Brexit exit from European union and its impact on world

Background


After the Second World War, Germany and France began to trade with each other following a mechanism that reduced trade duties. Later Germany, France, Belgium, Luxembourg and Netherlands joined the group and began to deal in coal and steel. 

In 1957, the trade between the above states saw the rise of a comprehensive framework governing the trade. In the same year, the Treaty of Rome was signed, setting up the European Economic Community (EEC) as a common market. Gradually, the EEC kept on expanding and became a union of 28 states.

Brexit exit from European union and its impact on worldIn 1990, a meeting of the European Council was held in Rome that initiated an Intergovernmental Conference on the establishment of a monetary union. 

In 1992, the Maastricht Treaty on the EU was concluded, which established the EU, aiming to ensure the free movement of people, goods, services, and capital within the internal market, enact legislation in justice and home affairs and maintain common policies on trade, agriculture, fisheries, and regional development. The British had joined the EEC in 1973 and had been a part of the EU since its inception.

Timeline


  1. 1946 -Churchill proposes the United States of Europe
  2. 1951 -Treaty of Paris gave birth to  European Coal and Steel Community
  3. 1957-Treaty of Rome established the European Economic Community
  4. 1973- the UK joins the European Community
  5. 1992- Maastricht Treaty established the EU
  6. 2016 -Referendum passed by the British to leave EU
  7. 2017  -Process for executing Brexit executed

On 23 June 2016, there was a Brexit referendum where 51.9 percent of the voters in the UK voted in favor of leaving the EU. The procedure to leave the EU began in March 2017 and is to be completed by March 2019. We can have a look at the impact of Brexit on the Indian economy in the short run and in the long run. 

The impact of Brexit on the Indian economy on the immediate level will be comparatively less due to a rise in agricultural production in India. The consumer industry demand in India did slow down due to demonetisation but it is picking up due to the ratification of the 7th Pay Commission. The exports to and from India have fallen in the UK due to weak demand in the eurozone and Britain, since the eurozone crisis. 

Post-Brexit the possibility of a dip in exports may rise as currencies will fluctuate and the real picture will only emerge on the basis of appreciation of other currencies with the pound. The process will also create an impact on outbound FDI from India to the UK, which today stands to be at 8 per cent of the total FDI. As India export automobiles, it will affect our exports to the EU and the UK. The deeper impact is to be on IT exports, which constitutes the core of Indian exports to the UK. 

Other commodities like metals, pharmacy, garments and financial service will also feel the pinch. As the number of EU applications for education to the UK will fall, it will be favourable for Indian students for outbound education seekers. A depreciation of the pound will lead to a short-term gain for Indian students as the cost of education will decrease.

One of the big reasons for a 51.9 per cent UK vote to leave EU was the free movement of labour in the UK. The intention to take back control of immigration was a key factor. It may impact immigration but skill gaps in the UK will also persist. Foreign firms would be impacted as, under the erstwhile passport scheme, a financial service firm could use another member EU state to carry out business without any extra cost that was normally associated with foreign entities. This feature will be lost now and it will create an impact. Many firms used to favour the UK and over a period of time, London had become a trade hub.

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