BackThe ins and outs of Brexit, and the consequences for India
It will be the first time since the EU was founded in 1957 that a member country will be leaving if voters choose 'Brexit' or Britain's exit
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New Delhi: In a few hours from now (0700 GMT ie 1130 IST), Britons will be voting on whether their country should remain a member of the 28-member economic and political grouping—the European Union (EU)—or not. It will be the first time since the EU was founded in 1957 that a member country will be leaving if voters choose “Brexit" or Britain’s exit. The EU economy is currently worth $16 trillion, the equivalent of one-fourth of the global gross domestic product (GDP).
Britain and the EU
Britain has always been uneasy about the EU since its formation in the early 1950s. In I975, Britain voted in a referendum to stay in the European Economic Community (EEC as the EU was known then) two years after joining the EEC. (Though part of the EU, Britain has retained its currency, the pound, and is not part of the Schengen border free zone that permits easy travel across Europe.) In recent years, there has been much disquiet in Britain over migration into the country from within the EU and its effects on wages and public services. In 2004, 10 East European countries joined the EU and two more joined in 2007, allowing their citizens freedom of movement.
Thursday’s referendum
Voters are to answer one question: “Should the United Kingdom remain a member of the European Union or leave the European Union?" The options are: “Remain a member of the European Union" and “Leave the European Union."
British and Irish citizens, who are 18 years and above, and who are resident of the UK, as well as residents from Commonwealth countries who have the right to live in the country, can vote for the referendum. The British Electoral Commission said 46,499,537 voters were registered for the referendum by Tuesday.
Results of the referendum are expected on Friday. The results, however, are not legally binding with the British Parliament, according to newspaper reports. But there would be strong political pressure to do so, especially if the result is a clear one.
Exit polls on the eve of the referendum on Wednesday support Britain leaving the EU, according to AFP news agency late Wednesday night. Opinium had “Leave" at 45% and “Remain" at 44%, while TNS put the pro-Brexit camp in the lead with 43% compared to 41% for those who want Britain to remain in the EU.
British politics and Brexit
British prime minister David Cameron wooed conservative and anti-EU voters in the 2015 British national polls by promising to hold a referendum on Britain’s membership of the EU by the end of 2017. Those campaigning for “Brexit" say the bloc has evolved into an “undemocratic" and “oppressive" entity far removed from the trading group that Britain originally joined in 1973. They say that only a Brexit can restore British sovereignty and effectively clamp down on immigration. Those campaigning to stay say the grouping as a whole ensures peace and prosperity for more than 500 million people and the benefits far outweigh the costs.
While Cameron wants Britain to remain in the EU, former London Mayor and MP Boris Johnson campaigned for Brexit. The Labour Party too is divided. While the Labour chief Jeremy Corbyn supports staying with the EU, a group calling itself Lexit (Left for Exit) is campaigning for leaving the bloc. While the Scottish National Party (SNP) bats for “Remain", the hardline UK Independence Party wants to exit.
If Britain votes for “Brexit", Cameron could resign.
Also Read: How are markets positioned ahead of Brexit vote?
The EU
The EU is an economic-political union which was created in 1957—with just six nations—as an answer to the nationalism that had permeated Europe after World War II. The idea underlying the EU was to ensure peace by promoting economic cooperation in a single market of the member states. The EU currently has 28 members with more—such as Turkey—waiting in the wings to join in. With its headquarters in Brussels, EU has its own currency, the euro, which has been adopted by 19 member countries. It also has its own parliament that now sets rules in a wide range of areas, including on environment, transport, consumer rights and even mobile phone charges. Citizens of member states have the right to “freedom of movement", which means the citizens can move, live and work in any of the member states.
Global consequences of Brexit
1. Brexit would be the strongest repudiation of the post World War II consensus favouring global integration. The consensus is already fraying against the backdrop of increasing protectionism and anti-immigrant sentiment worldwide. Brexit will only add to this sentiment.
2. It could undermine global growth prospects. The EU is the largest trading partner for many countries such as India and China. Any unravelling of the EU market means uncertainty as it is an export destination and this is likely to have an impact on exports from all major parts of the world. For example, at present exports to the UK account for 0.7 % of Asian countries’ GDP. Some studies estimated that a Brexit would reduce British imports by 25% worldwide within two years.
3. If Britain votes to leave, investors will rush to safety and precipitate unpredictable moves in global markets as capital moves from risky assets (possibly emerging markets) to safer havens.
4. Much of the EU’s money comes from its member states. And the UK is one of the larger contributors. A British exit from the EU would rock the Union by ripping away its second-largest economy with one of its top two military powers and by far its richest financial centre. This could also give rise to more nations contemplating exit from the EU. Greece, for example, held a referendum last year when its citizens overwhelmingly rejected EU’s bailout norms. Many Britons working within the vast EU bureaucracy would have to look for alternate employment.
Consequences for India
1. India sees the UK as a “springboard" or “gateway" into Europe. Many Indian companies are listed on the London Stock Exchange and many have European headquarters in London. (According to Indian government numbers, there are 800 Indian companies in Britain). Brexit will take away this advantage.
2. India has been negotiating a free-trade agreement with the EU since 2007 and a “yes" vote for Brexit will have a direct bearing on this. If Britain stays put, then India need not rework its strategy. If Britain leaves, then this will mean that India will need to negotiate a separate pact with the UK.
3. Brexit can affect India’s flagship IT sector given that the UK accounts for 17% or one-sixth of the sector’s global exports that topped $100 billion (approximately ₹ 6.70 lakh crore). For one, Brexit will increase overhead costs, setting up new headquarters, perhaps in both Europe and Britain.
4. There are some who see an advantage for skilled migration from India to Britain, thanks to Brexit. But given that one of the arguments in favour of Brexit is the large numbers of European migrants coming into Britain, this perception of advantage could be somewhat misplaced.
AFP, Reuters and AP contributed to this report
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