06-15-2016, 11:09 AM
We warned (here) last week that markets were too relaxed about Brexit, but they seem to have woken up to the dangers. Opinion polls now seem to favor Brexit, although how this plays out remains to be seen. Here are a few useful bits on what to expect in the aftermath:
Before dawn on June 24, if an exit vote becomes clear, the EU’s top brass from Berlin to Brussels will be forced into damage control. In echoes of the Greek debt crisis, euro-area finance ministers may hold an emergency meeting as soon as that evening. Wild swings in the pound, more aggressive interventions by the Swiss National Bank and a ratcheting up of global instability rank as likely market reactions. Currency markets haven’t priced in the U.K.’s exit from the EU, so if it happens, “a crash is pretty likely,” Lothar Mentel, chief executive officer of Tatton Investment Management in London, said on Bloomberg Television. “We would have to brace ourselves for quite a rough awakening on that Friday.”
EU Referendum: The First 100 Days of Brexit - Bloomberg
David Cameron is scheduled to meet the other 27 EU leaders at a summit in Brussels the following week. It’s at this gathering that the prime minister is likely to trigger the EU’s Article 50 -- the never-before-used law that catapults nations out of the club. That would set a deadline of two years -- until the end of June 2018, during which time the U.K. would have to negotiate its exit. Will Cameron want the U.K. to become like Norway or Iceland and maintain a close working relationship with the bloc as part of the European Economic Area? Or could there be another set-up that means the U.K. would have to trade with the EU under the World Trade Organization framework?
EU Referendum: The First 100 Days of Brexit - Bloomberg
The U.K. would start talks to renegotiate EU agreements in areas as diverse as fishing quotas, financial-services legislation and health and safety standards established over more than 50 years, simultaneously having to start negotiating its own trade deals with the rest of the world. Talks would also have to begin on the relocation of EU bodies headquartered in the U.K., such as the European Banking Authority. Each step of the way must be agreed upon by the EU’s other members and the European Parliament, a process lasting at least seven years and with no guarantee of success, EU President Tusk told Germany’s Bild newspaper. “No one can predict the long-term consequences,” Tusk said in the interview. “I fear that Brexit could be the beginning of the end not only of the EU, but of the entire western political civilization.”