Napoleon Bonaparte may be turning in his grave again. The
French Emperor had a grand vision of United Europe and he almost accomplished
his Vision. At his peak day in 1810, the United Europe under him stretched from
Spain to Poland. However, his grand vision of ‘United States of Europe’ was
squashed by British in the fields of Waterloo around 201 years back on a rainy
June 1815. British went on to enjoy one of the best centuries in their history
post 1815.
Now on another rainy day in June 2016, British ended the European
dream of a ‘United States of Europe’. Europe will not be the same again after
British left European Union (EU). By 2010, the European Union was expanding its
geographical reach by including more countries. Even Ukraine was eager to join,
divorcing from Russia, who was their long term friend and cousin. In fact,
snatching Ukraine from under the nose of Putin irritated him leading to a civil
war sponsored by Russia, bringing in misery to many parties concerned. Even
here, one can draw some remote / rough parallels of Russia’s war with Napoleon in
1812, which resulted in tactical advantage to Russia. Tsar Alexander declared
war on Napoleon as he expanded his empire close to Russia territories. Similarly
it can be argued that Russia moved against EU using Ukraine as proxy after
European Union decided to annex / add Ukraine to EU.
EU Commission President Jean-Claude Juncker (French) is
putting up a bold face and asked United Kingdom (UK) to quit EU as soon as
possible. However, will Jean’s bold stand pay off? What would be the aftermath of British
decision of quitting European Union? Will it bring in an era of prosperity and
glory to the UK just as the hundred years after Waterloo? Or will Britain will
fall into an era of despair and it will go back to pre-1600s, when it was known
to be a cold island of fishermen? It is remarkable how a fishing nation
transformed into a nation of shopkeepers and spearheaded industrial revolution
and finally controlled about a third of the world at its peak.
While many post-colonial generation, who study their own
version of history lambast Britain for the colonial era atrocities and
excesses, it is undeniable that they have left lot of positive qualities and
imprints that still form the strong cornerstones of post colony nations, such
as India. In fact, it is through the English language (and not through Hindi or any
of the 22 languages spoken in India) that Indian Information Technology
industry flourished across the world. The fundamental institutions such as
Courts, backbone of Indian bureaucracy Indian Administrative Service (IAS),
Companies Act, modern medicine, chartered accountancy, mullaperiyar dam - that
sustains the lives of millions in the state of Tamil-Nadu etc - are the
legacies of colonial rule in India. They restrained Afghans in the North and ended
‘IS activities’ of Tipu in the south while China never dared to stare across
the border or annex Tibet while British moved around in India. However, within
7 years after Britain left India, China conquered Tibet and India watched
silently as Tibetan leader (Dalai lama) rushed across the border seeking
India’s help!. Similarly, Iran kept
their hands off the islands owned by UAE till 1971. Once UK left UAE in 1971, Shah
of Iran snatched and occupied unlawfully the islands that belong to the UAE. This is not intended to justify the colonial
times in India and UAE, but just to give another perspective so that the reader
may take a balanced view of those times.
Coming back to 21st century from the dark &
dim aisles of 18th and 19th centuries and somewhat
brighter 20th century, how would Britain and rest of Europe evolve
after the historic voted in June 2016? Financial Thoughts believe following
scenarios are possible, depending upon how the Britain and European leaders
will decide:
Scenario 1 : Although Britain is out of EU, it may still continue to
be a member of European Free Trade Association (EFTA). In order to do this,
Britain should continue some contribution to EU budget. This scenario will
enable Britain to get access to European markets stretching from Spain to
Greece & Italy to Poland. Possibly, Germany may support this scenario as Germany
tops as one of the largest import partner of the UK. The trade will continue
unfettered bringing in associated benefits to Britain and Europe. Also under
this scenario, it is assumed that other EU nations will continue as one bloc
under the leadership of Germany and France, just as Winston Churchill visioned
soon after the end of the second world war. This is possibly the best scenario.
Scenario 2: Encouraged by the victory of ‘Leave’ vote, far rights in
France, Netherlands may force a ‘referendum’ and if those countries move out;
it will spell disaster to EU. Then, of course, the existence of Euro as a
currency will also be in doubt. Disintegration of EU and Euro needs a separate
study as how it will impact the various economies all over the world. Luckily,
the risk of such a scenario seems remote as no thinking leader of EU nations
will rush into such a referendum in the near future.
Scenario 3: Encouraged by the victory of ‘Remain’ vote, Scotts have
started asking for independence from UK. If that happens and Scotland separates
and Britain is denied a member in EFTA by EU as retaliatory measure, that would
end Britain’s whatever glory it has hung during the post colonial era. London
will cease to be the financial capital of the world and its economy will
shrink. The names ‘Britain’ or ‘UK’ will disappear from new headlines just like
the mighty USSR disappeared from the contemporary world. Only ‘England’ will
remain!. Without ‘Scotts’, England will be a weaker. All the good times,
England enjoyed in the world, was with the company of Scotts. Let us see; how
events will unfold. Undoubtedly, scenario 3 will be a nightmare for UK and if this
happens the next generation of English will regret the vote for ever and will
cause Winston Churchill turn in his grave.
Scenario 4: Although UK voters voted themselves out of EU, the UK
Parliament has to officially put their stamp of approval and authorize UK
Government to invoke Article 50 of EU and notify EU officially that would like
to quit. This has not happened yet. There is a speculation in the market that
UK may not ratify the referendum in the Parliament in which case the referendum
may become void. However, this will tantamount to rejection of people’s choice articulated
in a referendum.
It is not clear which of the above scenarios will play out.
It depends upon a lot of factors and decisions by UK and European leaders. As
of now, it seems that Scenario 1 has some good chance, provided their leaders
take right actions.
What all this holds for Indian stock market? Will it be in
trouble? Will it continue to be strong performer going forward? Financial
Thoughts believe that despite the recent sharp volatilities in the Indian stock
market, there is not much to worry as far as Indian stock market is concerned.
Now India is officially the fastest growing large economy in the world. India
has surpassed China as the fastest growing economy. Every dip in Indian stock
market may throw up great opportunities to make Warren Buffet like long term investments
that ought to multiply your wealth in the medium to long term.
