BrExit: Because It is Not Rocket Science!

Break-ups are always bad. And this one right here is going to be difficult not for the two parties involved but for the rest of the world as well. As many put it, this might be an end to the modern day globalization as we know it.

Before I write some serious stuff here, I will tell you why I am writing it. No matter how fake the EU- UK bond has always been, it is important for people to understand why even that fake bond broke. I am usually offended when I see people flooding all my social media timelines talking about things about which they don’t have a clue. This one, right here, just triggered me to spread a li’l awareness.

This post might not be a well -researched and right-from-an-economist’s-head  kind of a post, but this will definitely give you a perspective before posting some forwarded updates on your social media. This is a Lehman’s (oh yes, pun intended) perspective and interpretation. Hope this helps you!

By the way, this reminds me, the best update that I have read so far, on the vote out is this:

Love for literature and economics!

So, what exactly is happening? Remember when we were young and used to fight a lot and how our parents used to lock us up with our siblings, in a hope that we would reconcile and come out? That is exactly what the European Union is.  The big European family (continent) was not at peace as the siblings(read the countries) were at a constant fight after WW II. Therefore, they formed a co-operation of 28 European countries, who would follow the same trading and financial policies with the simple idea – countries which trade together, stay together. This, thus, made them believe that now the wars will be less as trading partners are not supposed to fight for mutual benefits.

By 1993, all the Western European countries became part of the EU, following the same economic rules. And they lived happily ever after? Not really. There was a downside. Few countries were more powerful than the others. The EU was sharing the prosperity but they had to see the bad times too – together. The less powerful countries were to be bailed out by the better-off countries (like the UK) in times of crisis- like the one in 2008 when the less wealthy countries were affected much worse than expected.

As the movement of goods (remember, easy trading was the first rule for the formation of EU), the movement of people, that is, immigration, also became easier with the formation of EU. The UK is the powerful father to whom the helpless kids run for help. But then again, its human nature – self before service. 

Within two decades, the foreign-born population of the UK doubled which became a major issue for the United Kingdom. People from the poorer EU countries ran to the UK as the labour market there was easy to break. Race-Related issues significantly rose in the UK.

Racism runs in the blood of the Brits. After all, the dogs and Indians were not allowed to places which belonged to the Indians. In fact, racism was the whole agenda around which the British could build an empire in our land. And thus, this also resulted in the British Exit from the EU.

The voice of the UK people.
Image Source

The process is long. It will be effective somewhere in 2018. But as I said, break-ups are always painful. This process is going to be painful too. Britain is already chaotic with the announcement of the PM’s resignation. Trade will be tough. Immigration would be tougher. Foreign nations might lose trust and the ripple effect will be seen throughout Europe. 

Whatever happens with the UK and the rest of the EU is one story and how it affects us is an entirely different story. You should worry about how it is going to affect our economy and thus us.

Although it’s about two giants fighting and we, as an economy, are nowhere near the fight but the scenario might not be very pleasant. The financial history might not have seen anything like this before but yes, Britain might lose its AAA credit rating just like the US did some years back. 

Also, delays in the investment plans can be expected and thus India’s FDI reforms, of which our PM is really proud of, might suffer. Currency devaluation is something that I shouldn’t be even mentioning because that has to happen. However, this time we are better off while dealing with the rising dollar because of better foreign reserves. Largely, the IT sector suffers in India as more than 75% of this sector’s revenue comes from the European market and that makes me sad. IT sector has to suffer, always. Coming to the  EU trading policies and their uncertainties now, the automobile sector might also see a slowdown as EU is our export partner with a share of almost 40%. 

Though even after the Sensex hit a low after this breakup and our economists say that we need not worry till January 2018, i.e.,  till the separation actually comes into existence, there still are good things. Lesser imports bills are one of them. But then again, these are the things we talk about during every meltdown, don’t we?

How we as an individual will be suffering is something that I am planning to cover in some following posts, after a li’l settlement can be seen in this whole chaos! Till then I hope I have helped a li’l bit in understanding what has gone wrong and what can be expected.

Please go ahead and update your social media timelines now.

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Picture Credits : Rohan Raizada