brexit

Brexit Fears Roil UK Markets

February 23rd, 2016 by

brexit

The pound sterling it hitting fresh seven-year lows after being bashed yesterday on the news that political heavyweight Boris Johnson, the mayor of London, will be campaigning for the UK to leave the European Union.

The news is a serious blow to Prime Minister David Cameron, who was counting on the danger a “Brexit” would pose to the massive London financial district to bring Johnson over to the “Remain” camp.

News of Johnson’s decision immediately boosted the odds of the UK leaving the EU by 10%, to a range between 30% and 40%.

EU breakupJohnson calls the “unstoppable and irreversible” encroachment of EU authority over the UK the best reason to leave the Union. He maintains that between 15% and 50% of the laws passed in the UK are written in Brussels, and the only recourse from them is the European Court of Justice. The London mayor also floated the idea that a vote to exit the EU would spur European Union bureaucrats to give in to Britain’s demands. If Britain got what it wanted, it could then have a second vote to rejoin the EU.

PM Cameron ridiculed Johnson’s thinking, noting “the idea that other European countries would be ready to start a second negotiation is for the birds.” He pledged to invoke Article 50 of the Lisbon Treaty, which is the mechanism to leave the EU if the referendum is in favor of leaving the EU. The Guardian explains what happens once Article 50 is invoked:

Once article 50 is invoked, the UK would lose its seat on the European council, which is made up of the EU’s 28 leaders. The remaining 27 leaders would appoint two member states to negotiate a UK exit over two years. This would then be voted on in the European council through the process of qualified majority voting where no country has a veto. It would then have to be approved by the European parliament.

Cameron wrung numerous concessions from the EU in a negotiated agreement last week, but not everything he wanted.  These concessions will be out the window on an Exit vote by UK voters. Cameron’s Conservative Party is fracturing over the exit referendum, with 2/3 of Tory Parliament members wanting a break with the EU.

Cameron released Cabinet Ministers from the usual pledge to back government’s position, to allow them to campaign for or against the Brexit, which saw some of them break ranks and lobby for a “Leave” vote. The divisive issue, inflamed by crimes perpetrated by the tidal wave of Muslim immigrants, threatens to destroy the Conservative Party.

Will Brexit Be Bad For Business?

London’s financial district, know as The City, is Britain’s largest industry. A Brexit would remove open access to EU markets for these banks, with nearly certain catastrophic results. The need for Britain to renegotiate a whole raft of treaties with each European nation threatens to crush exports. Nearly 200 of the UK’s largest companies, including Airbus, Rio Tinto, HSBC and Royal Dutch Shell signed an open letter calling for the country to stay in the EU.

HSBC said that Britain leaving the EU would mean that 1,000 jobs in The City would be moved to France.

Currency Uncertainty

The plummet of the pound this week may be just a taste of things to come. JP Morgan forecasts a 10% drop in the pound, and a corresponding 1.3% increase in the euro. Others note that the turmoil that the sudden removal of the European Union’s second-largest economy would cause would trash the euro as well.

Will Brexit Open The Floodgates Of EU Collapse?

The UK is not the only nation chafing under what is seen as power creep by EU bureaucrats. The crimes being committed by the flood of immigrants into Europe has propelled Euroskeptic parties into prominence in several EU nations, and may be a greater factor in exit movements than the encroachment by Brussels on the sovereign power of the member states

brexit-contagionA Brexit would not only have economic ramifications, it would provide a literal blueprint for other nations to leave the EU. It could also give a boost to European separatist movements such as the one in Catalan, the Basques,and the partition of Belgium. It would also give renewed energy to Scottish separatists.

The possible harm caused by a Brexit could be far more wide ranging than assumed.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product