Allow the mayhem to commence!
Soon, people all around the U.K. will awaken to the news that their country has decided via referendum to exit the European Union (EU). Once seen as a very unlikely scenario, the momentum for the “Leave” vote grew in the final weeks of campaigning, channeling the popular dissatisfaction with centralized policies from Brussels.
Because no country has ever exited the EU before, there’s no precedent for what the British people will now witness. In fact, there’s not even a strict guideline set for how this will all play out: Article 50 of the EU charter that deals with the possibility of a country leaving the union only requires that the terms of the departure be negotiated within two years. Otherwise, the laws are silent as to how Britain can or should go about reclaiming its full autonomy. Although there is some skepticism about how the terms of the Brexit now placed in motion can be negotiated without invoking Article 50, this is the next logical step for the government.
This begs the lingering question: What now? Undoubtedly, this uncertainty will contribute to considerable turmoil across the financial markets—not just in Britain and Europe, but around the world. Gold will predictably be the beneficiary as investors flee for safety from the upheaval.
Although technically the Brexit referendum is not legally binding, it is extremely doubtful that Parliament will dare ignore the result, especially since Prime Minister David Cameron and the Tories are the ones who brought withdrawal from the EU to a vote in the first place (only to have Cameron campaign against “Leave”). The last time the British people were given a vote on membership in a political union with Europe was the mid-1970s.
One thing that is perhaps being overlooked is that, beyond the carnage in the markets, not a thing will change overnight. Politicians (and business leaders, for that matter) will be locked in negotiations for months and perhaps years as all of the deeply embedded ties between the U.K. and Europe are unwound.
First, corporate interests are likely to leave London to some degree. Although “The City” is still undoubtedly one of the key financial centers in the world, a considerable part of its appeal to multinationals was its access to the single market of the EU. Since the U.K. will now be forced to renegotiate its trade agreements with Europe and virtually the rest of the world, many major companies can be expected to stay away until the dust has settled.
Furthermore, this successful Brexit likely now emboldens euroskeptic sentiment in other countries across Europe. These anti-EU, pro-nationalist movements have especially gained traction since a wave of immigration hit the continent. Now that Britain is gone from the EU, don’t be shocked if a chain reaction is set off that leaves the continental union in tatters. The Netherlands, Spain, and Italy may be the first member states to follow suit, much to the chagrin of Germany.
Awkwardly, Scotland is committed to maintaining EU membership, so we could now see another attempt at Scottish independence, thereby breaking up the U.K., as well. The future of Parliament is completely in question, as the majority of the legislative body was opposed to this outcome. Don’t be shocked if new elections must be called and an entirely new crop of MPs are swept into office.
In any case, the immediate future of the British economy—and the entire EU bloc, for that matter—is now up in the air.
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.