As we all know that nowadays, Brexit is all over the news. As a referendum is going to happen on 23rd of June which will decide the fate of Britain. Whether it will exit from the European Union or not. So guys let’s know more about it. Like – What is Brexit? What is a referendum? What is EU? Why Brexit? and more important What will be the impact of Brexit on India? So here we go –
What is ‘Brexit’?
Brexit is an abbreviation of “British exit” which is used to explained a possibility of UK coming out of EU. It is a word that used as a shorthand way of saying the UK leaving the EU – merging the words Britain and exit to get Brexit. So basically, It’s the issue of whether Britain should exit the European Union or not — a question that will be decided in a historic referendum on June 23 .
So now the question arise- What is Referendum?
A referendum is basically a legal mechanism for voters in which everyone (or nearly everyone) of voting age can take part, normally giving a “Yes” or “No” answer to a question. Whichever side gets more than half of all votes cast is considered to have won. So we can say that here in the case of Brexit the referendum which is going to happen on 23rd of June will be the decision maker for the future of Britain.
What is the European Union?
After the Second World War, there was a new movement to create unity between Germany and France, which would ultimately lay the foundations for the European Union four decades later. The European Union was established under its current name in 1993 following the Maastricht Treaty. Since then the community has grown in size because of the accession of new member states. EU has a common market which permits free trade in goods, services, capital, and people. It is an outcome of single European act 1987.
Presently EU is a block of 28 countries and 19 countries have formed EURO ZONE. The 28 countries within the European Union include Austria, Belgium, Bulgaria, Croatia, the Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom. So we can say that the European Union is an economic and political union of 28 countries where each of the countries within the Union is independent but they agree to trade under the agreements made between the nations.
Major Issues around BREXIT ?
The first issue is economic, second related to immigration, third related to business, fourth – Sovereignty, etc.
Constitutional Provisional related to a Country coming out of EU :
For the first time, Lisbon treaty added the provision article no. 50 which provide a member exit from the EU. As per this provision any country which wants to come out of the Union, it has to negotiate a deal with EU. It implies that it is not very easy to come out of EU. When a country opting out of the EU the settlement issue between EU and UK.
How will this affect India?
If the global financial markets are affected by the Brexit, Indian markets are unlikely to be insulated. Any material depreciation of the Euro/Pound could lead to increased headaches for India in a sluggish export environment. As Indian businesses have a material presence in both the UK & Europe. Besides, Brexit could also endanger the flow of investment and personnel by diminishing Britain’s role in providing access to Europe.
Here are some basic effects from an Indian perspective :-
- Indian companies will have to address two markets separately adding to costs.
- Indian companies having the base in Britain will have a smaller domestic market, rest of EU will become an unprotected export market.
- FII will become risk averse and move to safer avenues.
- The Money will move out of Britain and will affect currencies including INR (Euro will weaken and Dollar will strengthen) and in turn, affect the global economy.
So yes if Brexit wins then there is going to be a selloff and short-term pain, but in the long term Indian markets would be relatively stable compared to other markets.
Likely beneficiaries of Brexit:
According to some analyst point of view, dollar assets will emerge as the biggest beneficiaries of Brexit. Events like these are usually followed by periods of volatility and economic pain. Given the current state of global economy, investors will be quick to rush to safer havens.
If it happens, will have the long-term economic impact of Brexit is hard to discern, but the short-term disruption while the UK negotiates and renegotiates is only likely to be bad news for both sterling and Euro assets. But it is almost impossible to predict the outcome. We will have to wait till June 23rd to know the future of EU and Britain.