In a referendum held last week, Britain (Northern Ireleand, Scotland, Wales, England, and other territories) voted to leave the European Union (E.U.), with Leave garnering 51.9% of the votes and Remain getting the rest.
The common man was suddenly bombarded with information regarding #Brexit and here I will attempt to write the information down in simple terms.
What is a referendum and why did the U.K. conduct one?
According to dicitonary.com, referendum is a general vote by the electorate on a single political question which has been referred to them for a direct decision. U.K. has conducted only three pan-U.K referendum till date, of which the first was in 1975 to decide if U.K. should join the European Economic Community (a precursor to modern E.U.) and the latest in 2016 if U.K. should leave the Union. Every adult who is eligible to vote in the general elections to elect the parliament in the U.K. can vote in a referendum (this also includes Indians and citizens of other countries that are a part of the Commonwealth), and a simple majority is needed for a motion to win or lose, and in this case, the motion to leave the E.U. won.
Is the result binding? What happens now?
No, the result of the referendum are not binding. The referendum is only an advise to the parliament and the Parliament can choose to not heed it. If the Parliament (or the Government) chooses to exit the E.U., they will have to give a notice under Article 50 of the Treaty on European Union after which they will have two years to finalize all negotiations and be on the way out.
Who are the main players?
David Cameron, the incumbent Prime Minister when Britain went to polls in 2015, promised to hold a referendum to decide on E.U. membership when elected to office. He had earlier seen through the referendum for Scottish Independence and was obviously confident of getting the country to vote Remain and thus strengthen his position within his Conservative Party.
He was challenged within his party by the likes of Boris Johnson and Michael Gove, who were prominent Eurosceptics and faces of the #Brexit campaign. As of today, David Cameron has announced he will resign in September and will let his successor trigger Article 50. Boris Johnson, ex-Mayor of London, has decided to not run for the leadership of the Conservative Party and as of today there are five contenders to lead the party, with Justice Secretary Michael Gove and Home Secretary Theresa May leading the fray.
The other prominent face of #Brexit was Nigel Farage, Member of European Parliament and leader for the U.K. Independence Party (U.K.I.P.), and is identified as a right-wing leader. Jeremy Corbyn, the Leader of Her Majesty’s Loyal Opposition (or simple, the Leader of Opposition) has also had to bear the brunt of the vote, with many members of his shadow cabinet stepping down. He has however refused to step down and continues to be the Leader of Opposition.
Why did they vote Out?
Many reasons can be ascribed to the voters choosing to opt out of the E.U. Foremost is the perceived loss of jobs to migrant workers, especially from the poorer countries that made up the E.U. 2 and E.U. 8 group that joint the Union later. British felt they were being forced to accept people only because of the E.U. rules, and were also forced to give hundreds of million pounds to the E.U. every year. The Leave campaign had promised to put back the 300 million Pounds or so from the sum Britain gave to E.U., back into its National Health Service (NHS). This claim was of course proven to be false as soon as the results were out, with even Nigel Farage distancing himself from this figure.
If one goes back a little, one may ascribe some fault to the austerity campaign launched by David Cameron in the last few year. Among the many people affected, millions lost their jobs because the city councils were unable to pay their salaries, NHS budget was cut down etc.
There was a post that became popular showing how the old voted out and the young voted to Remain. While that post had a very small sample size (~1500 people sampled), what stands out is that almost 64% voters in the 18-24 age group chose to NOT vote!
Why the noise around #Brexit?
Britain leaving the EU will undoubtedly deliver a blow to the E.U.’s idea of becoming one big trading bloc and to a larger extent, possibly to unfettered globalization that was being pushed. There were two large camps, the Eurosceptics and those who supported remaining in the E.U. The intelligentsia was largely a proponent of the Remain campaign with the leading economists putting their weights behind it. Even world leaders such as Barack Obama spoke openly for the Remain campaign.
The leave campaign on the other hand did not have as heavy a backing in terms of economists and intelligentsia. And this is where the possible reason of the shock and awe upon the #Brexit results came from. As was evident in the Trump Campaign in the U.S., the intelligentsia, which is largely dominated by left-of-the-centre ideology, became an echo-chamber of sorts. They refused to believe the opinion polls if they didn’t suit their views and agendas, and were content speaking down to the masses in a didactic tone, instructing them what they OUGHT to do as opposed to what they think will be best for them. Even while going into the referendum, Leave was ahead, but the elites, including the market movers and media, took solace in the approximately 10% voters who said they were ‘undecided’.
However, when the results came in, the markets fell. Gold rose. Volatility increased. A look at the graphs below should show the extent of the shock that went through the world markets.
(courtesy Dr. Aswath Damodran, Professor at NYU-Stern)
The Indian stock market too felt the shock and closed some 700 points down. The Pound was down by almost 10% at one point, before beginning to recover. Just like the Pound, the Indian market too rebounded and one week after announcement of the result, is close to a one-month high. This shows that only were the markets waylaid into believing that Britain will vote to Remain, but also that they over-reacted. Not only Sensex, but Dow was close to its one month high as well and FTSE 100 of England hit a 10 month high! Of course, a part of the reason for FTSE 100 closing so high was the fact that the Governor of Bank of England, Mark Carney announced a stimulus plan. All-in-all, the market conditions are diametrically opposite to the meltdown that experts were talking about.
What lies in store?
While it is difficult to say what will happen in the future, it is worthwhile looking at the data economists came up with in the run-up to the vote. Some claimed British GDP would be down by 2.2% by 2030 due to Britain leaving E.U. Some may put these figures down to Project Fear that the Eurosceptics claimed was being run to intimidate voters to vote Remain. The truth is, no one really knows what will happen. That is because things one thinks will happen certainly (like the elite thinking Britain will vote Remain) many times do not happen, and what happens, at times, brings with itself lots of good. No one is certain if U.K. will be able to wriggle out a favorable trade deal with E.U. or not. In light of this, there is no fixed number. Website openeurope.org.uk had this to say: “In a best case scenario, under which the UK manages to enter into liberal trade arrangements with the EU and the rest of the world, whilst pursuing large-scale deregulation at home, Britain could be better off by 1.6% of GDP in 2030. However, a far more realistic range is between a 0.8% permanent loss to GDP in 2030 and a 0.6% permanent gain in GDP in 2030, in scenarios where Britain mixes policy approaches.”
Ideally, since U.K. is a large economic market and financial capital of Europe, it should be able to strike deals with the E.U. Noteworthy is the arrangement Switzerland and Norway have with the E.U., where they keep their borders relatively sealed, but still enjoy some benefits of free trade with E.U. Also, with U.K. having one of the largest defense forces of Europe, it will be sensible for Europe as well to accept U.K. into its fold.
Will the #Brexit really happen?
Again, no one knows. David Cameron has smartly decided to step down and let his successor trigger Article 50 and have the bricks or bouquets that will follow. Boris Johnson, long tipped to be David Cameron’s successor, has stepped back and decided to not run for the Tory leadership. It is possible that when General elections are held, the popular sentiment can be of remaining within E.U., or the new P.M. may ignore the result of the referendum (as discussed above, it is only an advise and is non-binding). To many commentators, it appears that the Leave campaign leaders themselves had never thought they will really win, and now that they have, don’t have it in them to pull the trigger.