Brexit – A deep breach in the European Unity

The United Kingdom is in a process of leaving the European Union. There is no ambiguity on the results of the referendum. It’s a terrible disruption for Europe as its unity is called into question. But it’s also a deep change in perspective for young people who are the future of the UK: 75% of the 18-24 wanted to remain. Therefore conflicts of generation will be a real issue in coming years. What has changed with the result is a deep break in expectations as the relationships of the UK with the rest of the world will follow a new profile. With the European Union the access tot the single market will no more be the reference as we can anticipate trade barriers that have to be defined. In relationship with the rest of the world, British trade was embedded in EU agreements. These latter will no longer be the reference for the UK. In other words, the fifth most powerful economy in the world will have to define new economic relationships with the world. It creates a risk of fracture and will create large uncertainty. That’s why a recession is probable in the UK in coming months. At the same time, the banking sector activity which is the strength of the City will see a large part of its business in Euro moving to the rest of Europe. Continue reading

Brexit

The experience will start rapidly after the vote for a “Leave” at the British referendum. Rules will change dramatically and this is a direct experience for economists to measure the width of a persistent shock. The will to exit from the European Union will have a strong and durable impact on Brits’ life but also on the whole Europe.

Nevertheless, in the very short term, nothing will happen on the economic side. But expectations will change dramatically and this is this phenomena that will weigh on financial markets. Central banks will not be neutral and they will have to intervene in order to avoid a spillover effect of the British shock. The global growth momentum is currently too weak to allow the diffusion of such a shock. As during the 2008/2009 crisis, swap agreements between central banks will be reactivate to provide liquidity to the global financial market. Continue reading