The Brexit – Understanding the EU Referendum

Earlier touted to be an issue that concerned only with the United Kingdom, the EU referendum of Brexit has been causing huge turmoil in all the markets throughout the world. The financial damage is to tune of $2 Trillion loss from the World markets in the past few days. All this makes us think, What really is this issue about? Is this just a political fanfare or is it more than that?

Understanding the EU Referendum: The Brexit

Let’s start with the EU first.

The European Union a.k.a EU

The European Union (EU) is the crux of the issue at hand. It is a union of 28 states primarily from Europe designed to give political and economic benefits to the member states, Britain being one of them. All its policies aim to achieve the below mentioned goal.

Free movement of People, Goods, Services and Capital among the member states.

The seven principal decision-making bodies in EU —known as the institutions of the European Union are the European Council, the Council of the European Union, the European Parliament, the European Commission, the Court of Justice of the European Union, the European Central Bank, and the European Court of Auditors. The rules and policies formed in these institutions have a binding effect on the member states.

Effect of EU on its member states

The EU had plethora of varied effects on the member states. A single market was the result of EU.

This created the following benefits:

  • Tax free trade among the member states
  • A single currency dominated the trade
  • Huge opportunities for development were available for the citizens especially from poorer states
  • The most important benefit is the avoiding conflict of interest among the member states, by adhering to strong guidelines

However, not all member states benefited from the above. Naturally strong countries like Britain and Germany had to forfeit some of their benefits due to the policies of EU to create a level playfield for the trade. This seeded the thought in British people to leave EU, the “Brexit”.

Brexit / Bremain

The population was divided on thought of Britain leaving the EU. With the advent of the term Brexit, Bremain was termed by the people who wished to remain with EU. Both had their own views of the issue at hand.

To resolve this, a vote on the EU referendum was called upon with the following question:

Should the United Kingdom remain a member of the European Union or leave the European Union?

Millions voted on both the options. Before going to that, lets have a look at the views of supporters for Bremain and Brexit.

Supporters of Bremain voted for

  • Easier Trade
  • Tax Free trade
  • Single Market Benefits
  • EU Citizens share equal rights, freedom to stay anywhere in European union
  • Benefit of EU as a leverage for better trade
  • Access to scientific research budgets from across the EU states
  • If Brexit happened, Britain’s economy might go down by a large percentage. Mortgage rates might go up and uncertainty might rise
  • Service industry of UK which accounts for three quarters of the economy will take a huge hit if Brexit happens

Supporters of Brexit voted for

  • Taking back control of economy
  • Freedom for making and enforcing rules and regulations
  • Freedom from control of EU trade policies that pose an unfair restriction on businesses.
  • Save 350 Million Pounds (or 150 million pound per week after rebates) that is sent to EU every week
  • Britain stand can stand on her own legs (a bit patriotic feel maybe?)

What Business people say about this?

  • EU offers more business opportunities, Job security for the citizens
  • Its easier to do business within EU although few sectors disagree with this point
  • It’s not easier to do business outside EU (Huge Duties have to be paid)

Brexit – Nike’s swoosh

A very interesting example of Nike Brand’s swoosh logo was illustrated by on e of the economists explaining the Brexit. He stated that initially the British economy would take a downturn with uncertainty and later move upwards to greater glory, just like the brands swoosh logo.

The Result of the Vote

British people have voted with a majority of 51.9% in favor of Brexit. With that, British Prime Minister David Cameron announced his resignation. To proceed with the separation from EU, Article 50 of the Lisbon Treaty would be invoked.

The Aftermath of the Vote result

Within hours of result announcement of the EU referendum vote, the financial markets throughout the world became very volatile. This was due to the uncertainty surrounding with the announcement. Within a few days. the markets began to regain some stability. Although the London property rates fell, many felt it as a good opportunity for investment.

What Now?

There are two ways for things to fall out now.

First way in which Britain could follow Brexit through and face the uncertainty. Maybe after initial years of trouble and confusion, Britain could grow to greater heights.

Or Second way in which Britain could have a re-vote since the referendum has no legal binding. This is more likely to happen since many of the British people have changed their opinions after seeing the effects of Brexit announcement.

Conclusion

Personally, I feel that this is more of a gamble since no one can predict the future with 100% accuracy. There are Pros and Cons on each side of the issue. The final decision lies with the British people and whatever their result might be, it will have a world wide effect for sure .

This article is a mere primer of the Brexit issue. To have deeper understanding of the same, please read through articles published by reputed sources such as Reuters, BBC, Bloomberg, e.t.c.

This article first appeared in LinkedIn. Check it out here.