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Brexit set to plunge UK into turmoil!

Brexit

BREXIT

Fundamental analysis

With a knee jerk reaction, and almost unbelievingly, the morbid realization of Brexit has hit the market hard.  Volatility was the mainstay in trading after the announcement of the results and it is expected that globally Brexit has wiped out two trillion dollars.  The British pound faced ­­a precipitous fall and reaching lowest levels in three decades as it fell from $1.50 against the US dollar right down $1.33 before posting some recovery, closing out at $1.368.  The London stock market also fell sharply, but recovered with a dip of 3.1% drop or 199 points, as quasi hiatus prevailed at closure.

The accession process will bring about economic and global uncertainty which could have strong regional and global economic and political undercurrents.  For example, populists in other EU countries, France, Germany, Italy and other smaller members have already been lobbying to leave and Brexit could actually have a domino effect.  It has been common thought that bargaining with the E.U. governments over new trade agreements could be an interminable process, it appears now that the onset of unprecedented economic, constitutional and by far political crisis are already setting in as European leaders are increasingly pressurizing to expedite the ‘leave’ process.   The economic plight has heightened by the actions of credit rating agency Moody, which cut UK’s rating to negative and has warned of a prolonged period of uncertainty.  On the political front, the Scottish government has formally agreed to pass legislation that would pave way for second independence referendum, and was also commencing immediate discussions with EU institutions, to explore the modus operandi to secure Scotland’s place in the EU.

Speculation will remain pervasive, as there is a heightened probability of uncertain geopolitical repercussions with regard to other EU member states, who have been rather ambivalent about the surrender of their own sovereignty to the greater EU.   The EU would have to institute necessary reforms, and also set an example with stringent exit agreements with the UK, so that other member states don’t follow suit.  The resounding underlying message that EU would like to propagate would be geared towards reducing uncertainty while making it clear to voters that a fallout of exit bears a heavy cost.  This message can be best delivered if the exit process is swift and strength of sociopolitical undercurrents are moderated at a point in time when France and Germany are due to face national elections next year.

With the tangible impact of Brexit primarily dependent on how EU may want to dispense with the negotiating process, the paradox of outcome may just be that what may be most politically beneficial, in terms of policy independence, will have the most damaging economic repercussions.  The question is what would be the drift of the wind; whether an agreement imitating Swiss style, reliant on partial access enacted via individual agreements, or would it be Canadian style formulated on a comprehensive and trade agreement, allowing fullest access without the need to contribute to the EU budget.  But as already mentioned EU negotiators would want set an example to others, that exit means serious consequences.  Different scenarios could emerge:Brexit Trade Models with the EU

While the tangible agreements are sorted out the political landscape is already heating up as Brexit campaigner, Boris Johnson, has thrown his hat to be a successor to David Cameron.  An internal party strife has been stirred up, as campaigners the likes of Theresa May and George Osborne may stand in as competing candidates.  Also the Observer has revealed that the Labor Leader, Jeremy Corbyn, has sacked his foreign secretary, under the notion that he was preparing to launch a coup against him.  This is the general state of the mutinous environment of the labour party, many of whom who are furious on Corbyn’s inability to secure an anti-Brexit outcome.  While the bargaining with EU governments may take years of negotiating, the already erupting political turmoil and ensuing legal uncertainties will have serious implications not only on the currency, at the behest of aggravating economic pain, but it also sets up the precedent of a recessionary environment.

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