The date 29th March 2019; Friday, 11 pm, is when the UK is scheduled to exit from the European Union. Instantaneously, the world coined the term “Brexit.” The word implies UK’s exit from the European Union, ‘Br’ from Britain and ‘exit’ merged to give birth to this new word. June 23rd, 2016 saw a referendum in the UK to decide the country’s stand on the European Union regarding the state continuing to be a part of it or exiting the Union. Nearly 71.8% of the citizens of the voting age participated with 51.9% in favor of leaving the European Union. Why did UK choose to exit?
The main reason is plain and simple – economics. The feeling grew stronger and stronger that the Union failed to address the economic problems since 2008. The increasing unemployment led to the emergence of a high opinion that it has become a dysfunctional organization and UK’s presence has little or no use.
The second primary reason was the immigration crisis and eventually the strong sentiment of nationalism making inroads in the minds of the British citizens. It affected the internal social and economic scenario of the country.
The bottom line was that a consensus emerged that EU has taken total control away from the individual nations and Brexit is the only way out for UK. The Global Consequences
The first and the immediate impact were the financial markets. However, the financial swing is instantaneous whereas the economic budge is gradual and rational too. In the long run, no significant economic shifts will happen. Brexit is not going to make a dent in the corporate profits.
Having said that, the bonds and the currency markets seem to be affected. The British currency getting weaker against the US Dollar and the Japanese Yen implies negativity to the exports sector of both the economies. The US manufacturing sector is just reviving, and the US Dollar versus the Euro equation will possibly hurt this industry.
This divorce is also likely to drive out capital to the US and other safe-haven economic regions. It is supposed to further bring down the interest rates. Chinese Yuan also faces issues with the US Dollar getting strong. The European Union and the US happen to be the two most significant export markets for China. A weaker European economy is likely to hurt China in more ways than one.
The European Central Bank needs to play a proactive role here. Repeated interventions by the bank will be critical to maintaining economic stability in the region. It has a significant task in hand to manage the far-flung macroeconomic consequences for the EU and the world.
More importantly, Brexit has increased political uncertainty at the world level. Stiffer global financing conditions are bound to witness a hike due to increasing conservative leaning and slower economic growth eventually leading to weak emerging markets as well as developing economies.
This economic disruption is likely to hurt the global economy for quite some time.