Tuesday, January 18, 2022

Brexit imbroglio: countdown to uncertainty?

The much anticipated ‘Brexit’, i.e. Britain’s exit from the European Union, has been thrown into chaos and uncertainty. British parliamentarians have not only rejected Prime Minister Theresa May’s existing “exit deal” with the EU but also turned down the option of going out without any deal with the Union. This follows their disapproval of holding a second referendum for drawing Britain’s future. They have also called for appointing a new Prime Minister to lead the country in the Brexit negotiations. Meanwhile, the EU, given its historical opposition to any break in its unity, has expressed strong reservations about renegotiating the exit deal that it had reluctantly signed with Ms. May’s government in November 2018.

While the contours of an acceptable Britain-EU option would involve an orderly withdrawal; the major stumbling block is the issue of keeping Irish borders between Northern Island which falls under UK’s jurisdiction, and Republic of Ireland which is an EU member, open. The British government has expressed its intention to continue with an open border by negotiating a trade deal with the EU during Brexit’s transition period till 2020. However, failure to do so will result in the formation of a single customs area between EU and Britain, which can potentially trap UK in EU’s embrace. This is against the rationale of Brexit, and therefore is unacceptable to the hardline British lawmakers of the ruling Conservative Party.

With just about ten days to go before UK’s scheduled departure on March 29, the ongoing impasse highlights the unravelling of one of the momentous groupings of post-Second World War western world.

Given the existing situation, an embattled British government faces two likely options – it can either renegotiate the exit deal with the EU before the deadline day or seek an extension of discussions for an orderly withdrawal.

The Brexit turmoil is a reflection of a world in disequilibrium, marked by rising tides of populist nationalism and protectionism. The roots of this unpredictable phase, though, can be found in the ongoing global economic slowdown, and the failure of multilateral institutions, including the EU, to rise to the challenge. Britain’s traditional Euro scepticism coupled with its historic “exceptionalism” had led to the June 2016 Brexit referendum.

The implications of Britain’s exit, particularly in the absence of a deal with the EU, are immense. It strikes at the very core of the distinctly Western outlook of conceiving borders as bridges and not barriers that went onto redefine Europe’s economic, political and strategic landscape. These principles now run the risk of severe disruption with both EU and Britain losing an anchor in their strategy. The most profound effect is likely to be in the economic arena with Britain emerging far worse off than the EU. Economists have projected UK taking almost a decade to overcome the loss of EU’s economic anchor. The spill-over of EU-UK reciprocal tariff and non-tariff barriers and restrictions on mobility of labour, and depreciation of the pound sterling on market sentiments can lead to global repercussions; with emerging markets running the highest risk.

A disorderly exit could also reshape the continent’s security architecture. As a leading security contributor, Britain is a leader in EU’s strategic deterrence and power projection capabilities. Effective coordination is a hallmark of their ties. Against the backdrop of growing fissures in the trans-Atlantic partnership, a non-negotiated exit can further deplete the European ability to tackle both traditional and non-traditional security threats.

For India, Brexit is both an opportunity and a challenge. India can leverage the prevailing uncertainty to quantitatively and qualitatively expand its economic ties with both UK and EU. But, Brexit could affect India’s external economic environment. It can also impinge the business interests of 800 Indian companies in UK who have used Britain as a base to enter the European market.    

As Brexit heads into unchartered territory, the stakes remain high. Perhaps it might spur a more constructive economic environment.

Script: Rajorshi Roy, Research Analyst IDSA

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