Ask the markets
Some are calling it the biggest shock to European politics since the fall of the Berlin Wall; and rightly so. But it’s not just the politics that Brexit seems set to stand on its head. It’s also the economics. If early signs are anything to go by, which they are, there’s a fair deal of pain as well as panic still to be priced into the market. This is virgin territory indeed in as far as the European Union goes. Britain’s association with it does not just go back 43 years – for which it has been a member – but far longer; to not long after Bismark’s time, when European leaders began advocating a form of convergence that would rule out intra-Europe wars forever.
First point to consider is just why all leading investment banks, academics, politicians, etc, were warning against breaking off. Sudden currency movements, like the pound dropping like a rock to levels not seen since the mid ‘80s, trigger a far reaching domino effect that touches trade, growth, deficit, wages, etc. That gold has shot up is another indication that volatility is likely to dominate the market in the coming days.
The seemingly stiff reaction from Brussels – that they’d like formalities to be completed as soon as possible, even though London is fine with taking it slow from here – owes in large part to uncertainties that are cropping up in markets across the continent. The sooner this ‘phase’ can be put to rest, the better from EU’s perspective, at least. Then there is the very real threat of recession. That was the biggest threat in Cameron’s bag; and it seemed working very nicely till the result was actually announced. The immediate stun of Brexit, it seems, is just the beginning of more trauma in the financial markets.