Brexit – A Marathon Continues

If anything has occupied mind & space of the entire European Union in the past 2 years, it has got to be the chirping & chatting about an Unseen, unknown Frenemy called Brexit…

Shankar Kumar

Chaos and uncertainty have gripped the United Kingdom tight. At this critical bend of its destiny, when it is finally going to be out of the wedlock with EU on March 29, voices from within the Conservative Party can be heard against the move to exit out of the 28 countries club. There is a palpable fear that if the UK were to succeed in its long drawn process of Brexit from the EU, it may trigger a chain reaction that could potentially see Scotland and Northern Ireland, the other two states of the union besides England, rising against the Lordship England. They could potentially be seeking a divorce too, though of different nature. Whether that meant Independence or more autonomy, remains to be seen.

But the immediate fallout will be on the country’s bruised economy. Currently saddled in the 5th position among the world’s largest economies, there is fear that post exit from the EU, Britain’s economy might suffer a huge damage. Contrary to perceived notion, EU has made it clear that it will not provide any concession to the UK in terms of levying of taxes on its goods sold in the European market. British lawmakers’ want assurances from the EU that it will   provide financial, legal and other support to Britain after divorce, till such time the country’s economy & fundamentals stabilized. With nobody in a firm position to gauge in tangible terms the after effects of such a deal, there is fear that without a trade agreement, ports would be blocked and airlines grounded and that will lead to complete shortage of essential goods, including foods and medicines imported from across the world. It is, however, not a one sided fear. Even the EU leaders are feeling chary about the impact of BREXIT on future trade, agriculture, fisheries, citizens’ returning from the UK and cut to the EU budget post BREXIT.

 There is enormous pressure on Theresa May, that she negotiate a deal with the EU that envisaged that UK would remain within a customs union of the EU for an unspecified period. These lawmakers also want that the UK and the EU should not impose tariffs on each other’s imports. At the same time, they also want freedom to negotiate separate trade deals with other countries. In short, things look very untidy & chaotic in UK & it would be interesting to see how it would impact the remaining 27 affected countries of bloc.

 While pro-EU supporters will continue to simmer in discontent, for Indians too, the development will not be good. More than 1,000 Indian companies use London and other parts of the UK as their base for access of goods to the European market. Although most of them have already relocated their staff and other things to other European capitals, yet it is sectors like IT, automobiles, metals, tours and travel having significant presence in the region & one can’t rule out some impact on their businesses.

 Already, Indian IT sector is saddled with numerous challenges. The Trump administration has made visa norms tougher for technocrats & their sponsor companies. Even when they are working out ways to deal with the US administration on visa, they find themselves left in dark uncertainty post the BREXIT. The UK is highly lucrative market for Indian IT companies. It can be analyzed from the fact that of the total $108 billion worth of exports involving Indian IT companies in 2015-16, 17 percent of revenue came from the UK and around 11.4 percent from other nations of the EU.  This apart, currency volatility has always been a concern for Indian IT companies. The pound has depreciated over 20 percent against rupee. This has led to reduction of cost arbitrage for companies outsourcing their wares to the UK.

Several Indian auto companies have their manufacturing facilities and clients in the UK. They are utterly in the state of confusion with regard to their business. Tata’s Jaguar Land Lover (JLR) has its base in the UK and it is from this base it exports its JLR vehicles to the European market. Of the total JLR sales across the world, about 25 percent of revenue to Tata comes from Europe. Similarly Motherson Sumi, another Indian auto company with its headquarters in Noida, receives around 50-60 percent of its revenues from the UK and other European market. Following the BREXIT, it is feared that this auto company’s earnings would also suffer some impact.

Economic fallout of the BREXIT can be hugely hurting. Already, uncertainty over the UK’s exit from the EU has slowed the country’s growth to 1.3 per cent in 2018. The UK’s Treasury Chief Philip Hammond recently reported that the country’s economy would slow to 1.9 per cent in 2019 and 1.6 per cent in 2020. The British pound is 14 per cent lower than what it was before the referendum. British lawmakers’ expect the pound to emerge stronger once the deal is approved, hinting at some machination expected of the Government. But no bargain seems good enough to stop the UK and Europe from heading towards an imminent economic mess.

Even when we assume that Brexit wouldn’t cause an irreparable damage to the EU or if another country were to leave, which looks highly unlikely in the foreseeable future, the centrist politicians who run nearly every EU member-state will henceforth be on the defensive against the populist forces who oppose them and the EU.

In the top echelons of the EU there are two competing approaches to how the future of Europe should be like. The European Commission, led by President Jean-Claude Juncker, believes in further integration. It generally seeks to respond to crises by pressing member-states to accept ‘European’ solutions that involve extra powers for EU institutions. The Commission does not seek to grab power in a cynical way. It genuinely believes that many problems require ‘more Europe’. And sometimes it is right.

But the President of the European Council, Donald Tusk has taken a different line. In recent weeks he has repeatedly warned that more centralization would turn citizens against the EU. “Obsessed with the idea of instant and total integration, we failed to notice that ordinary people, the citizens of Europe, do not share our Euro-enthusiasm,” he said.

France and Germany cannot agree on how to fix the Euro’s problems should there be a transfer union or stricter rules to police budget deficits and structural reform? And even if those two countries could agree, neither the French nor the German parliaments would be willing to transfer significant powers to Euro zone or EU institutions. In any case, a new EU treaty would require referendums in Denmark, Ireland, the Netherlands and perhaps France, which could easily be lost. So there is not going to be a major new EU treaty.

French right wing leader Marine Le Pen last year had said that if the UK were to quit the EU, it would be the equivalent of the Berlin Wall falling in 1989. Whether she would be proved right or wrong is a debatable issue, but it would be apt to say that BREXIT is a momentous event in the history of Europe and from now on the narrative will be one of disintegration & not integration.