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BREXIT - PART OF THE FIRST WAVE OF DEGLOBALISATION

BREXIT, one of the biggest geopolitical risks of 2016, became a reality on June 23 2016 when the "Leave" camp won by a small margin with 51.9 percent of the vote.
 
The referendum, with an unprecedented voter turnout of 72 per cent, has attracted the attention of the whole world, as its outcome will not only impact the future of the United Kingdom, but also bring about huge and unpredictable changes to the European integration process, as well as to the future of globalization.
 
From a strategic and global perspective, BREXIT may be defined as the first wave of anti-globalization and rising populism that washes over the world, in particular the advanced nations. What follows next will certainly be more intense and ferocious as globalization and anti-globalization forces engage in fierce battles in different fields involving more countries both in and outside the EU.
 
What does BREXIT mean?

It is a word that has been used as a shorthand way of saying the UK leaving the EU - merging the words Britain and Exit to get BREXIT.
 
What was the breakdown across the UK?

  • England voted for BREXIT, by 53.4% to 46.6%. 
  • Wales also voted for BREXIT, with Leave getting 52.5% of the vote and Remain 47.5%.
     
  • Scotland and Northern Ireland both backed staying in the EU.
     
  • Scotland backed - Remain by 62% to 38%, 
     
  • Northern Ireland - while 55.8% in Northern Ireland voted Remain and 44.2% Leave.
After the referendum, the government changed and Britain got a new Prime Minister - Theresa May. The former home secretary took over from David Cameron, who resigned on the day he lost the referendum. Like Mr Cameron, Mrs May was against Britain leaving the EU but she played only a very low-key role in the campaign and was never seen as much of an enthusiast for the EU. She became PM without facing a full Conservative leadership contest.
 
She triggered the two year process of leaving the EU on 29 March 2017. She set out her negotiating goals in a letter to the EU council president Donald Tusk.
 
Meanwhile, European countries like France, Greece, Spain, Denmark and others see anti-EU forces gathering strength, and their parties gaining more votes in domestic and EU elections. Populist movements such as the French "standing in darkness" and the "movement of angry people" in Spain are spreading in ranks and influence. A successful BREXIT will no doubt encourage such sentiments more. 
 
Besides world has witnessed the unstoppable rise of Donald Trump as the U.S. Republican presidential candidate. It can be safely said that with BREXIT becoming reality, he will gain more appeal among blue-collar Americans.
 
In sum, Europe is experiencing a fundamental shift in social physiological framework and political ecosystems.
 
What is the procedure?

This Article allows European Union member states to notify the EU of its withdrawal and obliges the EU to try to negotiate a 'withdrawal agreement' with the state. The form of any withdrawal agreement would depend on the negotiations and there is therefore no guarantee the UK would find the terms acceptable. The EU Treaties would cease to apply to the UK on the entry into force of a withdrawal agreement or, if no new agreement is concluded, after two years, unless there is unanimous agreement to extend the negotiating period.
 
The key topics are set to be the exit bill the U.K. is required to pay to the EU for the price of leaving, rights for EU citizens to remain within the U.K. following BREXIT and vice-versa, the future freedom of movement for, above all, people and goods and the complicated political situation between Northern Ireland and the Republic of Ireland.
 
How long will it take for Britain to leave the EU?

Accroding to Article 50, the UK has two years to negotiate its withdrawal. But no one really knows how the BREXIT process will work. The terms of Britain's exit will have to be agreed by 27 national parliaments, a process which could take some years.
 
EU law still stands in the UK until it ceases being a member. The UK will continue to abide by EU treaties and laws, but not take part in any decision-making.
 
What do 'soft' and 'hard' BREXIT mean?

These terms have increasingly been used as debate focused on the terms of the UK's departure from the EU. There is no strict definition of either, but they are used to refer to the closeness of the UK's relationship with the EU post-BREXIT.
 
At one extreme, "hard" BREXIT could involve the UK refusing to compromise on issues like the free movement of people even if meant leaving the single market. At the other end of the scale, a "soft" BREXIT might follow a similar path to Norway, which is a member of the single market and has to accept the free movement of people as a result of that.
 
Has any other member state ever left the EU?

No nation state has ever left the EU. But Greenland, one of Denmark's overseas territories, held a referendum in 1982, after gaining a greater degree of self government, and voted by 52% to 48% to leave, which it duly did after a period of negotiation.
 
Impact of BREXIT

Impact on UK

  •  For the U.K., BREXIT certainly will weaken its position in the world as well as its "special relationship" with the U.S., even though it will retain its permanent membership in the United Nations Security Council and the pound will continue to be one of the global reserve currencies.
     
  • Scotland announced its intention to hold another referendum on independence immediately after the U.K. referendum. Northern Ireland, with its traditional friction with England, could follow the example of Scotland too.
Impact on EU
  • BREXIT will disrupt the EU's internal equilibrium. With Britain out, the bloc's seven non-euro countries will account for only 15 per cent of EU economic output, as opposed to more than 30 per cent with Britain in. BREXIT will increase Germany's political and economic supremacy in the EU - a prospect neither Berlin nor its partners welcome.
     
  • BREXIT will harm the EU's cohesion, confidence and international reputation. The biggest consequence of all, therefore, is that BREXIT will undermine the liberal political and economic order for which Britain, the EU and their allies and friends around the world stand.
     
  • From the perspective of EU integration, the EU has been leading the world in global governance, with its regional integration as a litmus test. But the EU and Eurozone in particular have been hit hard by the debt crisis and resultant economic crisis testing the cohesion and viability of the EU and the euro.
     
  • Most recently, the EU has been flooded with refugees from Syria, Iraq and other war-ravaged countries in the Arab world, further straining the fabric of the EU as an example of globalization, especially the principle of freedom of movement of people. All these have stirred up anger and deep-rooted frustration among ordinary people in the EU, directed at governments and elites of those countries. 
Impact on financial markets 
  • BREXIT will make financial markets more sensitive to the vulnerabilities of the 19-nation Eurozone.
     
  • Investors will ask whether, in the light of the BREXIT shock, eurozone governments have the political will and public support to strengthen the architecture of European Monetary Union.
     
  • More ambitious proposals, such as an Italian plan for common EU "migration bonds" to finance the EU's response to the refugee and migrant crisis, will have little chance of being turned into action.
     
  • ndividual eurozone countries will be under intensified market scrutiny.
     
  • Ahead of the British vote, yield spreads widened between German government bonds and those of less financially solid southern European countries. The outlook for Portugal, which is ruled by a shaky coalition of the moderate and radical left, is unsettling investors.
     
  • Global stock market suffered a collective "Black Friday" crash, with the British stock market down 8 percent and Dow Jones dropping 700 points.
     
  • The Japanese stock index was hit most severely with a historic drop of 7.9 percent triggering "a fuse break." Needless to say, the British pound suffered, with a 10 percent slide versus the U.S. dollar.
     
  • The above figures show that we do live in a globalized world of common interest, with financial as well as political risks transmitting super-fast around the world with no exceptions, as the lines among nations and between politics and economics become unrecognizably blurred. That is what is meant by "shepherd effect" or "butterfly effect."
Global Impact
  • The polarization of political ecosystems in Western nations has produced and will continue to have a huge impact on the globalization process, world politics and economics. Even though the world had been forewarned by the referendum in U.K., the outcome still brought about unprecedented consequences.
     
  • Many experts believe that BREXIT might trigger a chain reaction both within the EU and around the world. EU members like Greece, France, Spain, Sweden and Denmark, which already have frictions with Brussels, might follow suit and ask for their own referendum.
     
  • That is why right after the U.K. referendum, Germany, France and other major EU countries urged the U.K. to start negotiation with EU as soon as possible for fear that it could spark other dissenting voices within the EU. 
Impact on India
  • India is presently the second biggest source of FDI for Great Britain. Indian companies that would set up their factories in the UK could sell their products to the rest of Europe under the European free market system. However, now it will not be an attractive destination for Indian FDI as before.
     
  • With BREXIT, India will lose its gateway to Europe. This might force India to forge ties with another country within the EU, in order to access the large EU market.
     
  • With Britain cutting off ties with the EU, it will be desperate to find new trading partners and a source of capital and labour. With migration from mainland Europe drying up, Britain would be able to accommodate migration from other countries, which will suit India's interests.
     
  • Britain is one of the most important destinations for Indians who want to study abroad. Presently, British universities are forced to offer subsidized rates for citizens of the UK and EU. With BREXIT, however, the universities will no longer be obliged to provide scholarships to EU citizens, which will free up funds for students from other countries. Many more Indian students may be able to get scholarships for studying in the UK.
Impact on China
  • BREXIT will affect economic and geopolitical interests of China. Even though the UK, which had $78.5 billion in bilateral trade with China in 2015, is not among China's top trading partners, Brexit could have an outsize impact on China's future export performance." 
     
  • One of the losses China will face is that it can no longer use Britain as a gateway to the EU to sell its products.
     
  • Many Chinese companies have made the UK one of their favorite destinations of direct investment. In 2015, Chinese companies completed 22 major acquisitions in the UK. The biggest was the $9 billion purchase of a 33.5% stake by China's General Nuclear Power Corporation in Britain's Hinkley Point nuclear power plant. If the UK economy deteriorates because of the uncertainty and loss of access to the EU market following Brexit, the value of Chinese investments will be impaired.
     
  • A weaker Europe would give space to China to rise in global power matrix. But a strong EU was a counterweight to the US hegemony which China would miss mow.
Conclusion: The Biggest Concern is the future of globalization

We are living in an era of globalization which is believed to improve standard of living by increased trade, investment, growth and employment. But after the 2007 sub-prime crisis of the USA and 2010 sovereign debt crisis in Europe, the belief of world community in globalization was shaken.  Add to this is floundering multilateral trading system called WTO and its Doha Round failing 3 deadlines without any consensus, eventually shaking the very base of globalization.
 
Many observers have pointed out that globalization has aggravated the problems of poverty, inequality and employment while it has benefitted a few countries and the elite population only. The adverse consequences of globalization are appearing in many forms.
  
When times are bad it is more impulses like anger, frustration, disappointment which determine outcomes of referendums rather than rationality. The right politics is on rise and extreme national identities are being asserted increasingly tending the way it was during the first or second world wars.
 
It is difficult to conclude how it would affect the UK, Europe and the global economy, but one thing is sure that there would be remarkable changes in the driving forces of global economy and rise in de-globalisation.