Now that the Brexit vote has shocked the world, anybody with a social media account is now an expert in geopolitics. I guess that makes me one too. We were all under the impression that the United-Kingdom was staying inside the European-Union (EU). Before the vote the market and the British pound was up, a sign of confidence even though the polls were pretty close. We know what happened next. The “Leave” vote won and the wheels came off. Calm turned to chaos and $3 trillion of market value evaporated.
Global markets around the world got blindsided and panic took control. There are lot of uncertainties in the markets and markets hate incertitude. We love to know what to expect tomorrow and now nobody does. The uncertainties derive from the fact we have no idea what Brexit means. There are no answers to the cost, penalties, terms and benefits. The only thing that is certain is that nobody has a plan for what comes next.
Now you have the uncertainties. Uncertainties affect business confidence. Less confidence means less investment, and less investments means fewer jobs. Business decisions will be delayed. It’s possible that the U.K. falls in a mini-recession. There’s talk about moving fast to settle the exit and issues. In this case, fast means a couple years.
The vote was a national catastrophic error of judgement. A lot of folks who have voted for Brexit already regret it. Worse, the “Leave” campaign was being carried under false promises. Many proponents for Brexit have already backpedaled on their promises, notably Boris Johnson who might be the next Prime Minister. Remember that thing about stopping immigration? Well there’s still going to be immigration. And remember that “Leave” campaign bus painted with the audacious claim “We send the E.U. £350 million a week, let’s fund our N.H.S. instead,” a reference to the country’s healthcare service. Well that was just a slogan and has been removed from the campaign website after the election. One Brexiteer politician said that it was only an inspiration. The leader of the UKIP party, Nigel Farage, the face of the Brexit movement, said that the pledge to fund the NHS was a mistake. The two biggest arguments for leaving have been boiled down. “A lot of things were said in advance of this referendum that we might want to think about again,” Liam Fox, a former cabinet minister, told the BBC. The victory can be attributed to a campaign of misinformation and even deception. The leaders of the Brexit campaign are now trying to manage down expectations.
For many the vote was a referendum on immigration. It’s a very emotional and important issue. Many Brits wants sovereignty over the issue. The free movement of people inside the EU is one of the 4 tenets of the EU. The other three are the free movement of goods and services, and capital. Boris Johnson already said he promised that Britain would maintain free trade and free movement deals with Europe. So even though he’s for leaving, he’s 75% in agreement with the EU principles.
No matter how twisted this is, we need to respect the result of the vote. It should be noted that the vote is non-binding. That means the UK doesn’t have to exit the EU. For Britain to formally exit the EU, they need to trigger the EU’s Article 50, the law that would start the process of the country’s political divorce from the EU. Once it’s triggered, they have two years to exit. David Cameron, who is leaving soon, will not trigger Article 50. It will be up to the next Prime-Minister and parliament to make that decision. I personally think the UK will have a 2nd referendum once they know the cost, terms, and penalties of leaving.
I’m in the camp that everything will be all right. Even with a lot of tough talk coming from the EU camp that wants to penalize the UK, I think they will find a common ground that is satisfying for everyone. The UK is linked to the EU no matter what. The most important thing is that all the leaders work together to provide as much stability and certainty as possible. We need to let the dust settle and start thinking rational. In the end, I wouldn’t be surprised once the political games are over that the UK stays in the EU.