Brexit does not disturb peace for all others right now, but...!

A strong tempest hit the world politically and economically two weeks ago. The UK voted, albeit by a wafer-thin margin, to leave the European Union. While Brexit is a mere locus on time-scale, it has two main implications.

First of all, it marks the beginning of a new history. To appreciate it, we need to remember that the creation and development of EU via the EEC [1] (and collateral arrangements like the EEA [2]) was a result of a major historic event, namely, the Second World War. A much devastated post-war world realized that it had inadvertently climbed down a chain of mesmeric and detrimental events – ‘a crisis-precipitating event-chain’: the Great Depression of 1930, leading to Trade-Wars among economies aiming to protect domestic markets, which in turn heightened nationalistic/ protectionist sentiments, which fueled the otherwise ‘present-but-perhaps-dormant’ social divides leading to large-scale migrations, which in-turn hit the economies doubly! Brexit, or other probable break-downs, is therefore a historical event in itself. EU has been around for 70-odd years. A new ‘UK-less’ arrangement may also last a lifetime. The new history of the UK and Europe has certainly begun.

Second, today’s world is witnessing a chain of events, uncannily similar to late 1930s. The event-chain can be said to have begun around 2007-08, of which, Brexit becomes a much smaller and passing, but a crucial and noticeable link. The sub-prime crisis which set in motion the Great Recession of 2008-09, has been followed up (or roughly overlapped) with a series of globe-changing events: The Arab Spring, The southern-European economic duress manifested in Greek-crisis, massive trans-continental human migrations, significantly discernible nationalistic or protective reflexes – leading to Brexit, somewhere along the way, and, to be followed up with as yet unknown events. In this overall context, Brexit may not be a stand-out event. It might be merely a vital link, but, importantly, it could help develop the chain further. The world must watch this unfolding series carefully and map it against the earlier set of events of 1930-40s.

The key difference so far, however, is that the world has generally refused to be closeted in ultra-nationalistic thought-compartments, and hence there is no sign of a trade-war taking place. If anything, the opposite has been the case so far. But is that a guaranteed element, just because today’s is a tech-savvy world? We must believe so, but should definitely remain watchful.

There may be signs of protectionist-sentiment beginning to take shape. Brexit might have just thrown the veil off in one part of the world. We must continue to avoid a dreaded trade-war, Brexit ‘link-in-the-chain’ or not.

For economies, industries, markets, asset-classes, bullion, real estate, etc., particularly in less-connected parts like India, Brexit doesn’t change much apart from presenting viable opportunities of investments, or new opportunities of exporting/importing services. A major part of the UK-trade is with the EU. Economies like India could very well position themselves as alternative options. At the same time, the

EU, which gets vast amount of services from the UK, could present itself as a viable market for Indian firms –even for less noticeable exports like architectural design services.

The markets will remain highly sensitized, warned, and watchful – but be conscious of the risks of getting closeted inside their own walls. India, the fastest growing large economy in the world, recently gave positive signals by opening its FDI sector. More anti-trade-war buffers of this nature must keep bridging the world to thwart any schism that may eventually harm all sectors of the economy.

[1] European Economic Community was created by Treaty of Rome in 1957. It was meant to enhance economic cooperation among its members. It was later absorbed in EU. Source: Wikipedia

[2] European Economic Area: The area in which the Agreement on the EEA provides for the free movement of persons, goods, services and capital within the internal market of the European Union. Source: Wikipedia

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