The coming days will be tumultuous. But let’s stay calm and rational as the terms of this historic decision become clearer over the longer term.
The world didn’t end with the Brexit vote. At least, where I am, the sun came up and ushered in another day.
But the coming days, certainly, will be tumultuous. With the outcome of the U.K.’s vote clear, there will be significant volatility in the markets as they correct from earlier assumptions and expectations.
The surprising outcome of the election will create continuing uncertainty for some time to come, and this uncertainty will roil the markets rather than calm them. But while the markets search for the “new normal” and clarity on the outcome of the vote, the reality is that very little change will happen in the near term.
That is not to say there will not be impacts from this election; certainly there will be. The little I have invested in the market will be worth less at the end of today than it is this morning. I have no idea what it will be worth a month or a year from now. But much of today’s reaction will not be based on fact. It will appeal to fear and emotions — not the things that any of us look for when making sound, important decisions.
Likely participation in European Economic Area (EEA) will maintain free movement of capital and goods
Remember, the European Union was founded after World War II to help avoid further European conflicts. There were six founding countries — Belgium, France, Germany, Italy, Luxembourg, and the Netherlands — and the U.K. didn’t join until 1973. Beyond the original goal of peace and stability, the E.U. facilitated smoother flow of people and products throughout the continent and grew to include 28 European nations today (soon to be 27). Its impact has been far-reaching and profound, unifying nations that were previously at war.
But there always have been discontented factions that promoted a more nationalistic, less unified agenda. These factions haven’t been isolated to the U.K. These nationalistic groups’ interests were mostly limited voices with little popular backing, but coupled with the increasing terrorist attacks and the influx of immigrants from the Middle East and Africa, the cracks in the E.U. have become more pronounced. The U.K.’s decision to leave the E.U. has blown the crack wide open.
Still, the impact of this decision will take a long time to play out. The U.K. will have to pass legislation that authorizes its withdrawal from the EU. Following that, the U.K. will have to invoke Article 50 of the Lisbon treaty, initiating a two-year period of negotiations of the specific terms for the withdrawal. And in all likelihood, after withdrawal the U.K. could decide to join the European Economic Area (EEA). Under the EEA, non-E.U. member countries can participate in the E.U. without being full members. The EEA provides many of the same benefits of membership, including the free movement of capital, good and services, and people. Current non-E.U. members of the EEA include Iceland, Liechtenstein, and Norway.
Possible increase in risk of nationalistic agendas
With the high emotions that come with uncertainty, there is a potential for more nationalistic agendas to take deeper root and further exploit existing cracks and divisions in other countries, both in the E.U. and elsewhere. The resulting instability could be much more insidious and long-lasting for the global economy.
Keep calm and carry on
But the immediate, and likely even long-term, impact of the U.K. citizens’ decision should be minimal to U.S. and European interests. The foundation London and the U.K. have established and enjoyed as the gateway to the E.U. is certainly unlikely to change in the near term, if ever.
There will not be mass deportations of immigrants from the U.K. Capital will still need to flow in and out of the U.K, as will both goods and services. The U.K. remains a member of the E.U. for at least two more years, likely more given the time required for the formal notice of withdrawal, and the extensions of time that will likely be granted throughout the withdrawal negotiations. Meanwhile, E.U. citizens, immigrants, and visitors will continue to move in and out of the U.K. in much the same way as today.
So, don’t panic, and don’t give into emotions. Keep calm and carry on as the terms of this historic decision become clearer.