The shock of Britain voting to leave the European Union is wearing off. What happens next, and what are the effects on Malaysia, Britain and Europe?
BREXIT has advantages and disadvantages for Malaysians. For families with children studying in Britain, the fall of the sterling versus the ringgit is good news. Malaysians intending to holiday there will also find it cheaper.
Malaysians owning property in Britain may suffer from a likely fall in housing prices (especially calculated in ringgit terms), at least for a while until the market picks up again. But those intending to buy will benefit from the cheaper pound and the possibly declining prices.
Likewise, Malaysian companies and funds that invested in British property and businesses can expect falling values and reduced earnings in ringgit terms. Investors looking for profit opportunities may find Britain an interesting place to pick up bargains but should bear in mind that this is risky business.
As a country, Malaysia will not experience many adverse direct effects but like other countries may suffer indirect effects.
Although Britain will no longer be part of the EU, the terms of its trade with Malaysia will probably remain the same in terms of the tariffs charged on both sides. If Malaysia signs a free trade agreement with the EU, then Britain would have to sign a separate FTA with Malaysia to enjoy the same terms as the EU.
Britain is a significant trade partner of Malaysia, but not the top 10 countries. So even if there is a British recession, it would not be that significant a hit for us.
However, the indirect effects could be quite serious. Brexit is predicted by many to have a dampening effect on British, European and world economic growth. The chances of global financial turmoil have also increased.
There are signs already of a financial “flight to safety”, which includes capital moving out of emerging markets. Malaysia could be affected.
The impacts of Brexit on Britain itself and Europe are already very serious. Since the referendum, Britain has been going through one big political event after another, including the leadership crisis in the Conservative and Labour parties, and the possibility of Scotland quitting the United Kingdom. Those politicians who won the Brexit referendum don’t seem to have a well thought-out plan on what to do next.
Boris Johnson and other Leave leaders say they want Britain to remain in the EU common market. But the EU summit last week made clear that if Britain wants free access to European trade, services and financial services, it must also subscribe to the fourth freedom – free movement of people.
But the leaders of the Leave camp premised their successful campaign on precisely the opposite – achieving freedom from having to follow the EU rules on immigration.
Unless Britain accepts free movement of people, the EU 27 countries will not grant it free access to goods, services and financial markets, which will especially hit London’s financial centre.
An interesting article from London gives the view that Prime Minister David Cameron’s resignation will pass on a poisoned chalice to his successor. Why should he, who led the Remain campaign, have to be tied up in the mess of negotiating Britain’s exit, which he is against?
The next PM will have to face the probably hostile 27 remaining EU countries, European Commission and European Parliament. He or she will most likely fail to achieve the impossible goal of getting free access to the EU markets while denying the inflow of European migrants according to EU rules.
Perhaps this was one reason Johnson decided not to contest for the Tory leadership. He did not want to receive the poisoned chalice.
Besides trade, finance and migration, there will also be a whole range of other issues that the new Britain will have to grapple with and reinvent, including many laws and regulations.
The negotiations of leaving will, in themselves, be a nightmare. The EU 27 will not give Britain an easy time. The new trade and other arrangements with the EU may take many years to complete. And it will have to negotiate new agreements also with non-EU countries.
The impact of Brexit on Europe will also be serious. The extreme right, with its anti-Europe, nationalistic and anti-immigration sentiments, see Brexit as the fall of the first domino, with other countries following. Some European leaders and analysts fear there will be an eventual break-up of the EU itself.
Perhaps this is part of what the president of the European Council Donald Tusk meant when he predicted on the eve of the British referendum that if the pro-Brexit camp won, it would be the beginning of the destruction of Britain and of European civilisation.
In the wake of the Brexit vote, this prediction may come back to haunt Europe and the world. The uneven effects of globalisation and the worsening of inequalities are also widely seen as further reasons for the referendum outcome.
The exit vote was the ordinary working people’s way of expressing their frustration with having to bear the costs of globalisation while London and the elite, especially the bankers and financial sector, became bloated with the spoils.
The neo-liberal policies initiated by Margaret Thatcher and continued in diluted form by New Labour under Tony Blair, and later by the Conservatives under Cameron, widened the divisions in British society.
It became easy for the anti-EU camp to link the entry of East European migrant workers to the increased competition for jobs, housing and health services and the forces of globalisation. The Brexit vote was an anti-establishment statement.
What happened in Britain has parallels in the rest of Europe and indeed the world.
The extreme opening up of economies leads to unequal outcomes among countries and within societies, for different strata of society.
It is not only the xenophobic far right but also new left wing parties that have been bolstered by the unpopular austerity policies that are part and parcel of the neo-liberal policies.
The economic and political ramifications of Brexit have so far been a lot more unpredictable and wide-ranging than anyone expected, and this is only the beginning. How this will evolve and where it will eventually end up no one can properly foretell.
What we do know is that Brexit was let loose by, and will itself let loose, some large and fundamental forces which are now difficult to control.
Martin Khor (email@example.com) is executive director of the South Centre. The views expressed here are entirely his own.