaining to whether the UK should remain a part of the European Union, there has been no looking back. With a marginal vote of 51.9% to leave the EU, coming from the citizens, Mr Cameron had to resign.
The idea of Britain exiting the EU developed not just in documents, meetings and in other tangible forms, but also in a name- Britain+Exit=Brexit, the opposite of Britain+Remain= Bremain (which is highly unlikely now!).
Why was this decision exercised? Was it because of political oppression, economic downturn, sociological factors? Here’s why it happened-
Britain felt that it was unnecessarily bogged down by restrictions from the EU. This is essentially because all 28 member states of EU are obliged to follow the ‘constitution’ of the European Union. Britain felt that had it not been an EU member, it would have had a better chance of signing economic and political deals with developing economies like China and India. EU has taken too much power from Downing Street, apparently.
While there is flexibility in movement across the borders of these member states, there has been a large exodus of people from poor countries to rich countries like Britain, thanks to this flexibilty.
Supposedly, EU wastes a lot of tax payers’ money on bureaucratic formalities.
All these member states (including Britain) have to pay membership dues. Brits felt that they were not getting back much in return from the EU.
Owing to all these reasons (and perhaps, many more), the present British PM, Mrs Theresa May triggered Article 50 of the European Union Constitution, which lays down the procedure for any member state to leave the EU, owing to specific reasons.
Let’s now ponder over the status quo. What are the recent economic developments in Brexit? Brexit has already forced the resignation of Mr Boris Johnson, the foreign secretary, who asserted that he could not support Mrs May on this issue. It must be stated that there are still large doubts lingering around, about whether the Brexit deal will be accomplished by March next year.
Indeed, the economic repercussions are just as gruesome as the politics. Economists suggest that there might occur a slump in consumer spending and business investment, which is expected to drag Britain’s growth rate down to just 1.3% this year, dispelling hopes that the UK’s sluggish rate of expansion in the first six months will recover in the second half of the year.
Fears over Brexit have sent the British pound to the lowest level against the dollar and the euro this year as Mrs Theresa May continue to struggle to gain support for her plan for Britain leaving the EU.
There are an estimated 3 million EU citizens in the UK and a million Brits elsewhere in the EU. They are all protected with free movement and don’t need to get visas or citizenship as long as they are in the EU.
If no official deal is reached by March next year, these people could lose their citizenship rights, causing havoc. Brexit negotiators would then be forced to make separate deals with each different country.
Brexit is making its way not just through the realms of currency and finance but also through businesses, including the luscious Cadbury brand that has stirred discontentment among chocolate eaters. Cadbury’s owner, Mondelez International, is stockpiling ingredients, chocolates and biscuits in fear of Brexit. Hubert Weber, the president of Mondelez Europe told the media that the UK was ‘not self-sufficient in terms of food ingredients’ and confirmed the measure as part of contingency plans for a hard Brexit. This is largely because it may lead to friction in mobility of raw materials and other finished goods across borders. Shoppers may have to face higher prices and fewer choices, leading to a loss in consumer sovereignty. This may grow to affect certain export-import business. In fact, businesses across the industry are said to be stockpiling and deciding a prudent course of action.
Brexit may harshly impact British drivers as they may have to get an international driving permit if they want to drive in European countries after Brexit. The government says that after March 2019 “your driving licence may no longer be valid by itself in the EU”, in its latest planning papers. It also warns that Brits travelling to the EU may need to make sure their passports have six months left to run.
This means that UK-based businesses, academics and researchers will be unable to bid for future EU global navigation satellite system contracts and may face difficulty carrying out and completing existing contracts. For example, it may not be possible for businesses or organisations which currently host Galileo and European Geostationary Navigation Overlay ground infrastructure to continue to do so.
Brexit may also have certain less obvious effects too. Critics say that France, the Netherlands, etc. may take cues from the UK and be driven to leave the EU (or at least consider leaving the EU). This could lead to a huge EU collapse, following which, world exports might get affected, keeping in mind that China imports around 16.2% materials from EU, while the USA, 18.3%. Businesses thriving in the UK may have to consider their actions. This isn’t just limited to British companies, but also to foreign companies. For example, Tata Iron & Steels Company would have to consider if it could really prevent losses if it establishes another of its many units in the UK.
It may be possible that students from abroad will get affected too. This is partly because the UK may follow a policy of ‘immigration reduction’ (which isn’t highly likely), coercing students to pay a higher fee. There still is a 10-15% chance that premier institutions like London School of Economics and Oxford may have to bear the brunt.
Many say that Brexit is leading to impaired governance, social anxiety and squeezed living standards. They fear what topsy-turvy might unravel. On being questioned about how they felt about Brexit, Europeans gave a myriad of remarks, some of which were ‘emotional’.
The Swedish people literally said, “We Swedes think of you British as our kinfolk. We admire you and emulate you-you are people we have learnt so much from… Brexit, to us, is rather like a family, where the eldest son goes off to university — and the little ones still at home are left wondering how the family will change, and what their admired big brother will be up to”. Many think Brexit was a terrible idea, and what was even worse was that the irrevocable decision was taken with a large number of people not knowing what “Leave” would actually look like.
At this point, one can only speculate and wonder how Brexit would be like. What is known is that Britain must leave the European Union by 29th March 2019. Whether Brexit’s barbaric impacts on people, businesses and trade will swallow the British economy and overtake the growth process of this biggest European tech hub, only time will tell. It is a matter to contemplate as to how this imperialist nation, with a rich history of rulers and revolutions, will change the global economic scenario if it will. Until then, one must hope for healthy conclusions and deals in place.