28 June, 2016
As Europeans begin to settle with the new Brexit / Exit realities, some European markets in no time took up to 30% plunge. European leaders are about to meet today in Brussels to discuss British Exit and consequences it will bring to the continental part of the Union as well as United Kingdom itself. On this stage of turmoil hardly one can say better than Glenn Vaughan, Chief Executive, British Chamber of Commerce in Belgium, during one of the first post Brexit debates in Brussels: “From business perspective I think we need to save the best of relationship, that economic relationship is hugely important, that political relationship is hugely important for the future of our economy and security”.
Bruegel Think Tank in Brussels very swiftly organized a post Brexit debate on the effects of the event. British tough move has unveiled a long list of complex problems that Europe faces among the immigration, security, social welfare, single market creation and of course financial markets. It resulted in catastrophic free fall of Global financial markets which have lost so far more than $2 Trillion in plunge starting on “ Black Friday” and diving deeper now. Everybody can only guess how deep this plunge will be. Of course Britain also has not escaped this downfall – the country in one day has lost more money than it has contributed to EU in ten years.
Among the most obvious potential victims that global business community associates with Bruit decision are London’s Financial Markets themselves. Will London continue to be the European Financial Hub? Would companies continue to stay there or they have to frantically look for new locations? These are only few questions out of hundreds that should be answered as soon as possible for the sake of the businesses, finances and jobs.
– The situation is open and so far it is hard to say, what will happen, – said Guntram Wolff, Bruegel Director during Monday morning debate at his Think Tank.
Looking at the Markets indefinite downfall we asked Maria Demertzis, Research Fellow at Bruegel, if Chapter 50 will be triggered only in three months, what you see happening within this time on the markets. Would the roller coast, go sideways?
M.D.: There is a great level of uncertainty surrounding the way forward. It is not obvious how, when and dare I say also, if article 50 will be triggered. This is never good for the economy and we see it today with banks taking an enormous hit.
Obviously it is not an overnight decision and process, so if Chapter 50 is triggered, it will take up to two years of legal procedures and negotiations, this is a traumatic time for any market – the time of instability. Can Britain Afford two years of instability and uncertainty?
M.D.: During the 2-year period allowed by the treaty the UK is a full member of the EU so all agreements hold. However, the markets may be preparing to take positions depending on how they feel negotiations are evolving. Again the longer these negotiations hold the greater the level of uncertainty.
As the effects are snowballing and business and people start to realize that every sector of the economy will be affected, everyone questions how they will be affected and who will take the initial hit? What industries / sectors will be affected immediately by this decision, where economy will be affected at a later date? And how?
M.D.: Difficult to tell but financial services will certainly be affected. Beyond that agriculture maybe one affected given the complexities of regulations that hold at the EU.
In the meantime Credit Agencies are reviewing UK’s credit ratings, and only S&P has not changed it’s outlook on British economy it remains AAA, while everyone else is far from such optimism.
Are the days of British stability over for many years to come, has British passport lost its appeal as one of the most desired in the world. When the markets will come back? And where the investments intended for Britain will go?
To be continued…