On June 23, 2016, a majority of voting residents of the United Kingdom voted that they wanted the UK to cease being a member of the European Union. It appears that the current UK prime minister, David Cameron, will step down from his position by end of October, and leave the formal notification of the UK’s intended withdrawal from the EU to his successor. Following this notification, the UK and the EU will have two years to negotiate the terms of the withdrawal and the UK’s and EU’s subsequent relationship. (Click here for an overview of the UK withdrawal process and its implications in the article, “Brexit, Implications for the Financial Services Industry” in a June 24 Advisoryby Katten Muchin Rosenman LLP.)
My View: Last Thursday, UK citizens formally expressed their frustration with the status quo by voting that their country should leave the EU. The following day, markets expressed their grave concern regarding the potential consequences of Brexit by hammering both the British Pound and Euro currencies, and stocks worldwide. Financial markets do not favor uncertainty, and no one can predict with certainty how this dissolution process will play out or what impact it may have on world economies, let along on the UK and EU themselves. That being said, what surprises me is the surprise many had with the outcome on June 23. I certainly could not predict the Brexit vote, but it is clear that, worldwide, there is an accelerating momentum for quick fixes to very complicated underlying issues that have fueled economic and safety concerns by many persons. As a result, proposed solutions that seem to offer anything but the status quo are embraced enthusiastically without regard to merit or consequence. This seems irrational, but a great many people are simply scared of the future and believe they have no other alternative than to try something radically different. It will be politically difficult for leaders of the EU to negotiate departure terms for the UK that maintain and, in fact, nurture the important mutually-dependent relationship between the EU and UK for fear it might encourage other countries to leave the EU. However, this is not time for vengeance, and the need of the EU and the UK to remain close partners is not diminished by the Brexit vote. Here is a chance for politicians on both sides of the English Channel to do the right thing to calm nervous markets while at the same time addressing both the rational and irrational (but no less real) concerns of so many. Let’s hope they succeed.