The game has just begun.
By Krishnakumar S.
The debate between the “Leave” and “Remain” in Britain has come to an end, and the popular mandate, much to the chagrin of the pundits in the financial markets, has been in favor of quitting the Union. The financial markets worldwide has been pushed to a state of disarray, with heightened levels of volatility in the currency and forex market.
Between the earlier optimism that the Remain would have it and the ultimate verdict in favor of Leave, the British pound swung from three month high of $1.503/pound to a three month low of $1.35/pound, in the course of minutes. With the mandate, the pound has depreciated to a 30 year low of $1.38/pound. Currencies worldwide including the Euro have depreciated vis-à-vis the dollar resulting in the US Dollar Index hitting a high of 96.70 in the course of the day.
Is the US Dollar Index inching closer to the five year high of 100.35 with the barrage of capital flows from the rest of the world? For all its internal problems, dollar seems to be benefiting from the safe haven role which it plays during times of crisis, much like gold. But what it gains in the form of reserve currency advantage is of course going to cut at the competitiveness of its exports, and make everything from Caterpillar tractors to Amazon dollar shopping and holidaying at Las Vegas expensive.
British citizens might be thanking their lucky stars that years ago even when the euro was inaugurated, they decided to stay put with the pound, rather than abandoning it, that at least this exercise in the form of referendum to depart from the EU became possible. Indeed, the other countries, even when they want to exercise such an option would find it difficult and incurring heavy costs, for they have already buried their own currencies deep and then got literally jinxed into the cross of euros.
Deciding on crucial issues through referendums used to be considered as an unviable, redundant, ridiculous method, across the world, for it was thought that such crucial issues should be left to the wisdom of the comity of parliamentarians. But the resounding verdict that the Greek populace gave against the misdoings of the troika in the aftermath of the crisis is now followed up with the British disenchantment with the suzerainty and one-upmanship asserted by the bureaucrats of Brussels, with the patronage and blessings of one and all of the city across Europe. In this, the City of London, which found its interests more in symphony with those of the Berlin and Paris bankers, is no exception. Indeed, the dissection of the Brexit verdict also shows that the places where the clout of city ruled were the ones where Remain was able to muster good support.
Already British Prime Minister David Cameroon has expressed his desire to relinquish office as the verdict was not on the lines with his expectations. The run-up to the referendum was witness to leaders of same parties being on different sides of the table with respect to Brexit. But the campaign differences between the British Left supporting “Leave” and he Democracy in Europe Movement (DiEM), led by Slavoj Sizek and Yanis Varoufakis supporting “Remain,” was most interesting of them all.
While the British Left was in support of the Brexit, and was campaigning for Leave, indeed for the restoration of the public space for the public good, which had got swamped in the horrendously indigestible dictums of austerity, which was pelted on all countries by the European bureaucrats, much to the state of helplessness of the locally elected representatives to sensibly respond to the popular demands, Varoufakis and others thought that rather than leaving EU, Britain should stay put and rather reform it from within.
It is amazing that Varoufakis, who has himself been witness to the asymmetric powers asserted by the troika over the Greek state, nurtures high hopes with respect to the democratization of European Union and its institutions. Forget about other countries further away from Europe embroiled in crisis, even when fellow countries like Portugal, Ireland, Iceland, Greece and Spain were swamped in the crisis in the aftermath of the global financial crisis, the world was witness as to how the bankers at Brussels and Paris colluded with the ECB and were able to rule the roost by dictating terms to the countries on the importance of fiscal austerity. Žižek and Varoufakis continues to nurture huge hopes with respect to a Pan European humanist approach to the reform of Europe at large.
But, when they raise objections to the British left and found in the company of the xenophobic rightist groups, one could also ask them as to why they should limit their capacities of cosmopolitanism to Europe alone and not extent it to the rest of the world? Given the capacity of Europe to resolve its own problems through passing it on to the rest of the world, the idea of Europe seems to be far less appealing, and indeed far too dominating for the rest of the world, before the idea of nation states in coalescence for a common good.
When the city state of Athens was witness to a referendum against the troika, never was it imagined that the Britons would go for one against the Brussels-Berlin axis of bankers and bureaucrats so soon. Might be this decade is to witness more of such referendums in Europe, either to reform European Union, or to exit from it. The game has just begun.
(Krishnakumar S. teaches economics at Sri Venkateswara College, University of Delhi.)
More from Krishnakumar S.:
Raghuram Rajan’s exit provides more fodder to the volatile financial markets (June 20, 2016)
Will writings based on Gods and Goddesses continue in India? (October 21, 2015)
Yanis Varoufakis is Keynes of our generation (July 7, 2015)
Are the political duopolists in New Delhi colluding? (December 19, 2012)