Brexit Perspective From Ground Level

Being in Europe and interacting with many one on one across the spectrum, truly gives a different perspective and feelings about Brexit.

Since 2007, it has been a right of European Union (EU) member states to withdraw from the EU per Article 50 of the Treaty on the European Union. On June 23, 2016 the United Kingdom (UK) addressed the question in a referendum on its membership, resulting in 51.9 percent voting in support of an exit and 48.1 percent to remain. As questions loom as to what the effects of the referendum will be, it nevertheless will have a profound impact on the world for years to come.

In the near future—while it will take a minimum of two years for the UK to officially depart from the EU—Britain will relinquish access to the EU’s open markets, resulting in trade and investment losses. With Europe being Britain’s most vital export market and its greatest source of foreign direct investment, many wonder what will happen to London’s status as a global financial hub that was greatly shaped by Britain’s EU membership. There is a lingering fear that euro-zone countries will impose functionally restrictive regulations. Also, a study conducted by Britain’s National Institute of Economic and Social Research found that slower economic growth and lower productivity could result from losing a migrant worker labor force.

So what does Brexit mean for America? Experts remain unsure as to what implications the move may have, as only time will truly tell. Yet the possibilities are worth considering in the midst of this momentous occasion. Britain comprises approximately one-sixth of the EU’s economy, and a resulting destabilization has the potential to alter the US economy. The Federal Reserve recently acknowledged a possible Brexit (prior to the referendum) as a reason to not raise interest rates, and that a “slower path” for future rate rises is expected.

In a recent statement the Fed pronounced, “The Federal Reserve is carefully monitoring developments in global financial markets, in cooperation with other central banks, following the results of the U.K. referendum on membership in the European Union. The Federal Reserve is prepared to provide liquidity through its existing swap lines with central banks, as necessary, to address pressures in global funding markets, which could have adverse implications for the U.S. economy.” As American companies and investors with exposure to European banks and credit markets will most likely be affected by credit risk, it is also worth noting that the bottom line of US export companies that conduct business with UK and EU customers could take a hit. A weakness in the British pound could trigger an effect on the euro, with the result being that the cost of American products and services would increase and thus soften demand.

There are also claims that US security could be diminished by Brexit, yet the US does not view the EU as a major player in maintaining the nation’s security. Rather, we have always worked primarily through European national capitals and NATO. Despite this truth, there needs to be reflection on what this Brexit could mean for Russia and its President Vladimir Putin. It is likely that anything that contributes to the erosion of a unified Western coalition and sparks European instability can be viewed as a major plus for an assertive Putin and his foreign policy objectives. As US officials are under the impression that the UK has helped more directly align the EU with American foreign policy goals, the Brexit could trigger a diminishing American influence and power amongst European allies. In light of the various sanctions (asset freezes and travel bans) imposed on various Russian companies and individuals, Moscow’s mayor Sergey Sobyanin recently tweeted that without “Great Britain in the EU, no one will so zealously defend the sanctions against us.” Let us hope that this is more of ignorant wishful thinking than a moment of prescience.

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