The U.K. voted to quit the European Union after more than four decades in a stunning rejection of the continent’s postwar political and economic order, BBC projections showed.
The pound plunged to the lowest since 1985 and Asian stocks tumbled in one of the most dramatic 24-hours in British history. Sterling initially soared after an opinion poll suggested that 52 percent of voters had backed “Remain.” That rally evaporated as voting numbers started to roll in showing that investors and pollsters had miscalculated. At 4.45 a.m. London time, the count showed voters backing “Leave” by 52 percent to 48 percent.
The vote sets the U.K. up for years of bitter divorce talks with the EU and deals a body blow to Prime Minister David Cameron, who said such a result would tip the country into recession. JPMorgan Chase & Co. and HSBC Holdings Plc have said Brexit would lead them to move thousands of jobs out of London.
Beyond Britain’s shores, the result will fan speculation that more countries could withdraw from the EU and give a fillip to populist insurgents such as Donald Trump. Above all, it shows just how disillusioned Western voters have become with the political establishment for failing to deliver more inclusive economic growth in the era of globalization.
“The euroskeptic genie is out of the bottle and it will now not be put back,” U.K. Independence Party Leader Nigel Farage said.
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The market rout had echoes of the 2008-2009 financial crisis. The pound fell as much as 9.5 percent to $1.3605, on course for its worst day on record. Oil tumbled 5.5 percent, gold jumped as much as 3.8 percent and futures on the FTSE 100 Index fell 7.5 percent. HSBC, which earlier this year opted to keep its headquarters in London, plunged as much as 8.7 percent in Asian trading.
Finance officials may have to start firefighting in the next few hours. The Bank of England has already said it will monitor liquidity conditions in the referendum’s aftermath. It may end up having to cut interest rates or revive quantitative easing. Today’s decline already far exceeds its previous record decline in 1992, when it fell 4.1 percent on Black Wednesday, the day it was forced out of Europe’s exchange-rate mechanism.
Elsewhere, the Federal Reserve may delay raising rates. Denmark, Switzerland and Japan could intervene in markets to avoid surges in their currencies.
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The result marks a victory for a rag-tag band of politicians and executives who took on Britain’s establishment and won. Conservatives Boris Johnson and Michael Gove broke with Cameron to form a loose alliance with the U.K. Independence Party, arguing that the island nation can go it alone in an era of globalization.
Tapping into voters’ worries about immigration, they said that Britain can only exert full control over its borders and budget by leaving the EU. That promise overcame repeated warnings from Cameron and a cast of supporters that included the Pope, the Archbishop of Canterbury and the U.S. president.
The murder of pro-EU lawmaker Jo Cox last week slowed without stopping the momentum behind the Brexit message.
The next steps are unclear as politicians in Britain and the rest of Europe feel their way through the unprecedented situation.
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At some point — when exactly is debated — the U.K. will trigger exit talks by invoking Article 50 of the Lisbon Treaty. That will set a two-year clock ticking on negotiations. The relatively short time frame means even supporters of Brexit want to hold off until the country has decided what sort of relationship it wants with the rest of the EU.
For the EU and its most powerful leader, German Chancellor Angela Merkel, the result presents yet another challenge after years of crisis. EU unity has already been sorely tested by Greece’s seemingly endless debt woes, sanctions on Russia and the Syrian refugee crisis.
Now, Merkel and French President Francois Hollande need to rally confidence in a project increasingly questioned by populists like France’s Marine Le Pen and Geert Wilders of the Netherlands. To Merkel and Hollande, the EU is a symbol of Europe’s resurgence from World War II. But to others it’s resonant of weak economic growth, high unemployment and overbearing regulation.
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Among the first decisions for Merkel and Hollande will be how tough they want to be on the U.K. in the upcoming negotiations, especially as some countries will surely want to make an example of Britain to stop others from leaving. The first indications of their position may come on June 28, when EU leaders meet for the first time since the referendum, although finance ministers could confer as soon as this weekend.
Another key question will be who leads Britain’s negotiations. Cameron, who now presides over a splintered country and party, had already pledged to leave before the next election. But after one of the biggest foreign policy failures by a British prime minister in the modern era, one which put him on the wrong side of the debate from his Conservatives and the majority view in the U.K., it is hard to see him lasting even a year.
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While Cameron may give clarity on his future within hours, privately even his opponents have said they want him to stay on for a few months — an immediate resignation would only spell even more instability. Chancellor of the Exchequer George Osborne, who, like Cameron, had hoped that a referendum would heal Conservative splits over Europe, may lose his job sooner after being accused of scaremongering over the economy.
Former London Mayor Johnson is the bookmakers’ favorite to succeed Cameron. Other potential heirs include Justice Secretary Gove and Home Secretary Theresa May. Whoever takes over is likely to seek his or her own mandate with another general election, meaning British voters may have to go to the polls for a third time in two years.
There’s also a question mark over the future of the Brexit lobby and its key figures such as UKIP leader Nigel Farage, who were excluded from the official “Leave” campaign. Having led the country to the EU’s exit, it’s unclear whether they will be content to leave exit negotiations to the Conservative government.
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One industry particularly under threat is financial services, which employs more than 2 million people nationwide and paid 66 billion pounds ($89 billion) in tax last year. The City of London’s status as a financial capital may now be eroded, especially if the U.K. loses “passporting” rights which allow banks to reside in the U.K. and sell their products and services throughout the EU.
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon, who has 16,000 employees in London and other British cities, said this month a vote to leave could mean a quarter of those jobs might be cut. Morgan Stanley and HSBC Holdings Plc have made similar noises.
For one American visiting Britain this week, the result will be of particular interest. An anti-establishment campaign, talking tough on immigration, accused of stretching the truth? Its victory will surely bring a smile to the lips of Donald Trump.
(c) 2016, Bloomberg · Robert Hutton