Harim Peiris

Political and Reconciliation perspectives from Sri Lanka

  • July 2016
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Avoiding needless panic over Brexit

Posted by harimpeiris on July 12, 2016

Avoiding needless panic over Brexit

By Harim Peiris

The entirely unexpected happened and the British in a deeply polarizing referendum voted to leave the European Union by a margin of 52% to 48%. Voting to leave were seemingly older voters and most of England and Wales, while, younger voters, Metropolitan London and overwhelmingly Scotland voted to remain.  British Prime Minster David Cameron immediately announced his intention of stepping down at the Conservative Party’s annual conference due in October, while there is also pressure on Opposition and Labor Party leader Jeremy Corbin to resign after many labor bastions voted to leave, despite his support for remain.

The outcome of the referendum was wholly unexpected by the global community, whether financial markets, business or political leaders and policy makers for two reasons. The referendum was a discretionary mover by a popular Prime Minster, who had even managed to secure the support of the major opposition parties, the Labor Party, the Scottish Nationalist Party and the Liberal Democrats for the remain in EU efforts. Opposing this considerable alliance of parties was thought to be only the Euro skeptic faction of the Conservative Party and the small anti EU and anti Immigrant United Kingdom Independence Party (UKIP). If all the parties supporting remain in EU actually carried their constituencies, then the referendum would have been a very one sided affair. However essentially a significant section of both the Conservative Party and the Labor Party, bucked their own leadership and voted to leave, though the parties did provide a kind of conscience vote on the issue.

The global currency and financial markets have reacted to the unexpected developments with a significant degree of panic as the uncertainty of the economic consequences and the future of Euro integrated business, persons and processes are unclear. The early looses seem to be the UK itself, with the Sterling Pound (GBP) falling to near historic lows and UK equities declining and Moody’s putting their UK rating on negative. However in the medium term, the situation should stabilize, as the UK remains engaged and invested in Europe though not in the political and policy union of the EU.

The UK had always not fully got on board the EU integration efforts, due to a residue of Euro skepticism in its society, with European integration being driven by Germany and France, with the UK often creating exceptions for itself. The Euro single currency was the most significant example with UK opting to retain the Sterling Pound, while all other EU members gave up their individual currencies, including the German Mark and the French Franc.

The Schengen single EU visa arrangement was another UK exception, where the UK retained its own independent visa arrangement with non EU countries rather than accept a visa issued by another EU member. With the referendum polls campaign as well, the issue of immigration into the UK, especially from other and newer European countries was a major issue. In the past, the generally far right anti immigrant parties of Europe, including the UK’s own UKIP has not had any notable electoral success and it remains to be seen, whether the referendum which was obviously on multiple issues of integration provides a boost to anti EU sentiment and anti immigration sentiment elsewhere in Europe.

Sri Lanka a pivot to Asia

The Sri Lankan response has been both quick and thought through, by the senior panel of experts and advisors appointed by the Government for this purpose. Firstly Sri Lanka will obviously build on the historic strong ties with Britain to ensure that the World’s fifth largest economy remains open and accessible to Sri Lanka and Sri Lankans, even as we proceed on regaining GSP plus trade concessions from the EU.

However more importantly Sri Lanka will hasten to sign and implement the economic cooperation and technical assistance agreement with India, seeking to and positioning Sri Lanka to benefit from the economic growth and opportunities in Asia and especially the Indian sub continent.

Sri Lanka’s economy during the previous Rajapaksa Administration became inextricably intertwined with China; we became hooked on their loan funded infrastructure development and of necessity must proceed to rationalize those investments in the national interest. However trade with China, is very one sided, as we import from them but do not export much to China.

In contrast, India provides an exciting if challenging market for Sri Lankan goods and services. It has long being thought, since India’s economy opened up and liberalized that Sri Lanka’s economy can benefit from her proximity and location next to India, in much the same way as Hong Kong became a financial, services and logistics hub for the burgeoning Chinese economy.

The Sri Lankan economic vision to also be an economy that adapts and thrives in the emerging technologically driven knowledge economy, would most likely mean that we must benefit from not just our own small population and economy but from the growth, investment and trade opportunities available to us in Asia.

(The writer is Advisor to the Minister of Foreign Affairs, the views expressed are personal)

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