BREXIT AND

SUSTAINABLITY OF
EUROPEAN
GROUP 5 ECONOMIC UNION
Anish Arora (B18131)
Burhanuddin Hakim (B18140)
Rahul Ravindran (B18159)
Sanya Dhandhania (B18164)
Shreya Tripathi (B18169)
Yash Dalvi (B18181)
 Formation of the European Union
Maastricht Treaty
• Establishment of the European Union (Treaty
of European Union)

1957 • Signed by 12 nations - Belgium, Denmark,

France, Germany, Greece, Ireland, Italy,
Luxembourg, Holland, Portugal, Spain and UK
2007
• Introduced Euro (€) and established the
‘Copenhagen Criteria’ - Guidelines for other
countries to join the EU

Treaty of Rome Lisbon Treaty

• First step to a unified European entity
• Provided the legal basis for the EU of today
• 6 founding members: France, West Germany,
Italy, Netherlands, Belgium and Luxembourg
(European Economic Community - EEC)
1992
• Common market for the members (freedom
for the movement of goods, services, capital
and people)
• Expansion of the European Union to 27 nations
• Reform the functioning of the EU
• Power of the European Parliament extended to
more than 40 new fields - agriculture,
immigration and justice
• Established formal procedure for any member
country to leave the European Union
 Functioning of the European Union

European Council European Commission

• Defines the political • They look after:
direction and priorities 1. job growth, investment
of the European Union 2. energy union, migration
• Consists of the head of 3. fundamental rights
state/government of
each member state

Council of EU European Parliament

• The voice of European • Directly elected legislative
Union members body for all the member
• Adopting EU laws and nations of the EU
coordinating EU policies • Currently it consists of 751
• Consists of Government elected members
ministers from each of
the EU member countries
 Foreign
Relationships

• Negotiate as a group for international trade under EU’s common commercial policy.
• EU Free Trade Agreement of 2017 - established an agreement with countries like
Canada, Mexico and South Africa to promote free trade with foreign nations.
• It has also begun negotiations with USA and India to initiate similar trade channels.
 Reasons for the Referendum

Immigration Payments
• Net migration in the UK doubled • In 2016, the membership fee or the
between 1993 and 2014. contribution to be made to EU by
• The major surge in immigrants Britain was estimated to be £17
was witnessed from Bulgaria billion.
and Romania and the number • The projected funding estimate by
skyrocketed post 2008 crisis. Sovereignty EU on UK was only of £5 billion

Inequality, social liberalism and austerity are the grievances

that made people vote against the stay of Britain in EU
 Immediate Impact

Pound dropped by more Exports increased

than 12% by 10%
 Membership Fee paid annually

Membership Fee Paid £13.1 billion

Amount Provided for expenditure £4.5 billion
Net Payment £8.5 billion

Implications
of Brexit on Trade Implications
the UK • No financial taxes are levied for trade between two fellow countries of the EU

• 50% of EU’s exports are to countries in the EU

Investment

• Will not be seen as an entry point into the EU (US Banks especially) – Tax revenue might go down
• Companies have started moving their head offices out of UK
 Immigration

• Immigration towards Britain was high

• Major immigration from southern and eastern Europe

Implications
of Brexit on Security
the UK • EU did not allow UK to screen and check people
• EU was at times seen as a strong pillar of security specially during turbulent times
• EU made it possible to share intelligence and work on counter terrorism together

Employment

• Brexit could increase number of jobs but it might lead to shortage of labor

• Limiting movement could deter brightest and the best from coming to UK
 -0.05% EEA

Implications
of Brexit on -0.80% FTA

the EU
TRADE -1.50% WTO

-1.60% -1.40% -1.20% -1.00% -0.80% -0.60% -0.40% -0.20% 0.00%

% Change in Output
CROSS BORDER SUPPLY CHAIN

ADS, A British Aerospace

63% Trade Group, is impacted as Big
Of EU Businesses aviation like Dassault and Airbus are
Expected to Switch holding out on UK suppliers
from UK based
suppliers to EU
based ones HSBC is moving 7 offices out of
UK to Paris to handle EU accounts
due to weakened cross border
regulatory power
 -0.05% EEA

Implication of -0.30% FTA

Brexit on the
EU
EMPLOYMENT -0.70% WTO

-0.80% -0.70% -0.60% -0.50% -0.40% -0.30% -0.20% -0.10% 0.00%

% Change in Employment
PROBLEMS WITH LABOR MOVEMENT

Irish Border Problem

Poland
would be hit the
most with around
1 million
nationals living in
UK
 GERMANY

8% of Investments are expected to move from UK to

EU and of that 46% will move to Germany
GAINERS in 2018
AND
LOSERS
NETHERLANDS, DENMARK
AND BELGIUM
1% drop in GDP due to trade barriers
Impacts of Brexit on
the Global Economy
 USA

A sharp rise in the value of the US dollar will put added pressure on the
US manufacturing sector and downward pressure on growth momentum

A higher US dollar is negative to the economy’s export sector

US remains the most stable major global economy, but increased

uncertainty has tilted macro conditions in favor of the US market, even more

US markets will not remain immune from negative global pressures that
have become more negative
 CHINA

China might react to dollar strength facilitating rapid depreciation of Yuan, intensifying
global growth and deflation concerns

Additional pressure on China to float the yuan lower

China faces further negative pressure on growth rates –the need to counterbalance a
bumpy global environment will slow down progress

Inward turn of the Chinese economy may be accelerated by the emerging political and
social climate in other parts of the world
 JAPAN

The flight to safety away from the epicenter of Brexit will push capital away from the
region, toward key safe-haven markets including Japan

This will further lower market interest rates and raise relative currency values

Higher Japanese yen is negative to the economy’s export sector - unhelpful to its efforts
to re-inflate and reinvigorate the economy
 GROUPTHINK
“a phenomenon where people seek unanimous
agreement in spite of contrary facts pointing to another
conclusion” – Irving Janis (1970s)
 Self-censorship of ideas which
Illusions of invulnerability
deviates from group consensus.

Ignoring warnings 8 Mind guards

Symptoms of
Group Think
Risk
Direct pressure to conform Stereotyping

Unquestioned belief in the morality Illusions of unanimity (silence is

of group viewed as agreement)
 GROUPTHINK AND EU

• European Union comprises of 28 countries out of which 19 form a

monetary union and use a common currency.

• Brexit had different effects on different stakeholders.

 As Britain decided to exit, countries like Spain, Portugal,

Poland and Austria have also started thinking on the same
lines.

 They are showing symptoms of groupthink like ‘Ignoring

warnings’, ‘Illusions of invulnerability’ etc.

• A huge creditor/debtor split has opened up, and political power

within the Eurozone rests with the creditors, and Germany in
particular.

• Also, the common currency system is not a very efficient system

for all the members of eurozone. Most of the member states face
a future where their growth is stagnated and unemployment
levels are rising along with increasing poverty.

What are the risks of Groupthink
sinking your business?
The most resilient businesses will look at their
business strategy anew, and break this
strategy down into its constituent
assumptions. These assumptions will then be
examined in terms of the Sensitivity of the
strategy to the assumption, and the Stability
of each assumption.

The uncertainty surrounding Brexit means that,

more than usual, the strategic assumptions will
be more vulnerable to external forces. These
include:

• Access to markets
• Pricing
• Recruitment/human resources
• Supply chain
Thank You