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Jun 29, 2016

[CA] Brexit

Brexit
BREXIT – Abbreviation of “British Exit” refers to the possibility of Britain’s withdrawal from the European Union


People of Britain in a historic referendum voted in favour of leaving European Union (EU). The referendum ‘to leave’ or ‘to be a member’ of EU saw 51.9% votes in favour compared to 48.1% in against.  Referendum turnout was higher than at 2015 general election. Northern Ireland, London and Scotland voted strongly to stay back with the EU while the Wales and the English shires backed Britain exit (Brexit) from the EU.


Why the people voted for Brexit?
According to Brexit campaigners, concerns about the costs of continued EU membership far outweigh any worries about leaving.


Impact of Brexit
·       Prime Minister David Cameron announced his resignation from his position. (He stated that new Prime Minister to carry out discussions with the EU and invoke Article 50 of the Lisbon Party)
·       The pound fell to its lowest level against the dollar since 1985 as the markets reacted to the results. It fell by 3% within moments of the first result showing a strong result for Leave in Sunderland and fell as much as 6.5% against the euro.
·       The departure of the bloc's second biggest economy would weaken Europe's unity and stability which is already grappling with the Greek financial crisis and a massive influx of refugees.
·       It triggered fall in major markets like Japan’s Nikkei fell by 7.5% whereas Singapore’s Strait Times fell by 2.5%. Even the stock markets of China, Taiwan and South Korea registered a fall between 2-4%.
·       Internationally, prices of oil tumbled but the prices of gold rose sharply.
·       According to S&P Dow Jones Indices, Global markets lost $2.08 trillion
·       President Obama sought to encourage British citizens that the U.S. would not abandon the nations’ strong and historic partnership
·       Moody’s Investors Service downgraded the U.K.’s sovereign debt rating from stable to negative.
·       More than 400,000 Britain people have signed a petition to exit from the EU

Impact on India
·       The benchmark 30-share BSE Sensex index fell as much as 4.04 percent or 1090.9 points in early trade to a day’s low of 25,911.33 points.
·       The Indian rupee fell to 68.14 against the dollar, its lowest level since February 2016, later it crawled to 67.79.
Would be Impacts include
·       Productivity and GDP per person of the UK would be lower as the costs would substantially outweigh any potential benefit of leaving the EU.
·       It may lead to disintegration of United Kingdom as an entity because Scotland may again ask for a referendum to be a part of EU as it had a referendum on 19 September 2014.
·       Other nations of the 28 nation bloc, now 27 with exit of Britain, may call for a referendum giving rise to protectionism and ultra-nationalism which is getting hardened across the world.
·       IMF said in an April report that "a U.K. exit from Europe's single market would also likely disrupt and reduce mutual trade and financial flows, curtailing key benefits from economic cooperation and integration, such as those resulting from economies of scale and efficient specialization.
It would likely result in a massive rebalancing of currencies. Investors would likely dive out of the British pound and into cash that's perceived as safe — the Swiss franc, the Japanese yen, the U.S. dollar. The euro could also see some weakening if investors are worried about the fate of the EU.

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