Following in the footsteps of Grexit, Brexit (Britain leaving the European Union) looms large over the markets today. You must have heard this term often in recent days – almost every financial expert (market expert) has expressed his or her views on this topic. If you have been feeling all at sea during the discussions on the Brexit, you have come to the right place. In this blog post, we will quickly and simply let you know everything about Brexit and its significance.
What is the European Union? How is It Different from the Eurozone?
Let us first get a very precise idea of what the European Union is. Many of us only have vague ideas of this entity – in fact, many of us often use the terms Eurozone and European Union interchangeably. So, let us start with this important detail.
The European Union (EU) formally came into existence on the 1st of November, 1993 (this was the date on which the Treaty on European Union – also referred to as the Maastricht Treaty sometimes – came into effect). Today, the European Union comprises 28 nations (namely, Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and United Kingdom). Do note that several European countries had come together and had formed various common institutions during the period after the end of World War II and leading up to 1993. Many of these groups and institutions are seen as precursors to the European Union (in fact, some of these institutions were merged or absorbed within the European Union once the EU came into existence).
The European Union seeks to have a common set of wide-ranging laws and policies among its member states. One of the core aims of these policies is to effectively create a single economy (common market) comprising all of the member states. Thus, many EU policies promote free trade, free movement of goods, services, and capital, and even free movement of people within the Union. As per 2015 estimates, the EU’s GDP is expected to be approximately $16.2 trillion, making it the second largest economic entity in the world (just trailing the US, which in 2015 was believed to have a GDP of $17.9 trillion). The total population of EU member countries is estimated at around 508 million (a little more than 7% of the world’s population).
The term Eurozone refers to a select group of 19 countries out of the 28 EU member states. These 19 states have abolished their national currency and have adopted the Euro as their common currency. These 19 nations are Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. Euro coins and banknotes have been in circulation in physical form since 2002. The 19 nations that comprise the Eurozone have a population of nearly 338 million people and a GDP of nearly $13 trillion.
The United Kingdom (UK) is a part of the European Union but not a part of the Eurozone. UK continues to use its own currency, the British Pound. Do note that the UK has a population of close to 65 million people and a GDP of nearly $2.8 trillion. On 23rd June, 2016, eligible voters in the UK would vote in a referendum on whether the UK should continue to be a part of the EU or should leave the EU.
Why do some groups want the UK to leave the EU?
Activists and experts who support the idea of the UK continuing to be a part of the EU claim that EU membership has endowed UK with many advantages and benefits. For example, these people often claim that the UK owes a large part of its GDP growth during the last few decades to easy access to the European market and to large capital inflows. Similarly, it is often claimed that the arrival of young migrants from other parts of Europe has revitalized UK’s workforce and made it more competitive. It is also claimed that membership of the EU reduces UK’s geo-political security challenges and gives it a stronger hand in international affairs.
Despite this, many citizens of UK want their country to exit the EU. Those who oppose UK remaining with the EU allege that membership of the EU comes at a heavy economic cost to the UK. Some of them allege that UK’s businesses lose heavily due to the easy access to UK’s markets that other EU countries get. Similarly, many people allege that arrival of migrants from other EU countries has meant fewer jobs for UK citizens and increased rates of violent crime. Similarly, many of these people also allege that EU’s common laws and policies mean reduced sovereignty for the UK. They al