Brexit – Is it a big deal?

BREXIT – short for Britain Exiting the EU – has captured attention, for political and economic reasons. While the long-term effects of Britain staying or leaving the EU are debatable, the immediate attention has been Britons’ divided opinion casting a negative pall over the concept of EU itself. Britons, for the “exit from EU” camp, are asserting centuries-old style of British independence from the continent. They cite reasons of bureaucracy and central command that could stifle British flexibility. The anti-exit or “stay” camp on the other hand, point to loss of trade with the continent and possible economic isolation (and one that President Obama also warned against during his trip to the UK).

 

Again, while it is difficult to read the tea leaves to figure out long-term repercussions given the dynamic nature of global trade, the immediate bombshell has been the very questioning of EU as a safe mothership for member nations. Britain is still the fifth largest economy in the world and the EU would value its loss from its economic fold. But more importantly, this would open the door for similar-minded nations valuing their independence to think about a possible withdrawal. The snowballing of such an effect could spell disaster to the concept of a EU that still is not a nation with a united fiscal policy and government. Many weaker European nations are chafing at possible Greece-like reforms forced down to them from Brussels and Germany to solve bank problems and tax receipts. They may now take a cue from Britain and exit and devalue their currencies to solve their economic woes.

 

Thursday is the vote. And there will be immediate winners and losers. Exporters from Britain might benefit handsomely if Brexit happens and the pound is devalued. London, the financial center, could reel in benefits from increased volumes if Brexit does not happen. Right now, the odds seem slightly higher that Britain will continue to stay in the EU. But there is more riding on the Brexit rather than just the quaint notion of Britons asserting their literal and figurative independence from the mainland. This is more about a large economy that is still familiar worldwide firing across the bow of EU and heralding a larger dissent in the wings.

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