Brexit: Why a country has to be lucky with its leadership

Brexit: Why a country has to be lucky with its leadership

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It would have been easier to hear of a Greece or Portugal leaving the EU but Britain’s exit seems to me the classic black swan event.

The tears and anguish that followed the outcome of the Referendum makes one wonder if those voting really knew the full impact of what they were doing.

Looking back, it seems there is much more written about Brexit’s economic impact now, than I could find before the Referendum. As happens with every election, people vote for the leadership and the one sided view presented by it. A referendum however, being specific issue based, calls for a very empowered response resulting from a detailed analysis of the issue at hand in a bipartisan manner.

I am not sure if most of those who made a choice to “remain” or “leave” in the Referendum fully appreciated the impact of their vote on the UK economy and its future generations.

The British youth, the Scots are all unhappy and rightly so.

Their employment market and business hinterland has shrunk overnight. For all those under 30 years of age they were born into the EU and its international multi-cultural environment whilst gaining access to the opportunities presented by the market in the 27 EU countries. The Scots saw the EU as an escape from British domination.

However, apart from the loss of employment opportunities and a revived call for independence by Scotland; the loss of following indicates that, there could be a serious and adverse impact of Brexit;

  • 50% of Britain’s export go to the EU and it takes in about 10% of its imports.
  • An estimated 2.5 – 3 million are employed in this trade in the UK,
  • The EU has about 52 trade pacts which Britain will have to renegotiate
  • The access to the European Single market sans trade barriers and tariff
  • Free access to the EU labour market for its citizens
  • Lastly, London’s financial market will lose its ‘pass-porting’ access to the EU market. Pass-porting means London based banks could operate in the EU without having fully capitalized subsidiaries on the ground. It is natural that, many London banks may shift base to Frankfurt, Paris, Luxembourg, etc.

In reality though, as many EU members believed, the UK enjoyed the best of both worlds.

  • Whilst most EU member countries are sorely handicapped when managing their fiscal priorities without a currency of their own; the UK on the other hand, had an access to the EU single market but was not part of the Euro Currency. Its significant benefit was seen when it did not get burdened by the Euro zone bailouts.
  • The UK was not also part of the Schengen Passport regime and therefore, enjoyed its own border controls. The reason why the UK was un-impacted by the recent refugee crises. UK retained full control over its borders.

In return the UK agreed to pay about GBP 12 Bn as fees to the EU.

The only big issue which was used by the Brexiteers to push their case was the immigration issue. It’s a fact that, the yearly net migration has reached almost 400,000 when only about 100,000 were expected. There are about 3 million EU citizens working in the UK as against about a million UK citizens in the EU. However, to put these numbers in perspective, we should know that, EU immigration is about 50% of the total (rest mainly from India and Africa). There were also fears raised of a Turkish invasion; not an issue as Turkey’s entry into the EU is not expected in the near future. However, what is not appreciated is that, whilst the older Brits preferred staying back home, the youth was open to move in search of opportunities and the immigration gap would have been made up in the coming years.

To the UK PM Cameroon’s credit (some EU members saw it as blackmail), he had managed to negotiate hard with the EU, for UK to be allowed to postpone payment of work benefits to EU immigrant workers by 4 years. More importantly, he had also managed to limit the “surrender of sovereignty” any further.

Surprisingly, neither of these significant gains were effectively highlighted in the Brexit campaign by the “Remain” side. Especially so, when sovereignty was one of the issues put forth by Brexiteers.

Voting analytics in the media now show that, the younger UK voters (18 – 30 years age) were overwhelmingly in favour of staying in the EU. Unfortunate that, their vote went waste considering that, the decision to “Leave” has been taken by those who have far lesser life ahead of them, than those wishing to remain.

The biggest challenge now for the UK is to renegotiate with all the countries which are party to the 52 trade agreements with the EU. Entering new agreements could take as much as a decade or even more. The UK without the EU clout to back it is unlikely to get similar terms and will most likely have to settle for inferior bilateral agreements. Needless to say, UK will suffer the cost of massive dislocation in its trade.

However, even more importantly the UK has to negotiate its way back into the EU trade zone considering that, it will no longer enjoy single market benefits i.e. access free of barriers, tariff and with its financial businesses will no longer have the benefit of ‘passporting’. Not forgetting the Visa norms for its citizens working in the Euro Zone.

The reaction of EU leaders has ranged from utter disappointment to anger and they are already calling for hastening UK’s exit from the EU.Understandably, they wish to restore stability in the EU. However, I cannot believe that, in doing so, they will make life easy for the UK. Some have been very vocal about not making it easy for the UK to ensure that, it adequately discourages the Eurosceptic tendencies which seem inspired by what has happened in the UK.

In summary, the UK economy will undergo considerable stress in the short term and with so many unknowns I cannot believe anyone would be reckless enough to talk about the UK’s prospects in the longer term as yet. Credit ratings have just gone negative and the Pound was down 15%.

It therefore does not seem unreasonable to question the quality of PM Cameroon’s decision to hold the referendum. The media and the UK government seems to have badly let down its people by not raising the standard of the public debate on the economic impact of the Brexit. The PM failed to shirk off the jingoistic campaign of the ‘leave’ Camp by effectively arguing against the ‘sovereignty’ (rather the loss of it) issue and EU immigration.

Why was it at all necessary to promise a second referendum when a referendum had already been held in 1975 by the Labour Party? Where was the need to have to reexamine that decision? Is it even politically correct to keep changing past electoral verdicts?

Was there enough research done to firstly appreciate the voter sentiment, its economic impact in the short and longer term? If yes, why is it that, the strong ‘remain’ sentiment amongst the younger UK citizens did not come through? Why did it not come across that the Scots also wanted to ‘remain’ and not getting to do so could revive their call to separate?

Interestingly, I also read somewhere that, over half the PM’s Conservative Party MPs wanted to remain in the EU. The Referendum which seems like a huge gamble to me clearly had downside risks which had the potential to cause immense damage to the economy and even lose Scotland.

I am sure that, in the days to come there will be a lot written and said about the UK PM Cameroon’s reason for firstly promising a Referendum in 2003 and the pressures under which he held it. History will surely reveal why a second referendum was required when it would result in tearing wide open the very foundation of the UK’s entire economic order.

This is why I believe Brexit is a case study in decision making and leadership.

Every leader has to take the pains to appreciate the risks is great detail and the cost of disturbing the status quo. Change for the sake of change is to no one’s credit. More importantly, the leader has to withstand pressure which comes in his way of taking good decisions.

Here we have not even touched upon the impact of the Brexit verdict on the EU and the global economy.

It is well known that, many EU leaders were very bitter when the Referendum was not discussed before being announced. UK’s exit has indeed delivered a huge blow to the EU and to the global economic order, especially because of London’s status as one of the world’s leading financial centres. The UK PM has also failed in his responsibility to the global economy in his capacity as the leader of the world’s fifth largest economy and the second largest in EU.

The German Chancellor Merkel has said that there should be no haste in pushing the UK out of the EU. One can only hope that the EU works with the UK to mitigate the inevitable fall out of this event described by someone as the next big one in Europe only after the fall of the Berlin Wall. There are murmurs of a third Referendum !

Brexit demonstrates that a nation has to be lucky in getting a leader who can guide them through an uncertain future in these volatile times. Imagine the mess in Iraq attributed to Saddam. Hopefully Britain’s history will be kinder to PM Cameroon.

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One Reply to “Brexit: Why a country has to be lucky with its leadership”

  1. This time it will be very difficult ( not impossible ) to see the latest version of ” The
    Empire Strikes Back “….

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