Murari Sharma: Brexit rattles the world

The British voters have decisively spoken in the June 23 referendum that they want their country out of the European Union. While 48 percent favored to stay, 52 percent supported Brexit, or Britain’s exit. The decision has thrown the United Kingdom, Europe and the world into a vortex of political and economic uncertainty, which is likely to be worse before it gets better.

In Britain, the Conservative Prime Minister David Cameron, who had led the campaign to stay, announced that he would stand down in the wake of the referendum result. Jeremy Corbyn, the Labor leader, is facing a revolt, as he is accused of campaigning half-hearted in favor of remaining within the EU. He has sacked one shadow cabinet leader and one cabinet leader has already resigned. More upheaval is expected in the next few days.

Brexit has rattled the very existence of Britain, as we know it. Nicola Sturgeon, the first minister and leader of the Scottish Nationalist Party, has said the second referendum for Scottish independence is on the table and that she would lobby EU to keep Scotland in it, in view that Scottish voters overwhelmingly favored staying in the EU. For the same reason, Deputy First Minister Martin McGuiness has demanded a referendum for Northern Ireland’s unification with Ireland.

It is hard to predict how all these proposals and demands will play out in the coming days and months. However, even though at the end it could remain intact or lose Scotland and Northern Ireland, the result of the referendum has thrown the United Kingdom into a whirlpool of uncertainties.

The immediate economic impact of the Brexit vote in Britain has been swift and sharp while the long-term impact will emerge more gradually. The sterling hit 31-year low against the US dollar and the FTSE 100 and FTSE 250 also declined sharply. Though the pound and stocks regained some ground, billions of pounds were wiped out by the market volatility.

The long-term impact will be felt in the price, investment and GDP of the United Kingdom. The fall of the sterling’s value may trigger inflation, as imports will be more expensive. Moody’s has downgraded the UK’s credit rating. Investors planning to invest in Great Britain to supply products and services throughout the single market of 28 EU countries will invest within the EU, if the UK fails to join the single market.

All this will have a negative impact on British GPD. Economists have predicted that the United Kingdom could go into recession and suffer lower growth for a considerable period. The British economy will have difficulty finding a stable footing until it knows what kind of trade deals British politicians will be able to clench from the European Union and from other countries across the world.

The European Union faces its own economic and political challenges due to the Brexit. The Brexit vote sent Europeans bourses on a tailspin. It has encouraged nationalist parties across EU to imitate Britain in the next few months and years, imperiling the very survival of the European Project. After Britain leaves within two years, the EU’s economic and political influence in the world would have diminished proportionately, if not more. The EU-Britain trade negotiations may bring rupture among the remaining 27 members of the Union.

In the United States, Brexit sent the Dow Jones, S&P and NASDAQ down. It has also undermined America’s strategic and economic architecture in Europe, which stands on two pillars — North Atlantic Treaty Organization and European Union. While NATO stands to protect its members from non-members in Europe and elsewhere, the EU has been the bulwark of internal/regional security and the spread of democracy and prosperity in Europe.

Once Britain is out, the EU’s expansion will to a grinding halt. Candidate and aspiring countries that have American backing might be cooling their heels forever outside the EU’s boundaries. A weakened EU will also weaken NATO. For instance, the EU without Britain would not have been as strident in imposing economic sanctions on Russia in the wake of its involvement in destabilizing Ukraine.

What is more, Britain’s exit from the EU, made possible by the angry populist-nationalist combine, might make Donald Trump’s election as president palatable to the American people in November this year. Examples matter.

The rest of the world will also suffer from Brexit and the EU’s weakening. Both of them will have less political and economic clout to project across the world. If Britain falls into a prolonged recession and if the nationalist-led government decides to slash its development assistance, developing countries will suffer from it. Trade between Britain and other countries will face the wall of tariffs allowed under the WTO rules, until specific trade agreements are signed.

The EU has already sent out indications that its development assistance may decline after Britain leaves. A weakened EU will be less effective in supporting new democracies and pro-democracy movements around the world.

For a country and people, sovereignty and independence are as important as economic well-being. When Britain held a referendum in 1975, the British voted in favor of economic well-being and joined the European Common Market, the forerunner of the EU. Now the sovereignty has trumped economic well-being. And its repercussions will be felt for some time in Britain, in EU, in America, and the rest of the world. Britain will eventually do well outside the EU, though not as well as in it.

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Murari Sharma: Brexit war of will

On June 23, 2016, British voters will take the most momentous decision in the last 50 years: They will decide in a referendum whether Britain stays in the European Union or leaves. The only other decision of equal import in that period was in 1975 when Britain decided to join the European Economic Community.  This time, the stakes are high, public opinion is divided, and politics is getting dirtier by the day as the decision day approaches.

The stakes are incredibly high for the United Kingdom, for the European Union and for the world. Britain will decide whether to abandon its EU membership or continue. If it opts to leave the organizations, then it will save its membership contribution, can stop the free movement of European immigrants and can rid itself of the European rules applicable to the member states. In other words, Britain will have greater sovereign freedom to take decisions that affect it.

At the same time, the cost of leaving the union will be colossal. Britain will lose free access to the European single market, need to negotiate separate trade agreements from scratch with countries around the world, suffer the damage caused by the economic uncertainties, and lose the portion of investment that is aimed at taking advantage of the single market. Besides, British cost of production will increase, exports will decline, imports will be more expensive, property price will decline, and jobs, income and GDP will be reduced substantially. 

Britain, a medium-sized economy and military power, will also lose much of its current, huge strategic global influence and value for its closest ally, the United States if it leaves the organization. France or Germany will nudge out Britain in the US global strategic equation.

The British referendum will also have a huge impact on the EU. If Britain leaves, it may trigger a domino effect. Like Britain, Denmark has always been a recalcitrant family member. Southern European countries in the grip of unsustainable debt burden may also follow the British suit. In that event, the whole European project, which together with the North Atlantic Treaty Organization, has ensured peace, stability and prosperity, may crumble, giving way for the old Europe where wars were frequent and peoples were relatively poor.  

If the European Union, the second largest economy after the US, collapses and Europe destabilizes, the impact will reverberate with serious negative consequences across the world. Many other economies that rely on the union market will also destabilize. European countries will lose their balancing influence in the world in economic and security matters. 

In view of this, both sides in the referendum — Remain and Leave — have made all-out efforts to win the British voters to their side. Economic facts and figures, independent institutes, economists, Nobel Laureates, the church and the international community have supported the Remain side which consists of Europhiles from Labor, Conservative and other parties.  

According to Open Europe, a think tank, Britain will have 2.2% less GDP in 2030 if it were to leave the EU. The Treasury has estimated the British citizens will see a decline in their income from £4,200 to £6,400 annually and in the property prices by 18% if Britain left the EU. Such independent institutes as the Bank of England and the Institute of Fiscal Studies have warned of serious economic consequences for Britain leaving the EU.

The Archbishop of Canterbury Welby has supported the Remain side, so have nearly 600 economists and a dozen Nobel Prize winners. 

Many world leaders, including US President Obama, German Finance Minister Schauble, World Trade Organization Director-General Azevedo, and IMF Managing Director Lagarde have advised Britain against leaving the union in view of its impact on British and global economies.  Obama and Azevedo have said it will take years for Britain to negotiate new trade agreements. Schauble has made it clear that Britain outside the EU should not expect as favorable a deal, as Switzerland and Norway have in place.   

The Leave side — a conglomeration of identity politicians, nationalists, racists and xenophobic across the British political spectrum — has carried out a highly emotional but largely fact-averse campaign. They have blamed European immigrants for taking British jobs, NHS beds, school places and houses and the unelected and unaccountable bureaucrats in Brussels for taking decisions that hurt Britain. Therefore, they have appealed to the people to reclaim the British sovereignty and take back control from Brussels. 

Evidently, the Leave side has run a fact-averse campaign. It has no projection, no estimate, no plan of its own, and it invariably labels every fact presented by the Remain side as scare-mongering. The only figure the Leave side has bandied around is Britain’s membership contribution of £350 million a week, which independent organizations like the Institutes of Fiscal Studies and Office for National Statistics have labeled as gross misrepresentation, for Britain gets the rebate and subsidies from the European Union.  The actual net contribution is a small fraction of that amount.

While economic facts are on the Remain side, both sides have enlisted the support of the British business community. Leaving the EU will have different impacts on various British businesses. Generally, large firms and exporters will be hurt, whereas small enterprises may benefit. Similarly, British wages will rise when the flow of European immigrants subsides, but labor rights will be watered down in the laissez-faire Britain. Hence the division.

Opinion polls suggest that neither side has been able to swing the voters their way. The Leave side’s whipping of nationalistic sentiments and the fear of Britain being inundated by European migrants are as poignant for the public as are the benefits of remaining within the EU argued by the Remain side. Although the latest polls show the Leave side is gaining some momentum, the British public has hardly moved to one side in any decisive way. 

In a panic, both sides have become increasingly acrimonious and vituperative towards each other, often individually. Although both sides have assured that the result of the referendum will not unsettle the ruling Conservative Party, it will be patently naive to believe so. The post-referendum political contours have begun to emerge already.

The Remain side has accused the Leave side of promoting Boris Johnson, the former mayor of London, to edge out Prime Minister Cameron if the latter wins. Some Tory leaders have already made it loud and clear that Cameron will not survive if he loses the referendum. If the Remain side is triumphant, Cameron will dump most, if not all, ministers that have openly campaigned for leaving the EU and against him.  

There is no question that Britain will survive and prosper even if it pulls out of the EU, even if the Europhile Scotland secedes from the United Kingdom, and even if Northern Ireland follows the Scottish suit. The question is whether leaving the economic group or remaining in it will be better for Britain, for Europe and for the rest of the world. I am sure British voters will consider all these possibilities and prospects before they cast their fateful vote on 23 June.