Is Brexit fallout overplayed?

The best of politics is to listen to what people think. The British people had voted to walk out of the EU and chart their own future. History will decide whether the voters had chosen the right path. For now, democracy had triumphed and the UK is likely to come out of this saga unscathed.

The decision comes at a time when the continent of Europe is dogged by bankrupt economic trends in Greece, Italy, and many other EU nations while a new geopolitical rivalry had resurfaced with the Russian annexation of the Crimea.

Added to it is the huge influx of refugees from the war-torn Mid-East and Africa that not only includes citizens of the affected countries alone. Almost over 15 per cent of those crossing the Mediterranean Sea to enter Europe are disaffected foreign workers from South Asia and the Far East who had lost their jobs due to prolonged wars in Iraq, Syria and elsewhere.

Is the UK really out of the EU since the historic referendum last week approved such a move? If not, why the global economic scenarios are getting darker by the day and concerns are raised about the fate of the UK’s and the global economies?

The exit process is a murky one; depending on whether the UK chooses to invoke Article 50 of the Lisbon Treaty, a 261- words- paragraph which hardly offers any clear roadmap to the exit process from a multitude of interconnections affecting almost every facets of economic lives across Europe, or, it may so happen that the UK will choose to follow the footsteps of Norway and Switzerland who are not EU members but enjoy free trading facilities with all EU member states.

As well, the invocation of Article 50 of the EU treaty entails restructuring or re-signing many other documents due to the Treaty of Lisbon being an amended version and amalgamation of two other treaties that had constituted the constitutional basis of the European Union (EU). Signed by EU member states on 13 December 2007, and entered into force on 1 December 2009, the EU treaty is an amended hodgepodge, affected in 2007 by amending the Maastricht Treaty of 1993 and the 1958 Treaty of Rome to name it the Treaty of European Union (TEU).

Despite such legal and procedural snags laying ahead, and monumental being the challenges facing London, much of the global hysteria seems unfounded due to the UK’s and the global economic system’s resilience and the capability to effectively shield the lurking challenges.

To that effect, both the US Fed and the European Central Bank (ECB) have prepared to ensure cheap flow of money by lowering interest rates and resorting to quantitative easing while the Bank of England anticipates a possible recession and higher inflation within the UK economy due to drop in currency and likely outflow of capital. These two scenarios are the worst so far. Even with such scenarios factored in, the impact on the global economic output is likely to be much less than feared.

And, the lower UK import in coming months may not drag the global economy by no more than 1.5 per cent due to existing UK imports of merchandise and goods averaging just over 3 per cent of the global total.

The abnormality in the stock market too is a temporary, passing phenomenon. The UK stock market is measured by the FTSE 100 index, which was down only by 3.2 per cent late last week, suggesting that the investors did not envision the Brexit fallout to take a huge toll on corporate profits in the near future. Rather, abnormality in the bond and currency markets posed bigger threats.

The 7.6 per cent drop in pound’s value against US dollar is a surprise rarely seen between two major currencies. The average fluctuation since 2012 between pound sterling and dollar being 0.35 per cent only, latest fluctuation is seismic and worst in 21 years.

Nonetheless, combined with a rally in government bonds and further lowering of interest rate from 0.5 per cent to zero only, imported goods will prove costly for British consumers, pushing inflation to higher brackets.

The UK being a major trading partner of Bangladesh, at stake is a market over $5 billion strong, in terms of two way trading. Especially vulnerable is the over $3 billion strong quota free access of Bangladeshi products in the UK market under EU’s existing trade policies. Dhaka needs to move faster with short-term bilateral agreements to keep its flow of export hassle-free.

This will not preclude the possibility of decreased remittances from over half a million British Bangladeshis facing economic hardship in business and employment while the flow of renewed immigration to the UK may suffer from temporary closure.

It’s pretty clear now that a sudden spur of chauvinistic nationalism among older Brits have caused this alarm across the global economy. The slide of the pound’s value aside, the downgrading of the UK’s credit ratings from AAA to AA and the rising fear that the UK’s territorial integrity faces an acute challenge due to Scotland and Ireland having voted to stay within the EU, the challenges facing the David Cameron regime are both potent and perplexing.

Good news is: The British politicians are united to charter a new course to shape the destiny of their island nation that had always lived by imperial swaggers and possessed inherited confidence in its own future as an enduring global player.

Source: weekly holiday