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BREXIT: is the Fate of the Financial Market & the Economy laying
on 23 rd
Brexit is an abbreviation of "British exit" from European Union.It refers
to the possibility that Britain will withdraw from the European Union.
The country will hold an inout referendum on its EU membership on
Britain might exit European Union largely because of Europe’s migration
crisis and the interminable euro mess.
The Utopia of globally minded Eurosceptics is a British economy set free
from burdensome Brussels Regulation, retaining access to Europe’s single
market, no longer paying into the EU budget, trading freely with the rest
of the world and setting its own limits on immigration.
The Parisbased OECD club of mostly rich countries says that Britain has
the leastregulated labour market and secondleastregulated product
market in Europe.
If Britain wishes to escape the EU’s rules, it will lose full access to the
single market. The argument that, because Britain imports more from the
EU than the other way round, it is in a strong bargaining position is
unconvincing: the EU takes almost half of British exports, whereas
Britain takes less than 10% of the EU’s. A freetrade deal in goods might
be negotiable, but it would not cover services (including financial
services), which make up a rising share of British exports.Next is the
assertion that a postBrexit Britain could trade more with dynamic
economies beyond Europe. Leave aside the fact that German exports to
China are three times as big as Britain’s. The broader objection is that a
Britain in search of freetrade deals with these giants would lose the
negotiating clout of belonging to the world’s biggest single market. A
prime example is the Transatlantic Trade and Investment Partnership
being negotiated by America and the EU.A postBrexit Britain would be
excluded from TTIP.Then there is migration, today’s most emotive issue.
Switzerland’s and Norway’s experience suggests that if postBrexit Britain
wants full access to the European single market, it will have to accept the
free movement of people from the EU. Leaving the EU would not stop
refugees from crowding into Calais, but they would be harder to manage,
because cooperating with France would become more problematic.
Liberal Eurosceptics favour more immigration and a more global Britain.
But that is a pipedream.
The Britain's exit of European Union (EU) could not only slow down the
world’s economy, according to analysts, but also have farreaching
consequences for politics, economy, defense, migration and diplomacy
IMPACT ON UK:
•Regulatory divergence grows over time increasing the cost of trade,
impacting on volumes and the UK place in supply chains
•The UK is less attractive as a gateway to Europe, as a base for
corporate HQs and as a location for investment from Europe
•The UK loses influence over EU regulation without gaining much
freedom to regulate independently
•The UK gains flexibility over industrial policy, but loses the benefits
from scale and influence in some areas
•Immigration is tightened,
IMPACT ON EUROPEAN UNION:
•EU trade matters more for the UK than UK trade for the EU, but some
states with big bilateral surpluses feel a macro chill from Brexit
•Businesses find it costly to relocate investment from the UK and there
is a risk the UK attempts to undercut the EU on standards to attract
•The balance in the European Council shifts away from liberalization
and it becomes harder to form a blocking minority against illiberal
•There could be a weakening of competition policy, looser collaboration
in education and research and impacts on public procurement
•The EU is a less attractive trade partner without the UK in the deal
and loses a member state that puts its political weight behind
Impact on India:
As far as India is concerned, in the near term it will heighten global
volatility thereby impacting capital flows and in medium term we will
most likely be impacted through currency exchange. India has a
substantial trading corridor with EU. Any material depreciation of the
Euro/Pound could lead to increased headaches for India in a sluggish
export environment. Indian businesses have a material presence in both
the UK & Europe. There are over 800 Indian companies in the UK, the top
1015 of which contribute $4 billion to the British economy. Indian
companies see the UK as the springboard to Europe. The language and
legal system give Indians a comfort level. Many Indian information
technology companies based in the UK with large work forces and offer
services to Europe will be hit too.
Impact on Global Financial Market
Global Financial Market remains volatile & range bound on the eve of the
Referrendum. Exit of Britain from European Union may create a negative
impact on the Stock market Globally. The degree of impact may be severe
& long lasting. On the other hand, Decision to stay within Europe may be
neutral to positive. It might not have long lasting impact as well.
From Indian aspect, Indian Economic data is showing impressive
improvement. Any neutral to positive cue from the International Market
may be a trigger for Indian Market to perform Upside.