Spark Plug: The Biggest Exit - Brexit (British withdrawal from the EU)

By Neeraj Mishra|Updated : June 28th, 2016

Dear Aspirants.

In continuation with our ‘Spark Plug’ series, today we are presenting an article on "BREXIT". Must read this article to know the global impact on economy, trade & political view and most importantly What will be the Impact on India?

This article will help in your preparation for descriptive test for upcoming exams like SBI PO 2016 Exam. 

The Biggest Exit - Brexit (British withdrawal from the EU)

When Britain voted on 23 June 2016 to leave the European Union (Brexit), it sent shock waves around the world. While opinion polls were showing close vote, in the end the vote was 52-48 in favour of an exit- a clear verdict. The vote immediately sent the British Pound and global shock markets crashing, and this weakness could continue for months since the exit could continue for months since the exit could take upto two years to negotiate, markets hate uncertainty, and Brexit ensures an extended period of uncertainty.

Why did this happen? Why are the British so keen to get out of the EU, the world largest and most sophisticated trading bloc? Let understand this in this article -

History of Britain with European Country

1. In 1957- The treaty of Rome was signed by 6 European States

2. In 1967- European Community was established.

3. In 1973- Britain joined the European Community. Tory Prime Minister Edward Heath took Britain in.

4. In 1975- Labour Prime Minister Harold Wilson had a referendum on Britain’s membership – the last national referendum this country has had. 66% voted yes – to stay in the European Community.

5. In 1987- The Single European Act was signed. This was to create an internal market; “an area without frontiers in which the free movement of goods and persons, services and capital is ensured.”

6. In 1991- The Maastrict Treaty was signed. The heart of this was to create a single European currency so that Europe as an entity had a currency to challenge the international supremacy of the dollar. Britain, lead by Tory Prime Minister John Major, pushed for and got an “opt out” clause for Britain. This meant that we were part of the European Community and wanted to be a part of it, but not to participate in a single currency, therefore, maintaining the pound should we decide to do so.

7. In 1993- The European Union was formed.

8. In 2002- The Euro was introduced on January 1st. Britain has it Five Tests – if these are answered successfully, then Britain will join the Euro. British public opinion does not appear to support the Euro as the first month of its life draws to an end.

What is European Union?

The European Union - often known as the EU - is an economic and political partnership involving 28 European countries.


Key points

(i) It began after World War Two to foster economic co-operation, with the idea that countries which trade together are more likely to avoid going to war with each other.

(ii) It has since grown to become a "single market" allowing goods and people to move around, basically as if the member states were one country.

(iii) It has its own currency, the Euro, which is used by 19 of the member countries, its own parliament and it now sets rules in a wide range of areas - including on the environment, transport, consumer rights and even things such as mobile phone charges.

The European Union has 28 member countries:

2013- Crotia

2007- Bulgaria, Romania.

2004- Cyprus, Czech Republic, Estonia, Hungary, Lithuania, Latvia, Malta, Poland, Slovenia, Slovakia.

1995- Austria, Finland, Sweden

1986- Spain, Portugal,

1981- Greece

1973- Denmark, Ireland, United Kingdom,

1958-Belgium, Germany, France, Italy, Luxembourg, Netherlands.

Countries which are about to join EU Membership- Albania, Serbia, Montenegro, The former Yogoslav Republic of Macedonia, Turkey.

Becoming a member of the EU is a complex procedure which does not happen overnight. Once an applicant country meets the conditions for membership, it must implement EU rules and regulations in all areas.

What does Brexit mean?

It is a word that has become used as a shorthand way of saying the UK leaving the EU - merging the words Britain and exit to get Brexit, in a same way as a Greek exit from the EU was dubbed Grexit in the past.


UK comprises of 4 counties- England, Scotland, Wales and Ireland.

What Happens Now-

David Cameron has announced there will be a staged exit from Number 10 and a new Prime Minister will be elected by October 2016. For the UK to leave the EU it has to invoke an agreement called Article 50 of the Lisbon Treaty.


Cameron or his successor needs to decide when to invoke this - that will then set in motion the formal legal process of withdrawing from the EU, and give the UK two years to negotiate its withdrawal. The article has only been in force since late 2009 and it hasn't been tested yet, so no-one really knows how the Brexit process will work or not.

EU law still stands in the UK until it ceases being a member - and that process could take some time. The UK will continue to abide (obey) by EU treaties and laws, but not take part in any decision-making, as it negotiates a withdrawal agreement and the terms of its relationship with the now 27 nation bloc.

Why UK wants to leave?

Britain was being held back by the EU, which they said imposed too many rules on business and charged billions of pounds a year in membership fees for little in return. They also wanted Britain to take back full control of its borders and reduce the number of people coming here to live and/or work.

One of the main principles of EU membership is "free movement", which means you don't need to get a visa to go and live in another EU country. The Leave campaign also objected to the idea of "ever closer union" and what they see as moves towards the creation of a "United States of Europe".

What Britain Wants?

David Cameron said he did not want to reveal full details of his negotiating hand before serious discussions get under way. In November, he set down his objectives on paper for the first time in a letter to Donald Tusk (Donald Franciszek Tusk is a Polish politician and historian. He has been President of the European Council since 1 December 2014.), the president of the European Council.

Key Objectives are as follows :-

(i) Economic governance:Securing an explicit recognition that the euro is not the only currency of the European Union, to ensure countries outside the eurozone are not materially disadvantaged. The UK wants safeguards that steps to further financial union cannot be imposed on non-eurozone members and the UK will not have to contribute to eurozone bailouts (an act of giving financial assistance to a failing business or economy to save it from collapse).

(ii) Competitiveness:Setting a target for the reduction of the "burden" of excessive regulation and extending the single market.

(iii) ImmigrationRestricting access to in-work and out-of-work benefits to EU migrants. Specifically, ministers want to stop those coming to the UK from claiming certain benefits until they have been resident for four years. People want free trade, but are wary about the free movement of people.

Under EU rules Britain has to accept unlimited immigration from any other member country. In recent years, Britain has received a huge inflow of immigrants, especially Poland. Overall, in 2015, Britain saw a net inward immigration of 3,30,000 people in a total population of 65 million. They entered legally and illegally in UK.

Immigration usually help improve growth as they take up jobs that locals don’t want. In fact, despite high immigration, Britain has among the lowest unemployment rates in Europe at 5%.

Clearly, the pushback against immigration is not related to the loss of jobs or negative economic impact, but the xenophobia (dislike of or prejudice against people from other countries) that all communities have about people from another culture or ethnicity or religion.

(iv) Sovereignty:Allowing Britain to opt out from the EU's founding ambition to forge an "ever closer union" of the peoples of Europe so it will not be drawn into further political integration. Giving greater powers to national parliaments to block EU legislation.

What Measures David Cameron Set out ??

To reduce the number of EU nationals moving to the UK—

His main proposals were:

(i) Four year delay for EU migrants wishing to claim in-work benefits, such as tax credits, or seeking access to social housing.

(ii) Stopping migrants claiming child benefit for dependents living outside the UK.

(iii) Removing migrants from the UK after six months if they have not found work.

(iv) Restricting the right of migrants to bring non-EU family members into the UK.

(v) Stopping EU jobseekers claiming Universal Credit.

(vi) Speeding up deportation(the action of deporting a foreigner from a country) of convicted criminals.

(vii) Longer re-entry bans for beggars and fraudsters removed from the UK.

(viii) Stopping citizens from new EU entrants working in the UK until their economies have "converged more closely".

(ix) Extra money for communities with high levels of migrants.

Whats European Union Reaction after Votings—

Britain will be first country to leave EU. In the long-run, "Brexit" may lead to other countries holding referendums (a general vote by the electorate on a single political question which has been referred to them for a direct decision), a far looser union, and possibly even the disintegration of a grouping set up 60 years ago to bring security and prosperity after World War II.

EU President Donald Tusk warned in the run-up to the vote that Brexit could lead to the "destruction of not only the EU but also of Western political civilisation."The loss of one of its biggest members will at the very least force major changes on an embattled bloc already struggling to deal with growing populism, a migration crisis and economic woes.

In the immediate aftermath of the British vote, seven years of potentially bitter divorce negotiations between Brussels and London loom. The remaining EU countries will likely be keen to move ahead. France and Germany, the main EU heavyweights, have already been working on a joint plan for the future.

Being a UK family member, Scotland voted 62% against Brexit and trying to protect EU membership and will prepare for a possible fresh independence vote after Britain voted to exit the bloc, First Minister Nicola Sturgeon. She added “We are determined to act decisively in a way that builds unity across Scotland,”  adding that might include a vote on Scottish secession from the U.K. Scots rejected independence in a 2014 referendum by 55-45 per cent.



What will be the Impact on India?

1. There will be no immediate effect. It will take time for the UK to officially break all the ties with the EU. EU rules were stopping Britain from striking a deal with India, but now the UK would be free to negotiate its own far reaching trade deals with India. It will be a boost to India-Uk ties.

2. UK Visa Aspirants- Presently, the impact on Immigration will be a case of assumptions, it is believed that India may benefit from it, as labour does come at a lower cost unlike that from the EU. So far, work related visa restrictions have already resulted in a fall in the number of Indian students studying in British Universities from 22,385 in 2012-13 to 18,320 in 2014-15, according to the UK council for international student affairs (UKCISA). Given their tough stance on cutting immigration, a Brexit government could be expected to make such curbs more stringent.

3. What about 800 India Company in Britain- Indian Companies are growing by 10% in Britain. Most of these companies invested in UK, particularly to have a access in the European market, but now they have to deal EU and UK, separately. Brexit will have a bearing on future Indian Investment in UK.

UK & India

4. Impact on IT industries- In short term negative, but in long term it will neutral. “Competition for India will be slightly less. It will be positive. Overall it will be neutral over the next four years”. The impact of Brexit will certainly be negative in the short-term on account of volatility in the exchange rate, uncertainty in the markets and the terms on which Britian will leave the EU.

5. Impact on Indian Economy and Markets- Initially, Indian stock and currency market show some turbulence, which may prevail for some days. According to President Arun Jaitley impact on financial markets should not last beyond a few days and vowed to steadfastly pursue growth-oriented reform agenda including, early passage of GST Bill, while RBI Governor Raghuram Rajan promised to provide liquidity and correct any disorderly market behavior.

6. Impact on India’s Trade with EU and UK- Trade is expected to go down after Brexit, as the EU is among the largest trade partner of India, embracing 13% of its trade, which surpasses China(9.6%) and US(8.5%). Even if trade with Britain increases, there is no certainty that a UK outside of Europe would drive bilateral trade. But, at this point, such an argument is mere speculation. A re-negotiation of the EU-UK agreement following Brexit would mean further uncertainty for India since a conflict of interest could arise.

7. Impact on Gold Price in India- Gold prices in India could cross Rs. 32,500 per 10 gms following britain’s exit from EU. Gold rose for the second day on 27th June 2016 by Rs.140 per 10 gms at the bullion market in tandem with firming global trend amid increased buying by traders and stockists. On the global front, gold rose sticking close to a more than two year peak reached in the previous session, as uncertainty over britain’s vote to leave the EU forced investors to sell equities and seek safer assets.

According to report of Foretell Business Solution, a leading commodities and bullion consultancy firm “ Gold price in India is already high, thanks to its weak currency, which Brexit might further weaken. This, combined with the surge(a sudden powerful forward or upward movement, in the price of gold globally could push gold price in India to Rs.32,500 per 10 gms or even higher soon.”

Surging prices could dampen( make less strong or intense) the demand in India as the country is not an investment market like the West, where people buy today and sell tomorrow to book profit. The expected good monsoon may not support the demand in volume terms, but of course in value terms business might go higher.

When will the referendum be held?

The official UK government position is that a referendum will be held by the end of 2017 but Downing Street sources have said: "If we can do it earlier we will." it is widely expected to be held in June or July if a deal is reached at the EU summit in February.

Britain's place in the world after referendrum

For Outers, leaving the EU will allow Britain to re-establish itself as a truly independent nation with connections to the rest of the world.

To Inners, Brexit would result in the country giving up its influence in Europe, turning back the clock and retreating from the global power networks of the 21st century.

On 26th June 2016, An online petition for a second refrendrum on Britain’s decision to leave EU passed 3 million signatures, signaling a backlash against the Brexit vote. It came as voters who backed the ‘Leave’ campaign tweeted to register their regret- adopting the “Regrexit”.

Brexit 3

Brexit would bring some clear-cut advantages. The UK "would regain control over fishing rights around its coast", for example. But it concludes that the most likely outcome is that Britain would find itself "a scratchy outsider with somewhat limited access to the single market, almost no influence and few friends".

Britain would remain a member of Nato and the UN, but it may be regarded as a less useful partner by its key ally, the US.


Team GradeUp


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Siya Singh

Siya SinghJul 1, 2016

Neeraj sir,
Please tag me in your post .
Nandyala Surendra Yadav
Can u pls tell me which textbook is prefered for English essay and letter writing regarding to SBI PO
Babul Ahmed
Sir, pls give a details not of football.
Vikas Mittal
Sir can we have pdf format for this topic.  It is a very Interesting topic and a very important one also for RBI grade B exam.

RakeshJul 4, 2016

Please send me ssccgl syllabus
Preeti Gupta
@Neeraj Mishra  Sir can you please tell me how to solve division of large number for DI paper....
Sujay Rajeev

Sujay RajeevJul 15, 2016

@Greeshma  brexit note undakku..imp aanenu thonanu

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PO, Clerk, SO, Insurance

BankingIBPS POIBPS ClerkSBI POIBPS SOSBI ClerkRBIRRBLICESICNainital BankOtherQuick LinkMock Test
tags :PO, Clerk, SO, InsuranceGeneral AwarenessSBI PO OverviewSBI PO NotificationSBI PO Application FormSBI PO Exam DateSBI PO Vacancy

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