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MODI ATTENDS COMMONWEALTH MEET IN LONDON

MODI ATTENDS COMMONWEALTH MEET IN LONDON

The recently concluded 25th Commonwealth Heads of Government Meeting (CHOGM) summit in London saw the participation of fifty three countries. Of these, only two countries (Rwanda and Mozambique) do not have a colonial past or a constitutional link to Britain. All Commonwealth members avow the leadership of the British royals. This biennial gathering of leaders from round the world is indeed a grand show of pomp and splendor.

This year’s Commonwealth Summit has been billed as a grand opportunity for India not only to showcase its growing economy but also project its leadership in an emerging new world order. It has been further argued that it provides a unique platform of influence for India where China is conspicuously absent. No wonder, Prince Charles air dashed to New Delhi on a charm offensive to invite Prime Minister Modi in person to attend the Summit.

But there is more than meets the eye. Many see the Commonwealth as a vestige of the past, conceived by Britain to arrest its declining influence in the world. Despite its large membership, it continues to be high on optics and low on influence as it struggles to find relevance in an ever changing world order.

India’s relationship with this body can best be described as lukewarm. From India’s perspective, despite being home to over 50% of the population of the Commonwealth and with the second largest economy, next only to the UK, it has never enjoyed pride of place. That the Prime Minister Modi decided to even attend the CHOGM 2018 Summit came as a surprise to many, given that he had declined to attend the previous Summit.

Large sections of Indians, given its track record, are not exactly enamored by the Commonwealth and even view it with suspicious. For instance the Commonwealth provides that no bilateral or internal issues should be raised by members in its meetings. Despite this, Pakistan has been allowed to raise the Kashmir issue on multiple occasions, angering the Indian establishment.

Secondly, the UK’s anti-India stance as seen from its support of Pakistan in its wars against India has not endeared itself to Indians. Its support of Pakistan during the 1965 and 1971 conflicts are well documented. In peace time too, for example during the cold war era, it worked against India’s interest. In the eighties, it had actively supported Kashmiri separatists and refused to crackdown and deport them despite official requests from India.

So the average Indian cannot be faulted for a lack of interest in the Commonwealth or its affairs. Despite the slick campaign to project the CHOGM 2018 Summit as an economic and leadership opportunity for India, the disinterest is obvious.

The Commonwealth’s claim of providing economic opportunity for India is doubtful. This is because it is difficult to ascertain how much of India’s trade with fellow members came from bilateral dealings or directly as a result of the membership. Also there is no exclusivity clause that binds members to trade with fellow members. India’s policy makers are acutely aware that with or without the Commonwealth, its growth trajectory will stay its course for many years to come.

But what could be the reason for this desperation in rejuvenating a moribund organization? The truth probably lies in the sinking economic fortunes of Britain itself. That the UK economy is in the pits is by no means a secret.

Firstly, Britain is having major economic upheavals on the domestic front amidst an unfriendly European Union following Brexit. According to UK’s Office for National Statistics (ONS), its economy grew slower than expected. Its annual GDP growth for 2017 was put at 1.7%.  Secondly, UK’s Office for Budget responsibility (OBR) forecasts that its economy is expected to see an average growth of 1.4% over the next five years. This is indeed bad news for the Brits.

According to an analysis (The Guardian ,Feb 22nd 2018), the British economy continues to show fresh signs of deterioration. It has been pointed out that economic activity in multiple sectors have lost “momentum”. The alarming rise in unemployment, low wage growth and weak consumer spending are now part of Britain’s new normal.

The only saving grace, according to the UK’s National Institute of Economic and Social Research (NIESR), was a robust global economy which helped its exports, thanks to a weaker Pound. Post BREXIT, Britain is seeking new economic pastures to revive its economy. It is common knowledge that many developed countries are courting India to kick start their own economies. Thus it is no surprise that the Brits went all out to woo India.

As far as Modi’s trip to London was concerned, the CHOGM 2018 Summit itself did not make much of an impact or news in India. The strong anti-British sentiments in India – largely due to the colonial rule as well as UK’s long anti-India stance after 1947 – provides a powerful overhang that will not be easy to dissipate.

What really captured the minds of Indians was Modi’s meeting with the diaspora at an event of invited guests at the Central Hall, Westminster. Although attended by smaller audience, the event was telecast live around the world and as expected had a huge viewership. Modi smartly used the opportunity to convey what many believe is the clarion call for the 2019 general elections in India. This dominated his London trip, rather than the meetings with heads of fifty three governments from around the world.

The Commonwealth’s impact in providing tangible benefits to the member nations is debatable. The benefits, if any, are skewed unduly in favor of the UK. This is an unsustainable model in today’s world where China and India are fast emerging as economic power houses. Britain has pumped tons of good money in keeping alive an organization that is long past its shelf life. With a failing economy, Britain too may quietly bid goodbye to an institution that stood as a grand testimony to a bygone era. That being said, the Commonwealth, despite bold statements to the contrary, is probably in its last innings.

 

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Posted by on May 3, 2018 in #Brexit, India, Modi, Uncategorized

 

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Britain’s Hard Brexit Strategy – Unraveling of the European Union?

Britain’s Hard Brexit Strategy – Unraveling of the European Union?

In a hard-hitting speech on the 17th of January 2017, British Prime Minister May clearly spelt out the country’s stand on Brexit. She made it clear that the UK will come out of the single market as well as the customs union and promised to build a truly “global Britain” that would reach out beyond Europe to build  “new partnerships with old friends and new allies”.  Mrs. May cited discontent over directives coming from Brussels that weakened local democracy, tensions over jurisdiction of the European Court of Justice, record immigration et al – all of which fueled the Brexit vote last year – as the driving factors for Britain’s decision.

Prime Minister May underscored Britain’s relationships across the world, specifically outside Europe.  She hinted that Britain would revitalize trade relations with erstwhile British colonial ecosystem of the mid-twentieth century and seek to regain its preeminence as a great trading nation. Specifically, she talked about the new trade negotiations underway with Australia, New Zealand and India to drive home the point that Britain will not be seriously impacted by Brexit.

Mrs. May also warned the EU against resorting to “punishing” the UK. This, she warned, would be calamitous for the Union.  Not surprisingly, the hard-hitting speech was meant for the local British constituency as well as the EU, particularly Germany and France who have advocated a tough line against Britain. Following last years’ referendum in Britain, there has been a lot of sound, fury and venting from Europe. Worried that other countries may follow Britain, several EU ministers had demanded punitive measures that would showcase to other nations that leaving the EU could be very expensive an affair.

The Prime Minister’s speech did not wave an olive branch as many observers had expected. It definitely looked more like a resolute leader preparing for war. Indeed, the Brits appear to have done their homework and are prepared to take big risks.

Two developments that have spawned the new-found confidence in PM May are the election of Donald Trump as the President of the US and the resilience of the British economy in that order.

The election of Donald J Trump as the US President has an obvious role in the tough stand on Brexit. Trump has been a vocal supporter of Brexit. He has also come out openly in support of the UK. His opposition to Transatlantic Trade Partnerships is also well known.

Secondly, the strong performance of the economy is a key factor that has emboldened PM May. Data on the performance of the British economy in 2016, and in particular post Brexit is indeed revealing. Most European nations, including Britain, continue to face a sluggish economy. But latest statistics released by the Office for National Statistics (ONS) shows that Brexit, by and large has had minimal impact on the UK. For example, unemployment was at a record low – in fact the lowest in a decade. Unemployment fell by 52,000 to 1.6 Million in the three months post Brexit. Per the ONS, unemployment hovered at 4.8% – a 11 year low. Average weekly earnings excluding bonuses increased by 2.7% compared to a year earlier. Overall employment rate hovered at an encouraging 74.5%

brexit_dataIn an update to its biannual World Outlook published on 16 January 2017, the International Monetary Fund (IMF) has forecast that the British economy will grow by 1.5 percent this year, 0.4 points more than expected in October, after 1.6 percent growth in 2016. The IMF says that  “domestic demand held up better than expected in the aftermath of the Brexit vote”. But it has revised its 2018 forecast for the UK down by 0.3 points to 1.4 percent growth.

I have maintained all along that Brexit will have negative consequences only in the short term and had disagreed with many pundits who talked about a collapse of international trade and globalization. Brexit is a trade dispute between the UK and the EU and projecting this as a global trade malaise is an exaggeration. It is a local contagion and will have minimal impact on world trade.

Britain has had a complicated relationship with the EU. The EU continues to be dominated by Germany and France giving it little say. The UK has always harbored an ambition to re-emerge as a world leader and has consistently sought to use every opportunity to project its military, political and economic leadership. Given this agenda, it would be only logical to not expect the UK to play second fiddle in the EU for long.

While the bravado may be applauded back at home, the UK is definitely taking a big risk. Non-EU exports for November 2016 stood at $18.6 billion while EU exports stood at $17.34 billion. On the other hand, non-EU imports stood at 24.2 billion while imports from EU stood at $28 billion. (Data: UK Trade Info). In other words, give or take,  50% of UK trade is with EU. This is a sizeable chunk and the UK will have to work hard to protect this trade.

I am of the view that human ingenuity and innovation will take the lead in crisis situations. I had already expressed this in my earlier piece. My guess is that a new trade deal will be carved out by the UK with its “old friends and new allies”. It is too early to predict an unraveling of the European Union. But suffice it to say it will no longer be the same again. But from what appears in my crystal ball, I can safely say a new trade order and tariff regime is in the offing.

The powerful economies of China and India have been bystanders to this awesome spectacle called “Brexit”. Britain seems to be working overtime to woo these two economic power houses. And rightly so as any future trade grouping and tariff regime can no longer ignore them.

For now, Brexit is not truly any exit. It is the ushering in of a new era in international trade.

 
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Posted by on January 20, 2017 in #Brexit, Economics, European Union

 

L’affiare Khizr Khan

The Clinton campaign takes the cake for creative and often ingenious campaign strategies as well as public relations management. The Khizr Khan episode is one such creative genius that the strategists crafted to influence voters decisively in favor of Clinton. Only this time the strategy backfired. khizr

Khizr Khan is the father of Humayun Mauzzam Khan, the 27-year-old US Army Captain and Purple Heart awardee who was killed while deployed in Iraq in 2004. In a dream moment for the Clinton campaign, Khizr Khan pulled out a copy of the US constitution from his breast pocket and taunted Donald Trump to read it – an act that mesmerized viewers into a speechless awe. It will probably be remembered in the annals of election conventions in the US for a long time to come –  for multiple reasons.

As if on a cue, the cable networks, radio and print media went berserk and gushed at the powerful impact Khizr had created. Clinton’s campaign had pulled off a major coup and seemed to have almost stalled Trump’s campaign on its tracks.

If Team Clinton thought it had executed a coup de main, the revelations on Khizr Khan that followed held nasty surprise. It boomeranged and the campaign appeared to nosedive. Clinton quickly lost an 8 percentage point lead over Trump after the convention, to just a 3-point lead per the much respected Reuters/Ipsos opinion poll published on Friday, August 5th 2016. Surprisingly, at this late stage in the campaign cycle, Clinton has failed to establish a clear lead over Trump.

That bore testimony of a highly and evenly polarized electorate. But as the media uncovered more about Khizr Khan’s background, the unease amongst many Americans only grew and escalated the war of words between the two campaigns.

First, Khizr Khan’s past intellectual leanings were discomforting. His published writings showed his strong support for Islamic Law or Sharia, an anathema for Americans. Through his writings, he claimed the supremacy of Sharia and asserted that it was above the constitution or the law of the land since it was God given.

Secondly Khizr Khan seemed to have been inspired by Said Ramadan of the Muslim Brotherhood fame. Many are familiar with the violent past of the brotherhood. There have been calls by the US Congress to designate it as a terrorist organization. Egypt and the United Arab Emirates too have made similar demands. Khizr’s purported connections to the Muslim Brotherhood has not helped Clinton in anyway.

Thirdly, Khizr seemed to have connections to religious extremist elements in Pakistan, specifically to Allah K Brohi. Brohi, who was a former Minister and advisor to Gen Zia ul Haq, the former dictator of Pakistan, had helped create hundreds of madrassas and restore Sharia punishments in that country.

Fourthly, in a subsequent interview with a Pakistani TV network Khan’s praise for the sacrifices of the Pakistani soldiers – who have often been at loggerheads with US forces in Afghanistan- has only reinforced this hardline image of Khan as a wolf in sheep’s clothing.

Lastly, came the exposé in some sections of the media that the Clinton campaign had transferred $375,000 – no small amount – to Khan in early August, although the quid pro quo was not a surprise.

The Khan episode had its share of critical and adverse consequences, albeit unintended. Many Americans, particularly veterans, have been angered that the supreme sacrifice of a Purple Heart soldier was being politicized and have protested it.

Khan, in the meantime, had taken full advantage of his new found but short-lived popularity on prime time television. He appeared in almost every major cable network channel to denounce Trump. But sensing the unease his writings on Sharia had generated among Americans, he quickly made a ‘U’ turn. In the AC 360 show on CNN when asked about his writings on Sharia he said there was ‘no such thing as Sharia’.

Khan went on further to say that the Sharia was nothing but a hodge-podge of British, French and Portuguese laws and could never be implemented in the US. His about turn was complete. But the damage had already been done and there was no winning back the confidence of many Americans – particularly the baby-boomers and large sections of the veterans.

Notwithstanding his denials, Khan’s resume had all the career highlights of a Muslim with strong and yet secret ties to radical Islam. In fact, his denials had only accentuated the problem for Clinton. It is true that none of the intelligence agencies have publicly come out with a possible connection between Khan and the brotherhood or radical Islam. But the Trump campaign has exploited this to the full. Khizr Khan has since refused to meet with the television networks or the media.

The ground reality is that the campaigns face a nervous and a highly polarized America. This nervousness has spawned irrational fears all over. The Clinton campaign is obviously nervous about its inability to prevail over Trump as elections get closer. Hence we are witness to a serving President – a first ever – who is actively on the campaign circuit. While many may see this as inappropriate and a minor breach of ‘Presidential’ conduct at best, it has largely been ignored it in the distractions of a vituperative drama of a highly spirited election.

The Trump campaign on the other hand has been unable to fully exploit Clinton’s gaffes and missteps to its advantage. Americans have been equally appalled by some of his blunt and uninformed remarks – ranging from nukes to NATO.

The Khizr Khan fiasco has some important lessons for both the campaigns. Europe, smarting under repeated terror attacks from radical Islam, has created a society that is ultra-allergic and ultra-sensitive to anything Islam.

Europeans in general and France in particular have been known for the liberal traditions and until recently, had preached to the world the virtues of immigrants – specially Muslims immigrant in creating a diverse society. For decades they have counseled third world countries like India and others about the wisdom and the need to absorb and coexist with Muslim immigrants.

But almost overnight, this allergen of Islamic terror, has drained Europe of any pretense to this liberal embrace of immigrants, especially Muslims. It has resulted in multiple optics –“Brexit”, “Nationalism” and rise of “Right wing” in Germany etc. But the transformation has been quick and complete and there will be no going back. Europe ain’t liberal anymore and the Americans aren’t far behind.

The US has joined the party late and is now fermenting. Clinton’s cynical deploy of Khizr Khan to gain votes oblivious of this fermenting undercurrent has backfired on her and will continue to hurt.  A nervous America can be unpredictable and the even polarization will only make the race to the White House all the more difficult.

 

The hype over #Brexit

The newspapers, TV and internet sites are all about it. In case you woke up late and missed it all, we are talking about #BREXIT, a hashtag that was treBrxit2nding in twitter for long. The Brits voted in a referendum to leave the European Union or EU. Many have called it a devastating and shocking development that could plunge the world into economic chaos.  True – David Cameron the British Prime Minister plans to step down as stock markets around the world went into a cold shudder. The NASDAQ, DJI, S&P in the US reacted nervously and hit negative territory.

Donald Trump, the presumptive Republican Presidential nominee voiced his opinion too. He called it a victory for UK “since the people had taken back their country”.  However, other US leaders on both sides of the aisle were cautious in their response. If the US response was cautious, it had good reasons to be so. It reminded Washington and Capitol Hill of the fragility of the European Union and warned of a potential exodus by other states. An already weak Europe caught in the Brexit crisis, has stoked fears of a full blown European recession and similar consequences on the US economy.  Many European and world leaders worried that if a special US ally like UK could exit, there was no stopping other countries.

Markets in Europe and Asia also reacted negatively to the will of the Brits, it appeared. All this reaction was in response to the referendum result. The UK referendum itself was unprecedented. With the highest turnout since 1992, 72% came out and had their say with 51.9% voting to ‘Leave’ and 48.1% wanting to ‘Remain’. The referendum also showed the geographic split -Brits wanting to ‘Remain’ were concentrated in London, Ireland and Scotland areas whereas the hinterland was rooting to ‘Leave’.

To start with, Brexit itself is at the heart of a complex problem. Many have attributed it to the large influx of immigrants in the recent past as the trigger. In a bad economy, the influx has only aggravated the pressure and really tested the very concept of the ‘welfare state’. Per data released by the Britain’s Office of National Statistics net migration to the UK reached a record 330,000 in the year ending March 2015 while the size of the foreign-born population reached 8,277,000. Many have opined that this could stress the government and infrastructure. For example, the net influx would put pressure on an already aging UK water supply system, not to mention the increase in students enrolled per class in the primary schools.BRexit_Migration.JPG

The referendum also had important lessons for other European nations like – France, Germany, Denmark where nationalist movements have gained strength in the recent past as a reaction to the flood of immigrants.

It may be hard for many to imagine that a net influx of 330,000 migrants could tip the scales in a developed economy like UK.  That number may be small by the standards of the US or other large population centers elsewhere in the world. But it has to be conceded that for a small geography like the UK, these numbers are significant. This issue, has been the last straw on the camel’s back and has created the chasm that has polarized the UK. ‘Remain’ activists have accused the ‘Leave’ activists of xenophobia which in turn has only fueled the growing gap. But the truth is that a long running recession leading to near desperate economic conditions provided the fuel and immigration the spark to ignite the Brexit bomb.

Many observers have raised fears of a recession in Europe and potentially in the US too as a direct consequence of Brexit. The nervousness in stock markets around the world has only accentuated this fear. Some have even predicted the end of globalization and a collapse of international trade.  Others have pointed out that the falling UK currency – the pound – has its own benefits like making exports cheaper and attracting more tourists to the UK. All this may be true in the short run. But I will not bet on the fall of the pound over the long run and hence these benefits may be short lived.

Will Brexit spawn these severe consequences as many fear?  For sure, opinions are deeply divided. First off, much of the fears of a disaster are impulsive reactions and as often happens in such cases, are exaggerated. The stock and currency markets will stabilize soon. Many of the uncertainties we fear today are over the short term.

Truth is that global trade is in the throes of reinventing itself. Brexit, in all probability, portents to the emergence of a new trade order and tariff regime. The crisis itself can catalyze the emergence of new trading paradigms or partnerships – bilateral as well as multilateral – that more accurately reflect the global economic and trade realities, rather than proximity, political and militaristic calculations. There are historical parallels and the emergence of EU itself was a product of such negotiations.  In this context, it is worth pointing out that many of the extant trade blocks and treaties as well as those in the works exclude some heavy weight economies like India and China and hence by definition are not representative of economic and trade realities. For example, Brexit could engender a new trading block that includes UK, Japan, Germany and India sooner than many have imagined. Any permutation of economies that are bound by mutually beneficial trade could emerge.

When we step back and take a 30,000 feet view of the Brexit crisis, we see one country has filed for divorce from a trade alliance. The UK is not the United States in terms of geography or size of its economy. Both the EU as well as UK will continue to trade with each other, albeit in a different tariff regime, and with the rest of the world. Hence painting a doomsday scenario is untenable and devalues human ingenuity and the genius to execute profitable global trade.

The emerging economies of Asia, specifically India and China, will continue to trade with UK and EU. So by no means this is the end of globalization or global trade. In fact, the world will suck up Brexit and move on, faster than many have imagined. Nor will the world go into recession.

Having said that, in all probability, UK businesses in the short to medium term will suffer adverse economic and trade consequences. The Bank of England may lose some serious treasure defending the pound.  But human ingenuity and survival instincts will prevail and new beneficial bilateral trade deals will be worked out.

 
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Posted by on June 25, 2016 in #Brexit, Economics, European Union, Trade

 

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