Brexit: EU, Britain face hazy future

Britain’s exit from the European Union has come as a shock to the global financial markets and world leaders, including Prime Minister David Cameron, who was caught off-guard by a strong frustration of his people against the EU hegemony. The Brexit risks range from yet another recession for the world economy similar to 2008, to the rise of economic nationalism that could shape the emerging global order. The pounding of Pound Sterling and meltdown in the stock markets are reflections of a great panic among the global investors who dread to walk on an unchartered path for a turbulent journey. The fears of ‘Me too’ among other EU members and break up of Scotland from the United Kingdom add to the pain of the markets which see greater political challenge in Brexit than the Lehman Brothers–triggered financial crisis of 2008.

India too would feel the pinch from the contagion in terms of outflows, but as RBI Governor Raghuram Rajan has said, the money would go somewhere and if India plays its cards well, it could well turn the biggest financial event in the recent times into an opportunity. That could happen only if additional pace is generated in domestic reforms like passage of the Goods and Services Bill and cleaning up of the banks’ books. Thankfully, India’s macro indicators like current account deficit, foreign exchange reserves and the monsoon-led economic recovery should stand the country in good stead to face the headwinds. While it is too early to take a long-term call, one possible fall-out could be rev-ersal of the crude oil prices, adding to India’s macro strength. However, over 800 Indian companies which have invested heavily in UK will have to re-draw their business plans over the next couple of years.Politically, it is clear that Britain and the EU are staring at an uncertain future. The vote to exit EU not only changes Britain’s relationship with the EU but also deals stunning blows to the cohesion of the EU and of Britain. Britain’s exit will weaken the EU. It could have a domino effect, encouraging euro-sceptic and nationalist parties in other EU countries to push for similar referendums. These could culminate in more countries loosening or breaking bonds with Brussels, threatening the very existence of the EU. Britain too must brace itself for enormous changes. Heads can be expected to roll, in addition to Cameron’s, who had campaigned for remaining in the EU. A split in the Conservative Party too cannot be ruled out. More importantly, Britain’s unity is at risk as the result could boost demands for Scottish independence. Also at peril is an inclusive Britain. As part of the EU, it was relatively open to immigrants. That will now change. Britain’s future as a multi-racial and diverse society seems bleak.