Britain’s exit from the European Union is a study in what happens when change disrupts a market. On June 23, 2016, United Kingdom residents made history by voting to leave the EU. Emotion fueled the exit campaign into reality; British economic dissatisfaction opened the door for passionate campaigners to sway the public just enough to push the vote through. Worldwide, the maneuver dazed stock markets. Although major changes have yet to take place, just the news of the reorganization is sending the EU economy into a downward spiral. Now that Britain has achieved what most thought was impossible, the nation must find its way in this new environment.
The British Exit Saga
In a June 2016 BBC News commentary, Brian Wheeler and Alex Hunt chronicled the UK’s momentous departure from Europe. [1] The referendum, which was open to all voting citizens, passed by a narrow 2 percent margin. Voters weighed in from all territories, which included nine English regions, Northern Ireland, Scotland, and Wales.
Of these territories, almost all voted solidly one way or the other, with the total vote split near the middle. Ultimately, the decision to break ties with the European Union prevailed. About 30 million UK citizens participated in the vote, which represents a little more than 70 percent of the nation’s voting population. It was the largest voter turnout in the country since 1997.
Emotion Is a Powerful Influencer
Matthew Fisher, in a National Post article, describes the event as “bizarre” and the result as defying all economic and cultural logic. [2] Older citizens normally known for maintaining the status quo wanted to leave the European Union, while younger voters who are often the impetus of change wanted to stay. The entire campaign for voters choosing to leave the union hinged on the relatively minor immigration issue. Britain’s successful bid to break ties has wreaked short-term havoc with global economic markets as expected, and internally, the British pound has taken a nosedive. [3] The dissenting voters have no clear political agenda, leaving the victors uncertain of what the future holds.
Personal Perspectives Sway Minds
Fisher expands on the immigration issue and points out that the campaign’s sticking points were not well-grounded in facts. [2] Many exit campaigners cited job thefts and an overburdened healthcare system as reasons to leave. Supporters also fueled the Leave campaign with the so-called terror threat presented by immigration. According to Fisher, there is no quantifiable data that suggests that immigration is a real problem. In a recent New York Times article, Peter Goodman also commented that leave campaign leaders built on freshly forming, irrational immigration fears. [3] So far, the move has done nothing but increase investor unease around the globe.
The Economic Blowback
Goodman said this event, dubbed Brexit by the media, has changed the worldwide economic environment. Most notably, Europe — the world’s largest market — is experiencing an investor run. Major stock exchanges, such as those in Tokyo, London, and Japan, are also feeling its effects as financiers move their funds away from European interests in search of short-term stability. Other large economies, such as China and Brazil, are struggling through this process as well.
Analysts predict that international bankers will shift their British workforce to the more stable EU and Britain’s trade quotas will soon suffer. Additionally, smaller investors around the globe have pooled their funds into safe, low-performing treasury bonds.
For Every Action, There’s a Reaction
Other than stock market runs and some trade barriers, Goodman does not foresee more major changes in the near future. According to analysts, Brexit has the potential to severely cripple the country’s financial dealings with the world over the next two years as British legislators negotiate terms with the EU. A lot hinges on future negotiations; if Britain and Europe do not reach a consensus, Britain could fall under potentially punishing World Trade Organization governance.
For now, businesses are holding steady as they wait to see how the Brexit dust will settle. With Europe struggling to stabilize its economy, the move further throws it into disarray. Brexit goes directly against EU efforts to improve solidarity in the region since 2000. The financial limbo created by the event is likely to cause all economic markets to suffer.
What Happens When the Boat Rocks?
An Economist piece expresses that now that Britain has voted for sovereignty, it must deal with the consequences. [4] According to the article, international markets are reeling after the possibility that no one took seriously — Britain leaving the EU — came to fruition. Britain’s pound is at its lowest value since 1985. The Economist forecasts that Britain will have to slash trade prices to compete in this even more volatile trade environment and that the cost of living increases for the country is inevitable. Already, Britain’s largest financial institutions — Barclays and Royal Bank — have had to freeze trading to prevent stock runs. As in the rest of the world, money normally invested in stocks is pouring into more stable government bonds. Analysts hope that the dire financial predictions made by industry leaders such as Natixis, Julius Baer, and the Swiss National Bank are wrong, but they do not paint a profitable picture for Britain in the first quarter of 2017.
Brexit magnifies what happens when major market movers make sweeping decisions. It proves that emotions are a powerful force for change. Although the movement succeeded narrowly, its effects resonate with thunderous impact, not just in European markets but internationally. In the meantime, the world holds its breath as it waits to see how the change will play out.
Learn More
At Ohio University, we understand how important an MBA can be to advancing your career. We also know that your MBA should be affordable, engaging, and academically-rigorous. That’s why we have designed an online MBA that is comprehensive and challenging, yet flexible to fit your lifestyle. When you earn your MBA online from Ohio University you are making a conscious decision to improve your professional value and position yourself for current and future business opportunities.
Sources
BBC News, “Brexit: All you need to know about the UK leaving the EU”
National Post, “Matthew Fisher: Nostalgia, misinformation fuel Brexit campaign that defies conventional logic”
The New York Times, “Turbulence and Uncertainty for the Market After ‘Brexit’”
The Economist, “Britain faces Project Reality”