Sunday, June 26, 2016

On the U.K. Exit- Selected Observations

Last Thursday, 52% of U.K. voters want to “Leave” European Union and 48% want to “Remain.”  The news triggered significant volatility across global markets.

The following are selected views on the impact of the vote:
  • British Prime Minister David Cameron - “The British people have made the very clear decision to take a different path and as such I think the country requires fresh leadership to take it in this direction ... I do not think it would be right for me to be the captain that steers our country to its next destination,"
  • German Chancellor Angela Merkel - "We take note of the British people's decision with regret. There is no doubt that this is a blow to Europe and to the European unification process … [the consequences] depend on whether we -- the other 27 member states of the EU -- prove to be willing and able to not draw quick and simple conclusions from the referendum in Great Britain, which would only further divide Europe,
  • Germany vice chancellor and economics minister Sigmar Gabriel - “Damn! A bad day for Europe”  
  • French Prime Minister Manuel Valls - "It's an explosive shock. At stake is the break up pure and simple of the union ... now is the time to invent another Europe." 
  • Former US Treasury Secretary Larry Summers - “As suggested by the fact that stock markets in Italy and Spain are down almost twice as much as in the U.K., the prospects for Europe may in some ways be worse than for the U.K. There is the real risk of “populist exit contagion” in a number of countries…. The effects on the rest of the world will depend heavily on psychology. I continue to be alarmed …  I fear this possibility will lead to a freezing up of spending decisions particularly on the part of internationally oriented businesses.” 
  • Advertising firm WPP CEO Martin Sorrell - "This decision will create tremendous uncertainty, which will slow economic activity and decision making," 
  • Airbus CEO Thomas Enders - "This is a lose-lose ‎result for both Britain and Europe … we will review our UK investment strategy, like everybody else will."
MY TAKE
  • Regardless of the rationale for the “Leave” vote (concerns about immigration, globalization, unemployment trends, etc.), increased uncertainty will likely dampen global commerce.
  • Scotland, and possibly Northern Ireland, may exit the United Kingdom, while maintaining EU membership, but other EU members may consider an exit.
  • It is unclear if the “Leave” political leadership is prepared to address the significant challenges ahead.
  • Bottom line: This is highly unpredictable and very unfortunate mess.

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