BREXIT AND ITS IMPACT

The dream of European unity was born immediately after the Second
World War, but formal European Union was born on 1 November,
1993**.
But the European dream now dead with Brexit, which implies that
the process of globalisation has gone sour.
It is sure that Brexit is about xenophobia.
Sure, Brexit ( on the basis of referendum in June, 2016 on Britain’s exit
from the EU) is also about high EU production, trading and
conservation standards. At least, subliminally, it is about what’s being
called 'the refugee crisis'.
At heart, though, it goes back to the fact that globalisation has not
played out the way it was meant to. And some of those who had bet
on the way it was planned are squirming desperately for a way out.

** The World Trade Organisation – also the result of an extended process – was
formally born exactly 14 months after the EU.
 Reflections of Brexit in UK
• Indeed, the UK was the least integrated in the EU since it did not
join the currency union and also asserted its political independence
more than other European nations did.
• Of course, it derived economic benefits by being part of the EU via
increased trade and easier financial flows. London’s status as a key
financial centre in the world is substantially due to Britain’s
membership of the EU
• But the Britain’s vote to exit the European Union (EU) dents the
idea that a single market is good for society.
• However, by a close margin, the UK has voted to delink from the
European market.
• No wonder, London wanted to `Remain’ and Londoners are signing a petition for
London to become a city state and remain in the EU.
• A majority in Scotland and Northern Ireland also wants to stay in the EU.
• Thus, only the majority in England and Wales wants to quit the single market.
 Possible Consequences: A disunited UK
• The cost of leaving is now apparent. Even though the markets have recovered
from the initial fall, there would be a rise in the rate of inflation, downgrade of
credit rating, uncertainty in investment, possibility of a recession in the UK and
consequent job losses.
• There is a possibility of other countries also exiting and whittling down the EU as
a single market. This uncertainty will impact the EU and the world economy
adversely.
• As the drama of Britain leaving the EU, the UK splitting up and the EU itself
possibly getting eroded plays itself out, economic consequences will become
apparent.
• Brexit shows a disunited United Kingdom----can’t recall such a bitter, nasty split.
• Brit Universities are worried
• In Scotland, popular nationalism asserted Scotland’s identity among European
nations- separate from England
• The vote was more political than economic but it has important economic roots
which raises a key issue for politicians, namely, why a single market is not so
appealing to many people.
 Advantages of a common market
• Common markets have meant the dissolution of national
boundaries for economic reasons.
• That enables greater trade and flow of capital and technology.
There is NAFTA in North America and ASEAN in Asia. The WTO has
also attempted to integrate nations into closer economic
cooperation since 1995.
• Theory suggests that more integration leads to increased trade and
to higher incomes for people.
• There were high hopes then among many Europeans. A common
market and free movement of labour would turn Western Europe
into an economic powerhouse. In the bargain, the process would
take care of the large workforces that the recent 'liberation' of
Eastern Europe had freed up from state-owned enterprises.
• There was even speculation that a united Europe would compete
robustly with the US.
• The 'Asian Tigers‘** were already impressive in the early '90s but
China was not yet viewed as a competitor that was bound to
overtake the rest of the world.
• China’s GDP hovered around 500 billion US dollars in the mid-90s;
its graph had just begun to soar upward.
• Not only did China expel a tearful Britain from Hong Kong in 1997, it
took over the world’s manufacturing. Cheaper labour did migrate
northwest from other parts of Europe, but the cost of labour was
nowhere near the levels the Chinese state could conjure. As for
working conditions and work culture, there was no comparison at
all.

• **The Four Asian Tigers or Asian Dragons are the highly developed
economies of Hong Kong, Singapore, South Korea and Taiwan. These
regions were the first newly industrialized countries.
 European Scenario
• Traveling across Europe today, Germany strikes one as exceptional.
There is a buoyant confidence about the future, even among people
in a relatively poorly-off place like Berlin (Germany’s capital has got
used to living off subsidies since the days when it was a tiny island
of West Germany, surrounded by East Germany).
• There is little confidence in most of the rest of Europe. Indeed,
there has been palpable pessimism in places like Slovakia. Young
people in much of the south of Europe do not seem to look to the
future with any confidence, particularly with regard to the job
market.
• As for social security, even Germans generally have little confidence that the state
– or rather, taxes from younger workers – will be able to support them as they
age.
• Terrorist attacks in many parts of Europe and the US have only added fuel to the
fire. These are seen to be the consequences of opening up. While the rich, to
protect their gain, have turned to the right, so has labour facing a decline in its
fortunes.
 Migration nightmare
• There is a far more frightening aspect of how globalisation did not pan out the
way it was planned. Connectivity was meant to tap into cheap labour, who would
remain in their home countries (at call centres, for example) without allowing
'outsiders' physically in to the West. Meanwhile, varying levels of expectation for
remuneration were to allow 'market forces' to optimise costs within a united
Europe.
• Here’s what has happened instead: the migration of 'outsiders' has only increased
– and these are not 'guest workers' who were invited in the '50s and '60s with the
expectation that they would return 'home' with their nice earnings. Often, new
migrants are relatives and other associates of those initial 'guest workers'.
• Human smuggling has become a huge illicit business. The tsunami of 'refugees'
from devastated parts of Syria and Iraq last year only served to bring home to
many Europeans just how much the dreams that accompanied the formation of
the EU have soured.
• In addition, there fare refugees rom a slew of countries – Afghanistan, Iran,
Pakistan, Eritrea, Ukraine, Belarus and other countries, apart from Syria and Iraq.
There is amazing openness to 'refugees' in Germany.
• Brexit is not going to stop any of those trends. But to many, it seems
more substantial than grasping at stra
•
 What lessons does this have for India?
• There is talk of creating a single market via implementation of GST
so as to help businesses. It is said that the GDP will rise,
employment will be generated and inflation will be checked.
• It is argued that GST in India is nothing but a Reverse Brexit that will
end state-by-state rules and create a national market for goods to
be supplied from anywhere to any where –likely to create millions
of formal jobs.

• Since Britain would be free after Brexit, India and Britain can sign a free trade
agreement now.
• UK could give greater access to Indian textile and jewellery, or there would be a
greater possibility of agreeing to a more liberalised Visa regime tailored for skilled
Indian IT professionals.
• In order to meet these challenges, India should ensure firstly, that its
macroeconomic parameters remain rock solid and the Indian economy is seen as
contributing to global macro stability rather than adding to global turbulence.
• But the Indian economy is still not primed to generate the
required number of jobs needed to absorb the growing number of
work force entrants. More importantly, a spurious trade-off is
posited between employment and growth on one side and
macroeconomic stability on the other.
• Thus, the need of the hour is to eliminate this spurious trade-off
and move forward in a balance manner to acieve both objectives.
• This implies keeping inflation in check (inflation targeting
framework as adopted by RBI) and keeping foreign indebtedness
within prudent limits.
• Inflation control can be targeted in two ways- one for food
inflation and the other for general inflation. The food inflation
target should be no more than 2%.
•Thanking you