June 23, 2016 51.9% of the electors voted for the UK exit from the European Union. Fall of the British pound has broken a 30-year record – the price of the GBPUSD pair fell 1770 pips (from 1.50000 to 1.32300). The referendum result has dented the euro position – in the key EURUSD currency pair the European currency weakened by 510 pips (from 1.14250 to 1.09150).
According to the unanimous opinion of experts the Brexit is no good for either one or the other side in the near future. Let’s try to combine analysts, economists and financiers’ comments, and see what is waiting for Europe and the UK.
Negative BREXIT consequences for The European Union and UK
Threats for the Great Britain
- The disruption of trade relations with EU countries and not only with those, which get a half of British export. The need to establish a new format of trade relations.
- No more influence while adopting strategic all-European decisions.
- Risk to lose Scotland and Northern Ireland whose desire to be in structure of the United Kingdom has been partially driven by desire to have membership in the EU.
- Predicted prolonged recession of the British economy, the GDP fall, the decline in investments, salary level and unemployment growth.
- The fall of the pound sterling and all the tools correlated with it, instability in the banking and financial sector.
- The uncertainty regarding the status of the British living in EU countries.
Threats for The European Union
- A possible dissolution of the European Union. For the first time during EU existence the member country has expressed a firm intention to separate, what is not a really good sign. Great Britain can become an example for other states which are not satisfied with Brussels policy (such as Germany) or those territories for which the separating question has historical basis (Catalonia, Scotland). George Soros considers that British secession is the beginning of the end for the whole Union, and possibly NATO.
- The widening of contradictions between the EU member states against the problems with migrants and uneven economic development of the member countries when many stronger states are forced to credit weak ones.
- The economic slowdown, the euro rate decline. A possible decrease in credit ratings of the member countries.
Positive BREXIT consequences for The European Union and UK
Opportunities for the Great Britain
- An opportunity to conduct own foreign economic policy, including refugees issue. As a result – increase of the security level and more effective fight against threats of terrorism.
- Financial motives – in 2015 the membership fee of Great Britain was £13 billion, and compensation – only £4.5 billion. The difference is obvious.
- An opportunity to improve more profitable relations with the states out of the EU.
Opportunities for the European Union
Not found. Really, nobody speaks about positive consequences for the European Union.
Despite pessimistic Soros’s warnings, who predicted the reduction in cost of pound to dollar by 15-20%, it didn’t happen. But even a 3% drop forced the market to be nervous.
Wilbur Ross, on the contrary, buys pound, emphasizing that the market responded to a referendum too emotionally. As process of an exit will be extremely long, one should not doubt in stabilization of a rate.
The situation with Great Britain is so non-standard that nobody undertakes to give exact forecasts. We do hope that gloomy scenarios are too exaggerated. Although now some political groups in France, Germany, the Netherlands and a number of countries show intention to hold a similar referendum.