Impact of Brexit

Question: Discuss about theImpact of Brexit. Answer: Brexit- An Introduction To understand the effects of Brexit, one must understand its meaning first. Brexit is a name given to the event that happened in Europe. Europe is a large continent, having many countries. Out of which, 28 countries have signed an economic and political treaty after the Second World War. These countries are together known as European Economic Community (EEC) or European Union (EU). This treaty was signed to avoid wars among countries and foster co-operation in terms of trade and business. The entire EU works as a single market. This implies that goods and people can move freely without any formal requirements. EU has its own parliament and own currency, which is known as Euro, used by its 19 members. UK or United Kingdom of Great Britain was also a member of EU. But at the start of 2016, it wanted to leave the group and continue as an independent country. In June 2016, a referendum was passed to leave EU since 52% of the population voted and supported the idea. If we see the results in more detail, UK comprises of 4 countries- England, Wales, Scotland and Northern Irelands. Englands 53.4% population voted to leave EU. Such share in Wales amounted to 52.5%. However, in Scotland, only 38% and in Northern Irelands, only 44.2% voted to leave EU. Hence, the term Brexit implies exit of Britain from EU. It will have many political and economic implications on UK, European and global economies (Mller Oliver, 2014). Arguments in Support of Brexit The elderly people of UK strongly support Brexit. The most prominent reason was immigration. Migrants from all over the Europe came to take away jobs and vacancies in schools, universities, etc. from British people. They argued that their own people are left with very few opportunities because of this issue. Another reason was that after Brexit, British economy will strengthen since they will be able to trade in their interests. Hence, supporters wanted Britain to be the Great Britain. Besides that, they do not want bureaucrats of Brussels to design their future. They wanted to be independent and flexible. That is why, majority of the people supported Brexit (Melville, 2016). Arguments Against Brexit The first reason of opposing Brexit was status quo. Majority of youth of UK proposed that they have immense job opportunities in their country because of foreign organizations operating here. They will be lost completely and there will be an employment crisis in the country. Secondly, Brexit will force business organizations and government to move to a new way, which will lead to a great uncertainty in future. It will also be a big blow to middle class households. Besides, being a part of friendly treaty is a safety sign from wars like uncertainties. These were the reasons to oppose Brexit (Vasilopoulou, 2006). Impact of Brexit A serious political and economic impact can be seen in various parts of the world due to Brexit. UK, which had been a prominent place of international trade with many countries of EU and others, had lost its attractiveness. Its currency is depreciating and a situation of chaos and confusion is prevailing in the country. On the other hand Europe has not remained untouched. If a part of body is not well, the entire body suffers. Likewise, a significant part of EU has left, so its economy is also hampered due to Brexit. Besides, London had been a financial hub with more than 250 foreign banks and more than 200 foreign law firms. They have endangered London to quit their operations from there. Their stocks are heavily impacted in return. Apart from that, they will not be able to continue business in such a convenient manner as earlier (Irwin, 2015). Impact on Currency Values The referendum of June 2016 on UKs leave from EU has created a scene of great uncertainty in the market. Currency market is one of the most vital components of entire financial system. Direct impact would be on UK and European currency. Since the Brexit is confirmed, both the currencies are falling. However, depreciation in pound sterling is much more significant than that of euro. The impact on other currencies will be seen later when this referendum will be executed in a year or two. Reason of this influence is that trading terms among various countries are going to change significantly after Brexit. This will affect payment of export- imports. Hence, there will be a change in currency valuation (Begg Mushvel, 2016). Impact on Stock Markets The UKs decision to leave European Union has given a great shock to the investors. Across the global financial markets, there are shockwaves due to this referendum. The pound and euro had a vital impact. Besides that, if we talk particularly about stock markets, FTSE100, which is an index of top 100 stocks of UK, had fallen sharply due to initial impact of Brexit. However, it has started recovering. But it still needs to stabilise. Secondly, a vast index of top 250 stocks is also showing a fall out. This clarifies an adverse impact of brexit on stock markets (Dhingra et al., 2016). Impact on UK Market Initial impacts on UK can be seen clearly. Although supporters are saying that there will be no adverse impact. Since the entire country has currently faced the issue strongly and initial shocks are borne boldly there will be no issues further. But the long- term impact on the UK economy will be deteriorating to the country. Firstly, London, the financial hub is going to lose its attractiveness in terms of investments rather the entire economy will face a run down in the investors confidence. Currently, the effect can be seen on GBP (Great Britain Pound). Since the referendum of June 2016 has been declared, the currency is facing a significant downfall. Britain was considered at the top in terms of AAA rating, which is not so now. Many economic indicators are pointing towards a downturn in business cycle in UK. It has also been said that if not controlled smartly, this issue will have a severe impact than that of the global financial crisis of 2008 (Dhingra et al., 2016). Impact on Global Markets The entire European Union and even the rest parts of the world will have a direct bearing due to Brexit. However, major impact would be on member countries of EU. This impact will be significant in political, economic and financial terms. Exports within EU are allowed without any tariffs or duties. However, these will be levied now in trading with UK. Besides that, supply chain of many industries will be hampered worldwide. Many big entrepreneurs are going to face a critical challenge in managing their investments and policy returns. One of the major impacts on Europe will be that their cost of borrowing might rise. There will be a serious political concern in EU. If this leaving Union goes successful, it will encourage other member states to do the same, which will destabilise the political conditions in Europe. Europe will lose its significance in such a scenario (Irwin, 2015). Role of Governments and Central Banks The role of governments to manage the chaos, confusion and uncertainty can be critically determined only when the actual outcomes can be seen. However, they can do to something even now to keep a hold on current situation. Currency of a country is depreciated or appreciated due to market changes. But a central government can intervene and revalue or devalue the currency according to the scenario. Besides that, central banks should critically keep an eye on economic indicators. They can influence interest rates that can deter the impact on Europe. The cost of borrowing can be controlled in such a manner. Hence, in uncertainty even, some steps can be taken to reduce the adverse impact and bring stability in economy (Yencken, 2016). References Begg, I. Mushvel, F., 2016. The economic impact of brexit: jobs, growth and the public finances. [Online] Available at: https://www.lse.ac.uk/europeanInstitute/LSE-Commission/Hearing-11---The-impact-of-Brexit-on-jobs-and-economic-growth-sumary.pdf [Accessed 4 September 2016]. Dhingra, S., Ottaviano, G.I., Sampson, T. Van Reenen, J., 2016. The consequences of Brexit for UK trade and living standards. Center for Economic Performance. Dhingra, S., Ottaviano, G., Sampson, T. Van Reenen, J., 2016. The impact of Brexit on foreign investment in the UK. Centre for Economic Performance (CEP). Irwin, G., 2015. BREXIT: the impact on the UK and the EU. [Online] Available at: https://www.global-counsel.co.uk/sites/default/files/special-reports/downloads/Global%20Counsel_Impact_of_Brexit.pdf [Accessed 4 September 2016]. Melville, T., 2016. The Brexit Referendum: How did it come to this?. Reuters. Mller, A. Oliver, T., 2014. The United Kingdom and the European Union: what would a Brexit mean for the EU and other States around the World? European and global perspectives. The German Council on Foreign Relations (DGAP). Vasilopoulou, S., 2006. UK Euroscepticism and the Brexit Referendum. The Political Quarterly, 87(2), pp.219-27. Yencken, E., 2016. Envisioning the Brexit: The potential implications of a UK exit on the EUs relations with third countries. Australia: The University of Melbourne.