The first of the most highly anticipated political events of 2016 happened yesterday with the referendum in UK. The verdict is out and UK’s 33 million voter turnout has opted to leave the EU by a small margin of 52% over 48% who wish to remain. As for now Britain and the rest of Europe face a new challenge of overcoming political instability, economic downturns as the continent and the world prepares for a difficult set of months.
- The Pound, the economy and the not-so-Great-Britian
Market instability surfaced as the referendum was underway with investors and banks closely monitoring and second guessing on their bets. The decision of leaving Europe will badly affect British manufacturers as they will lose out on the mobility that EU granted them for selling in Europe. As of 6:30 a.m British time the pound’s value has dropped to an all-time low in three decades. The pound is now at $1.35, the lowest since 1985. There is debate on official numbers but most economists agree that leaving the EU will be an expensive affair in the range of £30-40 billion per year for the next decade. Some of the speculators (betters on the referendum) rejoice after winning on their bets for Brexit but for most voters and the populace the news comes with fear, uncertainty over their financial security now.
- David Cameron’s departure as PM?
With the decision underway the British Prime Minister and Remain supporter David Cameron will have a new uphill task in his office this morning. Cameron had been originally against the referendum and had consistently warned against the cons of leaving EU highlighting increasing costs for trade and a loss in the benefits that European immigrants brought by working in the UK. Now the Prime Minister’s career lays shattered over his term’s and the Conservative Party’s biggest political gamble. A majority of the MP’s have supported him stating that his term needs to carry on until a calm and stable atmosphere is obtained but a few are reluctant to have a Prime Minister whose personal wishes go against the democratic decision that has been taken. Members of the opposition, most notably Nigel Farage, the leader of UKIP has stated that David Cameron should step down immediately.
- The Prevalence of Democracy
One striking feature of the votes has been the voter turnout being 72%, around 6 percentage points more than the UK elections of 2015. The people of Britain seemed to be celebrating Brexit as is seen as UK’s independence from EU. The sentiment is shared in light of obtaining greater sovereignty. As Brexit would allow UK to have control over its production, immigration policies and public funding there is a shared sentiment that Europe’s hegemony is slowly coming to an end (in the UK at least). Agreed, that the times ahead are tough but many have shared their support calling the decision as a triumph of hope over fear.
- The impact on India
Here’s what this translates to for India. With the pound losing its value, it will now be cheaper to travel to the UK, study in the UK. If you are a big investor in real estate then expect the prices to plummet in the residential areas of the metropolitan cities. There is much financial instability as of now and you can expect the total wealth held in British assets to fall as well. With Britain cutting off ties it will try to latch on to other nations like India for economic support and lesser trade restrictions. This means we would receive a greater FDI from UK.
- What to expect further?
As of now there are two things that are clear: Brexit is happening and that the process takes time. The EU’s policy on leaving require a two-year process to be undergone for an orderly exit. This means another two years of deliberation over trade, immigration policies to reach the final conclusions of the departure.