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Impact Spreads to Markets,
| published June 26, 2016 |
By R. Alan Clanton, Thursday Review editor
The ramifications of the British vote to leave the European Union continue to reverberate across the continent and around the world, with markets reacting negatively on late Thursday and throughout Friday to the decision by British voters to divorce the UK from the EU.
The vote triggered what has been arguably the most dramatic three days of political and economic change seen in Britain in generations, and—as many economists are now warning—the effects of the so-called Brexit may generate a wide ripple effect across the economies of more than a hundred countries as the reality of the decision penetrates scores of markets.
On Friday, Wall Street saw a 600 point fall as a direct result of the swell of uncertainty following the British vote to divorce the U.K. from the EU. The British pound fell against the value of the U.S. dollar on Friday, and by Monday morning in Asia, the meltdown had started afresh, with the value of the British pound falling against the Japanese yen, the Chinese Yuan, and other Asian currencies.
Some economists gloomily predict that the U.K. may face a recession—mild, serious, or somewhere in between—during the next 18 months, a recession which could quickly produce a ripple effect across much of Europe and the globe. Goldman Sachs has warned many of its clients to expect a recession no later than early 2017. Jan Hatzius and Sven Jari Stehn told clients to brace for a possible global slowdown, with its deepest slumps coming across Europe and Britain.
Among the most obvious changes: the EU will soon move the offices of its chief financial regulatory force, the EBA (European Banking Authority) from London to another European city, possibly either Frankfurt or Paris. The move will be one of the first of many radical changes on the immediate horizon for a U.K. soon to shed its formal membership in the EU.
Amidst security and military concerns, American officials sought to calm the stormy waters, with U.S. Secretary of State John Kerry travelling to Britain, and U.S. National Security Advisor Susan Rice declaring in Aspen that the special relationship between the U.S. and the U.K. will remain firm. Rice also said that the White House saw no immediate security or military concerns emerging from the economic and political turmoil sparked by the British vote.
How the British divorce from the EU will impact NATO is unclear, but many worry that Russian President Vladimir Putin will use the rift to his advantage, possibly even adding fuel to the fires in some countries where populist animosities toward the EU are at all-time highs. Some European analysts predict that political movements in other countries may press the issue of separation from the EU into urgent calls for national votes and referendums, sparking as many as a half dozen nations to follow Britain’s lead by stepping away from the EU.
For now, the full political impact remains most notable in the United Kingdom.
In the wake of the resignation of Conservative Party leader David Cameron—a supporter of Britain remaining a member of the EU—politics in the U.K. is on the hinge of a major shift, with Boris Johnson and Michael Gove partnering to take the helm of a Conservative Party now forced to rapidly and radically shift its worldview.
Johnson and Gove has been especially careful to temper their language to make it clear to fellow Britons that the vote is not a divorce from Europe—its values, its markets, its ideals, its culture—only a separation from the EU’s financial mechanisms and commitments. Johnson also appears to be seeking to forge reconciliation between those who supported remaining in the EU and those who voted to exit.
"To those who may be anxious at home or abroad," Johnson told supporters and opponents of the measure on Friday, "this does not mean that the UK will be any less united, nor indeed does it mean that it will be any less European.”
Citing partnerships in areas ranging from education to science, from the arts to the environment, Johnson also sought to distinguish the meaning of the vote from fears of isolationism and severe market separations.
“British people will still be able to go to work in the EU,” Johnson wrote in a column in the Telegraph on Sunday, “to love, to travel, to buy homes, to settle down. As the German equivalent of the CBI—the BDI—has very sensibly reminded us, there will continue to be free trade, and access to the single market. Britain is and always will be a great European power, offering top-table opinions and giving leadership on everything from foreign policy to defence to counter-terrorism and intelligence-sharing – all the things we need to do together to make our world safer.”
For Britain’s Conservative Party, which only 13 months ago surged to victory in a massive election sweep, the political meltdown is severe. Cameron, who in the wake of the Thursday vote announced that he would step down as leader of the Conservative Party—possibly in October—was clearly emotional as he addressed journalists and supporters. Cameron declared that he no longer felt he could serve “as captain” of a nation now sailing in a new direction.
Britain’s Labour Party is also facing disruption, with at least a dozen of its top leaders stepping away from their roles in the shadow cabinet and in the party in the wake of the sacking of Hillary Benn from his role as Shadow foreign secretary. Labour leader Jeremy Corbyn—who asked Benn to resign—is now facing an intense challenge from within. Vowing to remain in place, and insisting he will fight on, Corbyn is battling fears by some within Labour that his party could see slippage of between 30 and 50 seats in the next elections. Citing the millions of people who voted for him, Corbyn has said that he intends to work with other Labour members to put together a new shadow cabinet within days, and that he plans to again seek the top post.
Dire consequences about the full economic and financial impact of the British exit from the EU has triggered so much widespread concern within the U.K. that by late Sunday some 3 million voters had signed an online petition to request that the government offer a “do-over” of the vote, the original outcome of which has sent shockwaves through Britain, and spawned talk of Northern Irish and Scottish votes to leave the U.K.
On Sunday, British Foreign Secretary Philip Hammond said that Britain's exit from the EU would have "catastrophic" effects on the economy of the U.K.
Related Thursday Review articles:
Britain Votes to Leave EU, David Cameron Resigns; R. Alan Clanton; Thursday Review; June 24, 2016.
Cameron's Conservative Party Sweeps UK Elections; Thursday Review staff; Thursday Review; May 8, 2015.