Brexit and Rexit, some afterthoughts | Daily News

Brexit and Rexit, some afterthoughts


Brexit convulsed the world and caused economic and political chaos in Britain to a great extent besides anxiety and confusion in other parts of the western world.

This was primarily because a long established economic order and pattern was suddenly dismantled.

How long the exit of Britain from the European Union and the consequent damage will take to heal is difficult to predict but it will certainly be years. In the intervening period smaller countries like Sri Lanka which have long had trade relations with Britain need to readjust themselves to counter the emerging realities of Brexit.

In the meantime uncertainty reigns.Formal departure of Britain from the ‘Club of Europe’ is some way off or nearly two years away. According to mainstream British press, the formal exit is complicated.

On the other hand prolonged uncertainty is not good for stability and the much required positive political and economic climate so important for trade.

Before the referendum's result was made known, a sizeable segment of Britishers, fervently hoped that the ‘Remain’ crowd will win.

Prime Minister David Cameron, was one such individual though he had for long been a eurosceptic who doubted his nation had gained much from being within the Union. But he seemed confident that Britishers will opt to remain. Hence his gamble with a referendum.

Anyway lets look at one vital area of significance and benefit to Britain that accrued Britain's membership of the EU.

The EU buys nearly one-half of all exports from Britain and there are considerable misgivings following the impending departure.There is this depressing view that unless the British are vigilant and have loads of luck, they are destined to become poorer gradually. They perhaps would also be more isolated and the overall picture facing the country is predicted to be dismal.

All this would make Britain, a nation of proud Anglo-Saxons, unhappy.

What really happened when the referendum revealed, the 52% to 48% result? True enough, avid pro-Brexiters would have jumped for joy but there is also now a creeping fear of an impending down fall, among many others.

It appears that nationalism in its strangest form is at the centre of this twisted drama.

Brexit and its result is a good lesson for the ultra-nationalist elements in this country who frequently get immersed in xenophobic fear that our large neighbor is about to launch an invasion of this country. Some of these people should know that way back in 1998 when FTA with India was sealed there was a big hue and cry that it would spell the doom of Sri Lanka's own trade and industry. But nothing of the sort ever happened over 17 years.

However the trade gap between the two countries which has existed even before the FTA, did widen. This happens in the case of such treaties between an economically large nation and a smaller one where the commonly used word asymmetries between the two exist, and is a predominant reality. But why look at one side of the coin. Indian investments increased significantly and markets for Sri Lanka's goods did open-up despite the NTB's. But to get back to Brexit, let us examine the more harsher results already being felt in Britain.

a) The financial markets have experienced violent swings which spell ill-health to the totality of the British economy.

b) The British pound hit a new low against the dollar. Indeed it has never been so low over a 30 year period.

c) Credit rating agencies have downgraded Britain.

The ‘Time’ magazine in an article titled Europe's crisis of faith, laments the departure of Britain from the E.U. In a lengthy essay, it refers to the ‘inchoate resentments’ of British voters. Perhaps as ‘Time’ observes some Brexiters, felt that the European project has failed and the 17 million ballots that made Britain exit was a reflection of the lingering anger that finally erupted with a loud ‘out’ signifying the country's exit from the E.U.

What are the long term effects of Britain's departure (apart from the short term ones currently felt as described earlier). To begin with the departure will certainly not make matters easy for her trade with the rest of Europe. She will need to access the European common market through the free movement of goods and to do so will be conditional.

Currently all exports to the EU from Britain are Tariff free and do not have to conform to normal customs procedures.

On the other hand Europeans have been able to move freely across British borders. This stands out as sore thumb to most Britishers. Certainly it is not without some justification. Two poor European countries, Poland and Slovakia, joined the E.U in 2006. The poor and the desperate always seek fresh pastures like for example the rural folk in this country who eke out a meagre existence, through purely subsistence agriculture, seek to enter big cities and towns whose roads which they supposedly perceive, are paved with gold. From another angle look at the numerous rural women in Sri Lanka who seek employment in the Middle East as domestics to hopefully overcome grim poverty.

In a similar manner the Polish and the Slovakians besides taking advantage of the free movement of Labour within the E.U moved into Britain and the result, some 8 million people entered Britain, which matches the entire population of London. During the current fiscal year alone some 250,000 people crossed over to Britain.

Obviously this has undoubtedly eroded the availability of jobs to nationals of Britain and led to an unacceptable demographic shift. Social tolerance of this inflow had reached the limits and the resentment to immigrants on the rise.

Into this scenario of mixed thoughts entered a gruesome episode just a few days before the referendum. This was the murder of Parliamentarian Ms. Jo Fox, a centre-left figure whose career is somewhat redolent of the much hyped tale, ‘from log cabin to the White House'. A poor woman with absolutely no family back ground worth talking of, she however completed her higher education within the arcane confines of Cambridge University usually the preserve of British aristocracy and the elitists from around the world. She then entered the British Parliament.

Mrs. Fox whom the Time magazine describes as a charismatic advocate for Britain to continue remaining in the EU was murdered by a loathsome fanatic, who happened to be a fellow constituent from the electorate she was elected to the Parliament. Thomas Mair her murderer had told the court where he was charged - ‘My name is death to traitors of Britain'.

Apart from mourning her death, the anti-Brexit lobby was hopeful that it would swing the vote in their favour but it was not to be.

What does the European Parliament based in Brussels feel about the British exit from their grand alliance which saw the light of the day in 1957?

Claude Juncker President of the EU's Executive body, the EU Commission, observes that Britain's exit was not ‘an amicable divorce’ but nor was it an intimate ‘Love affair'. In point of fact Britain an unyielding and abrasive member of the pact had extracted more from the EU than the EU from it.

Perhaps some of the aforementioned facts adds creditability to this statement. Britain it is reported, often challenges the rules of EU and extracted a lot of exceptions from such rules. Britain was the only country, to cite an example of such non conformity when it did not switch over to the Euro currency.

Also now across western democracies there is a sizeable segment that seem to dislike globalization. These are also the Eurosceptics. On the other hand Britain's ‘leave voters’ have felt that the EU is anti-democratic and wields too much power over its members.

According to the ‘Economist’ a leading observer of world affairs, across the continent there is a fast dwindling acceptance of EU. Strangely enough the anti-thesis of the multi-nation concept of EU which in the writers view was like the creation of a European super state first saw its birth (of course in its original form) in France in the 1920's. But now it is the very French who are the most eurosceptic.

Recently it was observed that Marine Le Pen, leader of the National Front in France, who also aspires to lead that country one day was jubilant that the first major crack in the structure of the EU has begun with Brexit. She has said that Brexit marks a vital or historic event in the continent and equates it to the fall of the Berlin Wall. So now you have most of it on the departure of Britain from the EU.

But what of the future. Will this historic club of nations disintegrate? If it does, all one could predict is that it will destroy liberalism - the EU was indeed the most dominant experiment with seamlessly free trade. If it collapses the upheaval will have a global impact and Sri Lanka is not going to be left outits resultant devastation.

And what is Rexit

Rexit is now over but lets have a look at it. Rexit is not by any stretch of imagination as important as Brexit with its worldwide tremors that have breached the very edifice of free trade. But this writer wishes to place before readers how critical are developments in our giant neighbor, India to the west.

The Westerners are concerned that the recent departure of one key individual in India's banking sector is likely to affect India, on the way to becoming a liberal economy.Or is it on account of their self-interest or to put it more charitably enlightened self-interest. I am inclined to believe more of the latter - though it could also be a combination of both. India is one of the fastest growing economies among big nations Her G.D.P growth which was a little over 7% last year testifies to this. Besides India, under Prime Minister (Mody who as Chief Minister of Gujarat) ushered a new era together with a vibrant economy to that state and turned it into one of the most prosperous.

He is thus aware of economic realities. Now he is at the helm of all India. Recently India liberalized retailing which led to giant international firms entering the field which was for decades suffered from crippling supply chain problems. There are also the Insurance, Banking and IT sectors in which India is emerging as crucially important to the world of foreign investment particularly to the West.

It is the markets that are the magnets

The reader at this stage has a right to ask what has this to do with Rexit and Brexit.

REXIT is the word coined by the BBC to describe the exit of Raghuram Rajan, the Governer of the Reserve Bank of India.

His departure according to the English Press aroused consternation. Rajan is departing after a single term (3 years) as the Governer of the Reserve Bank of India (RBI). His services according to financial circles of Western nations have been noteworthy and he has handled the economy reasonably well though there had been hiccups too.

His popularity among the professionals in the vast sub-continent has created hordes of admirers cum followers. Some 200,000 tweeters were as keen as mustard to retain the services of Raghuram Rajan. May be, they were right judging by the way the Central Bank head a proponent of free trade had been guiding the destinies of the Indian economy.

But there were a number of detractors too including a section of the ruling BJP. There was simultaneously a growing dislike of Rajan. One detractor(according to a British tabloid, ‘The week’ in the June 2016 issue) who is also a BJP insider, had described that he (Rajan) was not mentally fully Indian.

A former chief economist of the IMF Rajan was on leave from the University of Chicago, where he is a Professor. He has an American work permit which enables him to be employed in the U.S.

Since taking over the top post in the Reserve Bank in 2013, Rajan had been instrumental in cutting down inflation from 10% thus taking it towards the targeted reduction of 5%. This of course had been helped by the steep downward trend of oil prices, Food prices in India too have recorded a reduction since 2013, though more recently there was a jump in such prices.

Among other benefits thought to have benefited India through Rajan's initiative are certain reforms which have been introduced incrementally rather than on a wholesale basis. More significantly Rajan has not resorted to the age old dictatorial practice of the Licence Raj in giving approval to establish banks.

In practical terms this implies that he has not rationed them but afforded licences to open banks on the basis of the two main criteria that their promoters are fit and are proper. But despite this in overall terms banks in India which are overlooked by RBI are not in a desirable shape. State owned banks which comprise 70% of the Indian banking system, have come up against a formidable issue in unsettled loans.

One feature which critics of the West note in the Indian banking system is their witting or deliberate non-conformity to the National Monetary policy which reportedly is unfair by even banks with a healthy state of finances since they do not pass lower rates on to the clients of banks. Rajan has endeavoured to rid such banks of unfair practices. He has, it is further reported, prevailed upon banks to admit bad debts.

Rajan has undoubted international stature like many Indian professionals who hold or have held prime positions in the West.

This has helped India to attract investors since individual stature counts in international circles. But he has taken a crack at politicians who tend to gloat over India's current reputation as the world's fastest growing economy by saying that it is nothing to gloat over. According to the ‘Economist’ when politicians asked him to cut interest rates Rajan pushed them back with the demand that they should first bring about a more balanced budget.

But now that Dr. Vijrit Patel has taken over as RBI Governor the hopes of the Western world that Rajan would continue have vanished. So like Brexit in which some Britishers were hopeful will not happen and now Rexit which both Indians and Western powers were hopeful, will not be a reality, has actually happened.


(The writer is the Secretary General of Business Chamber of Commerce, Chairman and author of several publications on trade and commerce.) 

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