Here's what's being reported around the world on the Brexit vote
Courtesy / Iker Merodio, Flickr
Great Britain's historic decision to leave the European Union in Thursday's referendum has triggered a global stock selloff today.
Great Britain’s historic decision to leave the European Union in Thursday’s referendum has triggered a global stock selloff today, with MarketWatch reporting The Dow Jones Industrial Average lost 408 points, or 2.2%, to 17,617, shortly after Friday’s trading began. The Nasdaq Composite began the session down 186 points, or 3.8%, at 4,726, and Standard & Poor 500 opened 37 points, or 1.8%, lower at 2,072.
USA Today reported that in Europe, the German DAX plunged 7.4%, while London's FTSE 100 slid 10.5%, the Stoxx Europe 600 index was down 7.5% and France’s CAC 40 had fallen 8.8%. The British pound sterling dropped 10% to a 31-year low and the euro fell by 3.8%, the newspaper reported.
The United Kingdom ranked ninth in Maine’s 2015 global export markets, with $55 million in exports heading there from the state, according to the U.S. Census Bureau that’s down 6.7% from 2014.
Federal Reserve response
The Federal Reserve issued the following statement on its website today: “The Federal Reserve is carefully monitoring developments in global financial markets, in cooperation with other central banks, following the results of the UK referendum on membership in the European Union. The Federal Reserve is prepared to provide dollar 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.”
Surprisingly, Britain’s vote to exit the European Union wasn’t even close. The New York Times reported today that the “Leave” proponents won by a 52-48 margin, with more than 17.4 million people voting to sever ties with the European Union and 16.1 million voting to remain in the 28-member bloc. The newspaper also reported that British Prime Minister David Cameron, who favored staying in the EU, announced that he planned to step down in October to make way for another leader to “carry out the will of the people.”
It could take over two years
John Cassidy, The New Yorker’s financial reporter, observed that the United Kingdom could break up even before the EU does, noting that the formal process of Britain leaving the EU could take two years or more. Cassidy noted that Scotland, which had rejected the option of independence from the UK in 2014, voted 62-38 in favor of staying in the EU. Likewise, he reported, Northern Ireland voted to stay in the EU, which has prompted the Irish nationalist party Sinn Fein to call for a referendum on a united Ireland.
Trade impact
Warwick Business School, located about an hour north of London, sent a press release to Mainebiz with comments from three of its professors that offer an insider perspective on how the exit vote might impact Britain’s economy.
Stephen Roper, who researches growth and innovation and is director of the Enterprise Research Centre: “Small businesses need to prepare for a period of volatility as markets react. Gains in terms of reduced regulation and EU membership costs may follow, but are probably some years off.
“Over the next few weeks a weakening of sterling will help exporters, but will make euro imports more expensive, raising all small firms’ input costs. Interest rates too may need to rise, raising business borrowing costs. Longer term, European firms may also switch orders away from the UK to insulate themselves from any changes in trading relations between Britain and the EU.”
Christian Stadler, author of “Enduring Success,” which involved researching Europe's biggest companies: “It is not clear what’s happening next and businesses will be reluctant to invest. I don’t expect that there will be a massive exodus, but rather than expanding in the UK, companies are likely to do it in Europe instead, particularly for businesses which export to the EU. The devaluation of the pound should help exports slightly, but it will be an issue for all those who have EU suppliers. There is an expected contraction of the UK market, which will hit sales in the UK.
“If the UK takes a tougher stance on immigration, for businesses this will be a disaster as the EU will retaliate. Access to the EU will become difficult. For some companies this means doing business in Europe won’t be attractive any more. Others will have to deal with complicated bureaucracy. In short: a nightmare."
Kamel Mellahi, who researches emerging markets and business strategy in China: “A key concern for many Chinese firms who have invested in the U.K. is that Brexit will see their business suffer because they will find it difficult to access EU markets from Britain. A big part of the appeal of the UK for Chinese investors is access to the EU.
“A significant number of Chinese businesses see the UK strategically placed as a gateway to EU markets, but with a Brexit they may put on hold investment in the UK until a clearer picture over trade deals with the EU emerges. This may not be the case for sectors that are more detached from EU markets such as real estates and higher education.
“It will be interesting to see whether Chinese and other Asian companies that have committed investment and have their global or European headquarters in the UK will move part or all their investments to the euro zone now. If one goes by what has been widely reported by Chinese corporate leaders, Brexit will dampen the appeal of the UK for Chinese investors.”
Photo: Iker Merodio, Flickr
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