UK voted to leave the European Union: Now what?
Brexit will have major impacts on the world economy, from crashing stock markets to emergency government interventions
On June 23, 2016, the United Kingdom voted by a majority of over a million votes to exit the European Union (EU). The Brexit, as it has been called, has a number of implications for the economics and politics of not only the UK and the region, but also the world over.
Firstly, the results of the referendum are unbinding, meaning they are not compulsory for the government to follow. However, having said that, it is very unlikely that the British government will not follow through on it. The key question is how the exit happens.
For the exit to happen, Article 50 of the Treaty of Lisbon has to be invoked, after which there are two years during which the EU and UK have time to negotiate on terms for the exit to take place. These terms will cover a wide range of aspects including tariffs, quotas, capital regulations, legal injunctions on quality standards, laws pertaining to freedom of movement and in general how business is conducted and managed.
Generally, the EU is punitive towards countries exiting or revoking any of its laws. The EU is a union and has to preserve that mandate. However, with the Brexit, all sides need to be cooperating to minimise the impact at the economic level. If the EU acts to punish the UK, then it will set a negative precedent for other countries as it would feed their paranoia and grievances. Other countries such as Greece, Portugal, Italy, etc. have more wide ranging issues to sort out with the EU in comparison to Britain which enjoyed a lot of power within the bloc and was not part of the European Monetary Union which regulates the Euro.
In all the discussion of the Brexit, what needs to be understood is that there are many people in Europe who have a big problem with how the EU functions and the same factors are also present in the UK. These include countries and communities feeling that they have a lack of decision making mechanism in face of directives from Brussels, issues with how immigration laws are written and how countries feel they impact their local communities, how capital freely moves about causing imbalances in the economy and many other grievances.
Most of these reservations can be politically negotiated; especially for the UK which still enjoys immense power in the EU, in terms of the decisions that it gets and laws that it supports and implements in the European parliament.
Additionally, the issue of immigration is also problematic and the discourse becomes readily racially tinged rather than in terms of looking at it from an economic or developmental perspective. Some of the grievances may be legitimate because countries feel that they are not getting the best deal that they would have being implemented on things such as migration and capital flows. However, this does not mean that the rest of the terms of membership, such as relaxed trading regimens, and co-operation in fields such as development, governance, healthcare and education are not warranted. These are also crucial aspects of the EU where funds and avenues are available to help countries and businesses to innovate, train their workforces and maintain quality standards on products.
Keeping in mind the above the referendum is the worst way to articulate grievances regarding problems with the EU. It makes the whole issue a binary choice taking away any chance of reform to take place, or any discussion to be had on how the best terms for a country will be negotiated on aspects that they believe in. It also means that a country has to decide on all aspects of the EU including free trade, even though they may only have issues with certain aspects such as issues of sovereignty, capital flows and migration.
The Brexit, as we can already see, is going to have major impacts on the world economy, from the depreciation of the pound, crashing stock markets, emergency government interventions and continued economic uncertainty. This impact is going to be staggered over a period of time, because the UK still has not legally and technically withdrawn from the EU. How that exit happens is going to matter, and how markets and businesses will react to this will impact currency and stock markets continuously in the future and may even portend an economic downturn.
The referendum itself was a poor decision, especially when it was known that arguments for the Brexit in the UK will not be on economic terms but on migration and nationalistic terms. Referendums are called when the calling party needs to ratify a mandate, not to decide the fates of countries, because fates of countries involve complicated social, economic and political dynamics which are best put to vote in a functioning parliament.
The campaign for Brexit was coloured in racial and nationalistic terms, with parties such as the UK Independence Party (UKIP) only campaigning to get out of the EU to ‘preserve’ the national sovereignty of the UK as they see it, mixed with their channelling of economic resentment and rallying the working class. There were many people on both the Leave and Remain camps who had much more nuanced views of the problems the UK faced with the EU, but they were forced to vote in a binary manner when the best possible way was to vote for platforms and parties which represented their policy choices.
In the face of fear mongering, the economic arguments were put to the backburner and the UK voted to exit the EU while not understanding the short and long-term economic implications. This also reflects a failure of traditional parties in Britain such as Labour, Conservative and Liberal democrats to articulate a vision of Britain’s role in Europe and what future role they see Britain taking in the economic and cultural dynamics of the region in the future. The Brexit vote will embolden calls for Scottish Independence and there have even been claims by Irish nationalists on separation from the Kingdom which further indicates a fractured political environment for UK going forward. Just after the declaration of the vote the British Prime Minister David Cameron tendered his resignation while the Leader of the Scottish National Party Nicola Sturgeon proclaimed the need for a second Scottish referendum, leaving the immediate political future of the United Kingdom shrouded in uncertainty.
Moving forward the concern should now be on how the exit takes place and what lessons other countries learn on how to best tackle and negotiate their issues with EU policy on trade, regulations and other cultural and political aspects, while remaining part of the Single European Market, rather than deciding to pursue an isolationist course which Britain has done.