What has happened?

A referendum – a vote in which everyone of voting age can take part was held to decide whether the UK should leave or remain in the European Union and Leave won. <what is the difference b/s referendum and plebiscite?>

What is this UK, Britain, Ireland, Republic? What’s going on? Is Scotland a separate country?


Without going into the history- 

  • Full name is United Kingdom of Great Britain and Northern Ireland i.e Great Britain plus N.I.
  • Great Britain – It contains 3 somewhat autonomous regions – England, Wales and Scotland
  • Republic of Ireland separated from northern Ireland and UK in 1920s and is a separate country now <Belfast is capital of which Ireland and what is the capital of Wales and Scotland?>

But why this referendum

Conservative govt led by David Cameron had promised this referendum if they won the general election and as they won this referendum was held

What is European Union?

  • It is an economic and political partnership involving 28 European countries <latest country to join EU?>
  • It is a single market (common market) allowing goods and people to move around, basically as if the member states were one country. So basically any French citizen can travel to Germany and work there without visa.
  • You can visit whole of EU with a single visa <no internal borders>

I had to take a separate visa to travel to London. How about that?

  • So this common visa thing is applicable only to countries that are party to Schengen area <where is Schengen btw?>
  • There are 26 Schengen countries (22 EU + 4 Non EU)
  • 4 Non EU – Iceland, Norway, Switzerland, Liechtenstein <btw Liechtenstein is a double land locked country. Look in the map and find out which other country is doubly landlocked, There’s only one other>
  • 6 EU not party – Bulgaria, Croatia, Cyprus, Ireland, Romania and the UK.

So as UK is not party to Schengen, you had to take Visa.

What about euro? I had to use pound in UK. Isn’t the Euro currency of EU?

  • Euro currency is used by Eurozone countries. Eurozone is subset of EU. Only 19 EU countries are part of it. Obviously UK is not party to it. 
  • Euro is also used by 4 other European countries – Vatican, Andorra, San Marino, Monaco

Any history ? How did EU begin?

  • It grew out of a desire for peace in a war-torn and divided continent. It started in 1951 with European Coal and steel community of 6 countries by treaty of Paris <France, Germany, Italy, the Netherlands, Belgium and Luxembourg>
  • 1957 – European Economic Community (EEC) or common market was formed by treaty of Rome,
  • 1973 – Britain, Denmark and Ireland joins the EEC <total 9 countries now>
  • 1992 – Maastricht treaty was signed and comes into force in 1993. Formal beginning of EU
  • 2002 – Euro replaces national currency in eurozone

What does EU do?

  • Eu oversees co-operation among its members in diverse areas, including trade, the environment, transport and employment
  • Common security and foreign policy
  • coordinates policy on asylum, immigration, drugs and terrorism <that’s why so much concern over migration fro middles east and north Africa>
  • EU policies on workers’ rights and other social issues <UK not part of this social chapter either>
  • Promotes human rights, give aid to agriculture, fisheries etc

Okay, sounds great but how does it all work?

EU works through 4 main institutions

  1. European Commission – All powerful bureaucracy of member states <each country, one representative>, propose laws, implement laws, job is to promote European interest, not the interest of member countries, HQ in Brussels <where is Brussels>
  2. European Council – It’s a political body, leaders meet here
  3. European Parliament – Directly elected MPs <MEPs> vote on almost all the issues now days. It sits in Strasbourg <where is Strasbourg?>
  4. European court of rights – name explains everything <where is its headquarters?

Why do Brits want to leave EU?

  1. Sovereignty – that Britain ceded its sovereignty, right to pass its own laws to bureaucrats sitting in Brussels <Doesn’t India lose its sovereignty by being member of UN?>
  2. Regulations – That Brussels imposed too many regulations that hurt British business interest
  3. Money – Billions of pounds of entry fee with very little to show in return <Britain don’t have many farmers to get agriculture subsidies>
  4. Open borders/ migration – even though Britain is not part Schengen, workers from rest of the EU can come their freely and work there. Large numbers from eastern europe came just to claim British benefits, social security and all <so called welfare tourism>
  5. Ever Closer Union – detested the idea of United states of Europe <closer political union, confederation sort of thing>

Why did Cameron want UK to stay in EU?

  1. Single market – much easier to sell things while being member of single market
  2. Security
  3. Britain’s status in the world is enhanced as part of EU

How is single market different from free trade area?

  • In FTA there are no tariffs except on some negotiated goods and services but in single market, even labour mobility is free
  • In Single market, you impose common tariffs on all imports, it;s like a single country for the purpose of trade and commerce
  • There are common standards etc. <environment, labour, quality etc.>

What is European free trade association (EFTA)?

  • It is FTA of 4 European countries -Iceland, Norway, Switzerland, Liechtenstein <do you recall they are all part of Schengen>
  • All of them have signed FTA with EU. Britain can sign similar FTA with EU now

What happens now?

  • Britain would negotiate its exit <under Lisbon treaty>, But the fear is of contagion. Eurosceptic parties of other countries would also press for similar referendums.  
  • Plus as Scotland has voted overwhelmingly in favour of stay (68%), there would be fresh demand for referendum on Scottish independence. Similarly is the case with northern Ireland.

Impact on India

  • No direct impact but expect turbulence in stock and forex market. Panicky investors may withdraw their hot money out of India
  • On positive side, India can sign FTA with Britain

Any doubts?


  1. Profile photo of Sanjoy Biswas Sanjoy Biswas

    In the first point under “How is single market different from free trade area?” it is said that there is no tarrif in Single market
    But in the next point it says that there is a common tariff for import…
    Please clarify

    1. Profile photo of Dr V Dr V

      zero tariff w/i single market i.e zero tariff b/w spain and italy but common tariff b/w India = Spain and India – Italy

      1. Profile photo of Sanjoy Biswas Sanjoy Biswas

        now it is 100% clear… thank you sir.

      2. Profile photo of Sanjoy Biswas Sanjoy Biswas

        now it is 100% clear… thank u

  2. Profile photo of Neha Bhardwaj Neha Bhardwaj

    Thanks a lot. This is great work done by you guys.

  3. Profile photo of Kaustubh Gade Kaustubh Gade

    this is grt work by cd….wish it has pdf option to download

  4. Profile photo of Aditya Harsana Aditya Harsana

    sir, it would be grateful if you could have an additional option for pdf conversion of such important pages.

  5. Profile photo of Simran Bains Simran Bains

    Good one sir! 🙂
    What is a double land locked country?

    1. Profile photo of Jayansh Singh Jayansh Singh

      A country which is completely surrounded by one or more landlocked countries. There are only two such countries – Liechtenstein and Uzbekistan

      1. Profile photo of Neha Bhardwaj Neha Bhardwaj

        I think Andorra it is surrounded by Spain and France.

      2. Profile photo of Yuvraj Kumar Yuvraj Kumar

        What about CzechRepublic ?Its a land lock country.

      3. Profile photo of Simran Bains Simran Bains

        Okay, thank you!

  6. Profile photo of Upsc Bpsc Upsc Bpsc

    Very insightful write up..

  7. Profile photo of Sridhar R Sridhar R

    Nice article.. please keep doing this with more questions in UPSC point of view

  8. Profile photo of Pranav Pranav

    Belfast – NI and
    Dublin – Republic of ireland
    Wales – Cardiff
    Scotland – Edinburgh

    Plebiscite – the direct vote of all the members of an electorate on an important public question such as a change in the constitution

    Schengen is in Luxemburg

    Brussels is in Belgium, its capital

    Strasbourg in France houses the European Court of Rights too

  9. Profile photo of Jayansh Singh Jayansh Singh

    Good panelists discussing BREXIT and its implications from different angles. Found HT’s consulting editor’s talk the most helpful. He explains the reason for David Cameron’s move to allow referendum to take place which, obviously, didn’t work out the way he would have liked it to. https://www.youtube.com/watch?v=zsZ1KFrWToc

    1. Profile photo of Focus Ias Focus Ias

      They should remove that anchor man. He is the only low point of these RSTV discussions.

  10. Profile photo of Neelam Bhatia Neelam Bhatia

    Latest Country to join EU- Croatia.(2013)

  11. Profile photo of Neelam Bhatia Neelam Bhatia

    Thank You very much for this write up.

  12. Profile photo of Neelam Bhatia Neelam Bhatia

    A double landlocked country is a country that only borders landlocked countries. There are only two of these special countries, Liechtenstein, and Uzbekistan (even though it technically borders the Caspian Sea, it’s still landlocked.

  13. Profile photo of Dr V Dr V

    Detailed explainer tomorrow.

  14. Profile photo of Meghna Dwivedi Meghna Dwivedi

    kindly elaborate with facts and give clear understanding of the issue..

    1. Profile photo of sachin patro sachin patro

      Do also watch rstv’s yesterday’s vishesh on youtube.. Clearly explained..

  15. Profile photo of Er S Er S

    I really dont feel Brexit is going to impact Indian Economy in a big way. All the articles in Hindu were not convincing enough.

  16. Profile photo of Jass Saab Jass Saab

    Kindly provide detailed explanation on this topic and probable questions for prelims.

  17. Profile photo of Kaushal Pande Kaushal Pande

    Ha ji Sir, Exhaustive explanation being eagerly awaited! Thanks a lot.

  18. Profile photo of shefali maurya shefali maurya

    i would really like to know about this in detail and brexit will effect indian economy

  19. Profile photo of Simran Bains Simran Bains

    Explainer on BREXIT, pretty peeeleeeejjj! 😀

  20. Profile photo of Dr V Dr V

    I so love it

  21. Profile photo of Neelam Bhatia Neelam Bhatia

    Please put up an article on this. Thank You!!

[op-ed snap] An exit from Brexit?

Context:

  1. In early March, British Prime Minister Theresa May took to the stage in Glasgow to address a gathering of Scottish Conservatives as talk of a potential second Scottish referendum gathered pace
  2. She would be seeking Scottish parliamentary approval for a second referendum on independence
  3. This highlighted one of the challenges facing Scotland, which will have to weigh up EU and U.K. membership should a new referendum on independence go ahead

Highlighting the significance of single market:

  1. The Scottish National Party (SNP) had been highlighting the significance of retaining single market access to the EU
  2. May said that the U.K. domestic market was worth “four times more to Scottish firms” than Europe
  3. She noted that Scottish whisky represented just a 1% share of the Indian market, thanks to a tariff of 150%
  4. “I am determined we should do better than that for our key industries,” she said. “That’s why I led a major trade delegation to India last year, and why I was delighted to take the Scottish Whisky Association with me”

More about market access:

  1. Scotland voted decisively in favour of remaining in the EU (62% of Scots voted to remain, against 55.8% of Northern Ireland, 47.5% of Wales, and 46.6% of England)
  2. Recent polls have suggested a rise in support for independence (to around 50%), perhaps spurred by the announcement of the U.K. government earlier this year that it would have no alternative but to leave the single market and the customs union

The factors at play:

  1. The biggest question going forward will be public appetite for independence
  2. There are factors that may make Scots cautious about leaving the union, such as the impact of the low oil price environment on the Scottish economy
  3. Leaving the union and joining the EU would be a logistical nightmare, calling the current open border between England and Scotland into question
  4. The Westminster government is likely to play on those concerns as well as highlight the potential for industries such as the Scottish drinks industry within a U.K. unshackled by EU membership, with links to fast-growing Commonwealth countries, and beyond
  5. While all political parties in Westminster threw themselves into the “no” campaign in 2014, their ability to do so is likely to be more constrained this time round, particularly if Brexit negotiations are under way

Note4Students:

This op-ed has information on a major international event- the second Scottish referendum.

Scotland seeks to exit U.K.

  1. News: Scottish First Minister Nicola Sturgeon will ask the Scottish Parliament for authority next week for a second referendum on Scottish independence
  2. Why? Criticised the “brick wall of intransigence” that her government had faced as it sought to find a deal that protected Scotland’s interests as Britain prepared to leave the EU
  3. Brexit has made change inevitable and Scotland needs to be given the choice about the “kind of country we want to be”, between the autumn of 2018 and the spring of 2019
  4. Background: The 2014 referendum on independence was pegged as a “once in a generation” vote
  5. However, the issue of independence resurfaced in the wake of last June’s referendum, when Scotland voted overwhelmingly (62%) to remain in the EU
  6. In December, the Scottish government published a white paper “Scotland’s Place in Europe” calling for the U.K. to either remain in the single market or commit to an outcome that would enable Scotland to remain within it, which Ms. Sturgeon said represented a “significant compromise” on the part of her government
  7. U.K. membership of the single market was ruled out with no prior consultation with the Scottish government, or indeed with other devolved administrations — leaving us facing not just Brexit, but a hard Brexit

Note4students:

This news is not that important. Just be aware of whats happening around the world.

Theresa May faces first Brexit defeat

  1. News: British Prime Minister Theresa May suffered her first parliamentary defeat over Brexit
  2. Defeat? The House of Lords voting in favour of an amendment to guarantee the rights of European Union (EU) citizens in the United Kingdom after the country leaves the bloc
  3. The Lords voted 358 to 256 for an amendment requiring Ministers to protect the rights of EU nationals based in the U.K. after Brexit
  4. Note: In the House of Lords, Ms. May’s Conservative Party does not command a majority
  5. The amendment, backed by the House, requires the government to introduce proposals within three months of Article 50 to ensure EU citizens in the U.K. have the same residence rights after Brexit

Note4students:

Not very important but a link in developing the whole BREXIT issue.

Contrary view on Brexit

  1. Finance Minister Arun Jaitley: Brexit should not be seen as a part of the global move towards protectionism
  2. Quite the contrary: Britain would like to expand and open up more
  3. In the wake of the U.K. referendum on E.U. membership there had been considerable interest within the Indian business community for opportunities for investment in the U.K, and vice versa
  4. In the midst of the global uncertainties and slowing down of the global economy, India has been able to carry out its reform programme

Note4students:

A new perspective on BREXIT, but not important otherwise.

U.K. Parliament votes in favour of starting Brexit process

  1. Members of the UK parliament voted overwhelmingly in favour of allowing the government to begin Brexit negotiations
  2. With this, Britain moved one step closer to a final separation from the EU
  3. The bill would give Prime Minister Theresa May the authority to invoke Article 50 of the Lisbon Treaty — the formal process of leaving the EU
  4. The bill now faces further scrutiny in the Commons and the House of Lords before it can become law

Note4students:

Although this news does not involve India, but it is still useful to be aware of the basic events around the world. Terms such as Lisbon Treaty etc can also be asked in prelims.

Back2basics:

Lisbon Treaty:

  1. The Lisbon Treaty is the controversial successor to the European Union Constitution and is billed as necessary update to streamline Brussels institutions
  2. EU leaders agreed the reforms in order to help the Union function more smoothly now its membership has grown from 15 to 27, and in order for Europe to play more of a role as a single bloc on the global stage
  3. It is the latest in a series of treaties amending the original 1957 Treaty of Rome – from the Single European Act, through the Maastricht Treaty and the Treaties of Amsterdam and of Nice – to integrate institutions, as the policies and scope of the EU has expanded over the last 20 years
  4. British diplomats have claimed that the Lisbon Treaty will be the last changes to EU institutions until 2020, or beyond
  5. Read more here

Corbyn calls for wage cap to combat inequality

  1. What? Britain’s Leader of the Opposition, Jeremy Corbyn has called for the introduction of a maximum wage in the U.K. to combat inequality, among other reforms
  2. This is part of his vision to ensure that Britain was “better off” outside the EU in the future, pledging for the first time to “accept the challenges” that voters had given his party following the referendum, including on immigration
  3. Why maximum wage? The introduction of a maximum wage cap was necessary to create a more egalitarian society and fund the nation’s public services, pointing to the recent crisis in the National Health Service (NHS)

Note4students:

This is an interesting and innovative idea for essay.

Brexit could be delayed

  1. News: Britain’s exit from the European Union could be delayed until at least late 2019
  2. Why? Because the government was too chaotic to start the two-year process early next year
  3. Context: Britain voted to leave the EU on June 23
  4. Roadblock: Views differ over when it should invoke Article 50, which sets the clock ticking on a two-year deadline to leave the bloc, with some senior politicians calling for a quick departure
  5. Prime Minister Theresa May, who campaigned for Britain to remain in the EU and leads a cabinet of ministers from either side of the debate
  6. She has said she will not trigger Brexit talks this year as Britain needs time to prepare

BoE keeps interest rates unchanged

  1. News: The Bank of England (BoE) kept its interest rates unchanged in minutes of its July meeting
  2. Investors had expected the first cut in more than 7 years with Britain’s economy reeling from last month’s Brexit
  3. The BoE said it was likely to deliver stimulus in 3 weeks’ time, possibly as a package of measures

David Cameron quits, Theresa May the new British PM

  1. News: Theresa May took over as Britain’s new Prime Minister, replacing David Cameron
  2. The new PM promised a ‘bold, new, positive role’ for the country less than 3 weeks after its vote to leave the EU (Brexit)
  3. Immediate concerns: EU leaders are pressing for a swift exit of Britain following the vote
  4. Even Scotland is planning to vote to exit from UK
  5. Cameron had called the referendum and campaigned to stay in the EU

UK-India Free Trade Agreement

  1. News: India and UK are in talks of signing a new bilateral UK-India Free Trade Agreement (FTA) after Brexit
  2. EU-India FTA will see some modifications given that UK has opted to leave EU
  3. Brexit will affect India’s interests on those tariff lines where concessions were being considered in the proposed India-EU FTA

Hungary welcomes Brexit-hit firms

  1. News: Hungary has offered to “incentivise” Indian companies hit by the Brexit
  2. Indian companies may leave the UK as the European Union (EU) is unlikely to subsidise UK-based international companies for long
  3. Context: Hungary is one of the major countries affected by the Brexit referendum as nearly 1 lakh Hungarian workers, facing an uncertain future in the UK, may return home seeking new jobs
  4. Hungary’s quest for finding Indian investment is partly influenced by the need to meet the challenge of Brexit

Scotland considers independence from the UK for the second time

  1. News: Scotland’s government is preparing a legislation allowing a second independence referendum while continuing discussions on its place within the EU
  2. Scotland is a country that is part of the UK and covers the northern third of the island of Great Britain
  3. Context: Though UK voted an overall 52-48% to leave the EU, Scotland voted 62-38% to remain in the EU – ie, sharp contrast with the UK
  4. Background: The first time when Scotland demanded independence from the UK was through a referendum in 2014, which was rejected by 55-45%
  5. Scots opted to remain part of the UK in 2014 because they believed that was the only way to guarantee EU membership

Post Brexit chaos in UK

  1. Scotland might hold a second referendum on independence from the UK, as Scotland wanted to stay in the EU, in sharp contrast with the UK’s decision to leave
  2. If Scotland does hold a referendum, it might lead as an example for neighbours to follow their lead
  3. Even Northern Ireland had voted to stay in the EU – hence they might consider reunificatio with Ireland
  4. Also, even London might declare independence from the UK – a petition to the Mayor is attracting more support

Free trade talks with EU to be modified

  1. News: Proposed India-EU Free Trade Agreement (FTA) will see some modifications and moderations due to Brexit
  2. No immediate impact on India’s trade and investment with the UK and the EU
  3. Because trade and investment with the 2 are currently happening not on the basis of an FTA but on a bilateral basis
  4. There won’t be a separate FTA with the UK due to Brexit
  5. Background: India-EU FTA negotiations have been deadlocked since 2013 due to several differences

Brexit and India – Short-term impacts

  1. Centre and RBI working on mitigating short-term impacts due to Brexit
  2. Trade: No immediate impact on India’s trade and investment with the UK and the EU
  3. Proposed India-EU Free Trade Agreement (FTA) will see some modifications and moderations
  4. Currency: Negative effects as British Pound gets weaker:
  5. Put pressure on India’s exports, especially in the IT sector as Europe is the 2nd largest market
  6. Positives as British Pound gets weaker:
  7. Buying a home in the UK would be cheap
  8. Trips to UK will be cheaper
  9. Increase in Indian students choosing UK for their higher education

Brexit and India – Long-term impacts

  1. Govt: Indian economy has enough ‘firepower’ to deal with the Brexit situation
  2. According to the government and the RBI, India will not suffer from any long-term impact of Brexit due to:
  3. Strong domestic fundamentals
  4. Low short term external debt
  5. Sizeable foreign reserves

Divided Kingdom leaves EU

  1. Official results: The ‘Leave’ side prevailed 52% to 48% in Thursday’s vote, which had a turnout of 72%
  2. Why Leave? To take greater control of its economy and its borders
  3. Impact: Shattering the stability of the continental unity forged after World War II
  4. Financial authorities around the world have warned that a British exit will reverberate through a delicate global economy
  5. The U.K. is the first major country to decide to leave the bloc
  6. EU had evolved from the ashes of the war (World War II) as the region’s leaders sought to build links and avert future hostility

RBI assures market of liquidity in case of ‘Brexit’

  1. News: RBI has assured the market of liquidity if necessary, as fears of Brexit remains
  2. The RBI governor reassured that RBI was prepared to curb any volatility and reiterated that the country has plenty of reserves
  3. Brexit: Possibility that Britain will withdraw from the European Union

Brexit: IMF warns of economic ruin

  1. Context: Brexit- in-out referendum in England to be held on June 23
  2. IMF: Vote to leave the EU would be costly in the long run, even after the uncertainty has been resolved
  3. Short term: Risk of an adverse market reaction to a leave vote
  4. This could be in the form of a depreciation of the sterling and large contractions of investment and consumption
  5. Earlier: The governor of the Bank of England had warned that a Brexit vote could push the U.K. into recession

Greece demands IMF explanation over leaked transcript

  1. Context: Greece demanded an explanation from the IMF after an apparent leaked transcript
  2. Transcript: Suggested the IMF may threaten to pull out of the country’s bailout as a tactic to force European lenders to offer more debt relief
  3. Background: EU/ IMF lenders will resume talks on Greece’s fiscal and reform progress in Athens this month
  4. Aim: To conclude a bailout review that will unlock further loans and pave the way for negotiations on long-desired debt restructuring

Syriza wins again in Greece

  1. The Syriza party won the polls yet again and Alexis Tsipras will be back as the Prime Minister of Greece for the next 4 years.
  2. The newly elected government has to take measures to overcome the debt crisis and to develop the economy of Greece which is down for few years.
  3. The government also has a tough task to take measures for the Refugee crisis with most of the population from war torn countries moving towards Europe.

[cd explains] Greece-waale Bailout Le Jayenge

A Bollywood take on the crisis!

Here is the ultimate block buster in Economics. Isme action hain, drama hain, austerity hain, reforms hain, growth hain, depression hain, there are scams galore and bro-mance to boot! How could Bollywood not move in to create a movie?


 

Germany rules out debt relief

  1. Germany made it clear that no part of Greek debt would be forgiven. However, Berlin was open for a flexible repayment plan.
  2. IMF had earlier criticized the Greek bailout proposals and urged the creditors to give some kind of upfront debt relief.

German Bundestag passes the resolution to initiate talks with Greece

  1. A day after Greece agreed on the austerity measures, German Lawmakers agreed to initiate talks regarding the Euro 86 Billion bailout package.
  2. Germany is one of several EU countries whose Parliaments must sign off any debt deal for Greece.
  3. This German vote was only about resuming official talks — a final deal with Greece will also need the assembly’s approval.

     

     

Europe set to restore funding to Greece

  1. Satisfied with the Greek Parliament’s approval to austerity measures, Europe is ready to provide the next bailout package.
  2. However, the Parliamentary approval resulted in a revolt in the ruling Syriza party which could lead to snap elections in the next few months.

Greece bill on bailout deal goes to Parliament

  1. Around 30 hard-line Syriza party lawmakers threatened to oppose as the Greek govt. submitted tough bailout terms demanded by Eurozone creditors to Parliament.
  2. Bailout terms include sweeping changes to labour laws, pensions, VAT and taxes.

‘Grexit’ will be extremely costly, says IMF chief economist

  1. IMF ruled out further funding for Greece until old arrears are cleared.
  2. Greece defaulted on a loan repayment of €1.55 billion due to the IMF on June 30.

  3. According to the IMF economist, reforms were needed in tax administration, collective bargaining, the judicial system, pensions and reducing barriers to entry for professions, and these were not undertaken to a sufficient degree.

Athens accepts harsh austerity measures

  1. Reforms like tax raises, pension reforms, economic liberalization were included in the package Greece sent to the Eurozone creditors for fund to avert bankruptcy.
  2. The reform package will amount to Euro 12billion over next two years.

Thomas Piketty on European Crisis

Since his successful book, Capital in the Twenty-First Century, the Frenchman Thomas Piketty has been considered one of the most influential economists in the world.

Germany Has Never Repaid its Debts. It Has No Right to Lecture Greece.


 


So you’re telling us that the German Wirtschaftswunder [“economic miracle”] was based on the same kind of debt relief that we deny Greece today?

Exactly. After the war ended in 1945, Germany’s debt amounted to over 200% of its GDP. Ten years later, little of that remained: public debt was less than 20% of GDP. Around the same time, France managed a similarly artful turnaround. We never would have managed this unbelievably fast reduction in debt through the fiscal discipline that we today recommend to Greece.

[op-ed snap] Political implications of the Greek crisis


 

The Greeks have voted resoundingly against the economic policies that its creditors in the European Union want it to pursue.

But what next?

  1. Other weak European countries such as Spain could be tempted to follow the Greek strategy.
  2. The impact of a Spanish or Italian default will be far more severe because of the size of their outstanding public debt.

There is one principal economic lesson from the Greek crisis: a monetary union cannot work well unless there is a fiscal union as well.

The Grand European Project : Genesis

At the end of World War II, visionaries such as Jean Monnet convinced Adenauer of Germany and Robert Schuman of France—that deeper economic engagement between European countries would be the best way to prevent a repeat of the mistakes that led to so much bloodshed in Europe between 1914 and 1945.

Brief Timeline –

  1. 1951 – Setting up a common system for coal & steel
  2. 1957 – European Economic Community was set up
  3. 1992 – The Maastricht Treaty led to the creation of the European Union
  4. 1999 – Euro made its debut

A few Trivia questions –

  1. What is the difference between the European Union and Euro Zone?
  2. Latest country to join them respectively?

 

Finance Minister resigns to smoothen talks with creditors

  1. After Greece’s astounding ‘No’ in referendum, FM resignation has removed a major obstacle to any deal to keep Athens in the euro zone.
  2. Greek PM said that Greece would bring a proposal for a cash-for-reforms deal to an emergency summit of euro zone leaders.

[op-ed snap] Lessons from a Greek tragedy


 

The Greek episode has exposed fundamental assumptions about the role of the state and its capacity for reform to a searing examination.


 

Two key takeaways:

  1. The idea that nations in different stages of development could be yoked harmoniously under a common currency without sufficient fiscal oversight might never truly be a sustainable one.
  2. From a comparative Indian perspective, there are long term challenges looming for the NDA government too.

In this year’s budget, the government pushed back by a year, to 2017-18, a deadline for cutting the fiscal deficit to 3% of the gross domestic product. For now, the government has largely chosen to focus on disinvestment as a means of deficit reduction but ultimately it will need to tackle the revenue deficit and unfunded welfare subsidies.

Greece to move ahead with referendum

  1. Greek PM has urged the people to vote ‘No’ in the referendum due on July 5.
  2. He says that a ‘No’ vote does not signify a rupture with Europe, but a return to the Europe of values.

  3. Crisis has also opened another rift in Europe with France in favor of an immediate agreement with Greece and Germany stern on its stand of no agreement before the referendum.

Greek crisis: India fears capital outflows

  1. Acc. to the Finance Secretary Rajiv Mehrishi, The Greek crisis could trigger some capital outflows from India.
  2. How? If yields on euro bonds go up, then it might impact inflows and outflows from India.
  3. It is feared that cash-strapped Greece would miss the deadline for repaying its debt leading to other European countries suspending the credit lifeline to it.

Greece proposes a 3rd bailout!

 


 

  1. The Greek government has proposed a new Two-Year bailout programme, according to news breaking in Athens.
  2. This two-year programme would be supplied under the European Stability Mechanism (Europe’s bailout fund).
  3. And – crucially – would run alongside a debt restructuring.
  4. And it wouldn’t include the International Monetary Fund!

[Discuss] How would you vote in the greek referendum?

 

 

Greece to hold referendum on debt deal

 


The Greek Prime Minister has declared that the country will hold a referendum on July 5 on whether or not to accept the debt deal that has been proposed by its international creditors.


  1. Greece has refused to accept cuts to pension payments or public sector wages.
  2. The IMF is pushing for deeper spending cuts, not just more tax rises
  3. A key point of friction is a special benefit paid to some low-income pensioners, which creditors want scrapped.
  4. Creditors also want a wider VAT base; Greece says it will not allow extra VAT on medicines or electricity bills, and has also resisted calls for VAT hikes on hotels and restaurants.
  5. Athens wants a concrete commitment to debt relief, something its creditors are not offering

 

 

BBC

[cd explains] How did Greece get in this mess?

 

BBC

Greece Is in a Worse Spot Than America Was in 1933

  1. Using the second definition of depression, most economists refer to the Great Depression as the period between 1929 and 1941.
  2. Economic depression is highly subjective and includes the depth of contraction with the chronic nature of a given slowdown.
  3. What is certain is the plunge in output qualifies Athens to scream: “depression.”

Greece yields, world hopes

Greece’s creditors suggested for the first time that a deal to avert bankruptcy is in sight after a proposal by Athens made significant concession on pension cuts. They will be coming to the table for discussions on tax cuts & EU + IMF might just unlock an aid.


But first things first, Greece makes up just 2% of the euro zone economy, so should you even care about what finally happens?

Yes.

Above and beyond the economics of the Greek crisis, however, what is clear is that the political implications of a default and possible euro exit would be huge and largely negative.

If Greece melts down, who really cares?

  1. Athens is facing another deadline to repay its debts, putting Greece again in spotlight.
  2. Greek default does not imply Greek exit from the EU or euro.
  3. But the political implications would be huge and largely negative.

    Governments in the other countries on the receiving end of EU-mandated austerity having been closely following events there. Debt relief offered to Athens might inflame their own opponents of austerity. Should Greece exit the euro and perform relatively well, such pressures would increase!

CNN

Questions (attempt in the comments section)

1

“In democracies, the majority principle is workable, but it is morally unjustified because it violates the right of minorities to secure ‘voice’ in decision-making.” In the light of recent Brexit referendum, critically comment on the statement.

2

Do recent developments at Brexit portend a larger global anger against the governing structures of our time? How does it impact the globalisation and apparent convergence of countries? Critically examine.







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