Brexit | IAS Target IAS Target


Brexit is the scheduled withdrawal of the United Kingdom (UK) from the European Union (EU). Following a June 2016 referendum, in which 51.9% voted to leave, the UK government formally declared the country's withdrawal in March 2017, starting a two-year process that was due to conclude with the UK withdrawing on 29 March 2019. That deadline has been extended three times and is currently 31 January 2020.
Withdrawal is advocated by Eurosceptics and opposed by pro-Europeanists. The UK joined the European Communities (EC) in 1973, with continued membership endorsed in a 1975 referendum. In the 1970s and 1980s, withdrawal from the EC was advocated mainly by the political left. Since the 1990s, the Eurosceptics wing of the Conservative Party has grown and led a rebellion over the ratification of the 1992 Maastricht Treaty that established the EU.

On 29 March 2017, the UK government formally started the process of withdrawal by invoking Article 50 of the Treaty on the European Union, with permission from parliament. The UK–EU withdrawal negotiations began July that month. The UK negotiated to leave the EU customs union and single market. This resulted in the November 2018 withdrawal agreement, but the UK parliament voted against ratifying it three times. The Labour Party wanted an agreement to maintain a customs union, while many Conservatives opposed the agreement's financial settlement on the UK's share of EU financial obligations, as well as the "Irish backstop" designed to prevent border controls between Northern Ireland and the Republic of Ireland.
In March 2019, the UK parliament voted for May to ask the EU to delay Brexit until October. Having failed to pass her agreement, May resigned as prime minister in July and was succeeded by Boris Johnson. He sought to replace parts of the agreement and vowed to leave the EU by the new deadline, with or without an agreement. On 17 October 2019, the UK government and EU agreed a revised withdrawal agreement, with new arrangements for Northern Ireland. Parliament approved the new agreement, but rejected plans to pass it into law before the 31 October deadline, and forced the government (through the 'Benn Act') to ask for a third Brexit delay.

Many effects of Brexit depend on how closely the UK will be tied to the EU, or whether it withdraws before terms are agreed – referred to as a no-deal Brexit. The broad consensus among economists is that Brexit will probably reduce the UK's real per capita income in the medium term and long term and that the referendum itself damaged the economy. Brexit is likely to reduce immigration from the European Economic Area (EEA) countries to the UK and poses challenges for UK higher education, academic research, and security. Following Brexit, EU law and the EU Court of Justice will no longer have supremacy over UK laws or its Supreme Court, except to an extent agreed upon in a withdrawal agreement. The European Union (Withdrawal) Act 2018 retains relevant EU law as domestic law, which the UK could then amend or repeal.

Maastricht Treaty

The Maastricht Treaty (officially the Treaty on European Union) was a treaty signed on 7 February 1992 by the members of the European Communities in Maastricht, Netherlands, to further European integration. On 9–10 December 1991, the same city hosted the European Council which drafted the treaty. The treaty founded the European Union and established its pillar structure which stayed in place until the Lisbon Treaty came into existence in 2009.

European Union

The European Union (EU) is a political and economic union of 28 member states that are located primarily in Europe. Its members have a combined area of 4,475,757 km2 and an estimated total population of about 513 million. The EU has developed an internal single market through a standardised system of laws that apply to all member states in those matters, and only those matters, where members have agreed to act as one.
EU policies aim to ensure the free movement of goods, people, services, and capital within the internal market, enact legislation in justice and home affairs and maintain common policies on trade, agriculture, fisheries, and regional development. For travel within the Schengen Area, passport controls have been abolished. A monetary union was established in 1999 and came into full force in 2002 and is composed of 19 EU member states which use the euro currency.
The EU and European citizenship were established when the Maastricht Treaty came into force in 1993. The EU traces its origins to the European Coal and Steel Community (ECSC) and the European Economic Community (EEC), established, respectively, by the 1951 Treaty of Paris and the 1957 Treaty of Rome. The original members of what came to be known as the European Communities were the Inner Six:, Luxembourg, Belgium, France, Italy the Netherlands, and West Germany.

The Communities and their successors have grown in size by the accession of new member states and in power by the addition of policy areas to their remit. The latest major amendment to the constitutional basis of the EU, the Treaty of Lisbon, came into force in 2009. No member state has left the EU or its antecedent organisations (Greenland, an autonomous territory within Denmark, left the Communities in 1985). However, the United Kingdom signified its intention to leave after a membership referendum in June 2016 and is negotiating its withdrawal. The United Kingdom and its independent territories are scheduled to leave the European Union on 31 October 2019.
Containing 7.3% of the world population, the EU in 2017 generated a nominal gross domestic product (GDP) of 19.670 trillion US dollars, constituting approximately 24.6% of global nominal GDP. Additionally, all 28 EU countries have a very high Human Development Index, according to the United Nations Development Programme. In 2012, the EU was awarded the Nobel Peace Prize. Through the Common Foreign and Security Policy, the EU has developed a role in external relations and defence. The union maintains permanent diplomatic missions throughout the world and represents itself in the United Nations, the World Trade Organization, the G7, and the G20. Because of its global influence, the European Union was described in 2006 as an emerging superpower.

Eurozone or (Euro area)

The eurozone, officially called the euro area, is a monetary union of 19 of the 28 European Union (EU) member states which have adopted the euro (€) as their common currency and the sole legal tender. The monetary authority of the eurozone is the Eurosystem. The other nine members of the European Union continue to use their own national currencies, although most of them are obliged to adopt the euro in the future.

The eurozone consists of:

Austria Germany Luxembourg Spain Belgium
Greece Malta Cyprus Ireland Netherlands
Estonia Italy Portugal Finland Latvia
Slovakia France Lithuania Slovenia

Other EU states (except for Denmark and the United Kingdom) are obliged to join once they meet the criteria to do so. Kosovo and Montenegro have adopted the euro unilaterally, but these countries do not officially form part of the eurozone and don’t have representation in the European Central Bank (ECB) or in the Eurogroup.
The ECB, which is governed by a president and a board of the heads of national central banks, sets the monetary policy of the zone. The principal task of the ECB is to keep inflation under control. Though there is no common representation, governance, or fiscal policy for the currency union, some co-operation does take place through the Eurogroup, which makes political decisions regarding the eurozone and the euro. The Eurogroup is composed of the finance ministers of eurozone states, but in emergencies, national leaders also form the Eurogroup.
Since the financial crisis of 2007–08, the eurozone has established and used provisions for granting emergency loans to member states in return for enacting economic reforms. The eurozone has also enacted some limited fiscal integration: for example, in peer review of each other national budgets. The issue is political and in a state of flux in terms of what further provisions will be agreed to eurozone change.

Why Britain want to leave the EU?

  • Freedom to make stronger trade deals with other nations.
  • Freedom to spend UK resources presently through EU membership in the UK to the advantage of our citizens.
  • Freedom to restore Britain’s special legal system.
  • Freedom to deregulate the EU’s costly mass of laws.
  • Freedom to control national borders.
  • Freedom to regenerate Britain’s fisheries.
  • Freedom to make major savings for British consumers.
  • Freedom to improve the British economy and generate more jobs.
  • Freedom to restore British customs and tradition
  • Freedom to save the NHS from EU threats to weaken it by harmonising healthcare across the EU, and to decrease welfare payments to non-UK EU citizens

Benefits of India on Brexit

  • While on the positive side, Brexit has driven away fears of a US Fed rate hike and could lead to lower commodity prices
  • Devaluation of rupee might enhance India’s export competitiveness
  • Brexit has become a new worry for commodity producers, coming on top of concerns about China’s slowing economic growth. If news flows from both these sources continue to cloud the outlook for commodities, then prices may turn weak. Brexit’s impact will then be an important one for commodity producers and producing nations

Adverse impact on India due to Brexit

  • IT and ITeS industry of India will have a negative impact due to Brexit.
  • Britain ranks 12th in terms of India’s bilateral trade with individual countries. India enjoys a trade surplus with Britain. India invests more in the UK than the rest of Europe combined, emerging as the 3rd largest FDI investor. Access to European markets, therefore, is a key driver for Indian companies setting shop in the UK. Britain coming out of the EU is likely to influence the business prospects of these companies.
  • The Rupee may depreciate because of the double effect of foreign fund outflow and dollar rise. So Import bill rise, inflation, and implication on financial and monetary policy of India.
  • The immediate impact of Brexit is an increase in risk aversion when it comes to investment. This will affect the investment specially FPI outflows from foreign portfolio investors.

This is the second referendum on the UK’s relationship with the EU. In 1975, in a referendum on whether the UK should stay or leave the EU, the country voted for staying with 67.2% votes. After the referendum in favour of Brexit, a two-year withdrawal process starts. This withdrawal process will determine the nature of the relationship of India with the EU. After withdrawal, the UK does not remain part of a single EU market. At the end of the withdrawal and EU's countries begin levying tariffs on Britain's products.

Lisbon treaty and article 50

The Lisbon treaty under which if any country wants to leave the EU then it first has to inform the European council by triggering article 50. After triggering article 50, the withdrawal process begins and the EU negotiates with the concerning party about the terms and conditions and this takes around 2 years.

Other options for Britain to follow the Norway model

Under the Norway model, even if the country, not part of the EU they can access the European market. Under the Norway model- Norway, Liechtenstein, and Iceland is a member of the European Economic Area (EEA), and they access a single EU market. These countries also contribute to the EU budget, and there is a separate secretariat to manage the relationship b/w EU and Norway, Liechtenstein, and Iceland.

EEA (European Economic Area) Norway, Liechtenstein and Iceland