Possible Geopolitical Effects of Brexit
Written by Alfonso Elizondo
Created on Monday, June 27, 2016, 16:48
According to the International Monetary Fund (IMF), the United Kingdom’s departure from the European Union (EU) could make its economy contract by 5% by 2019. According to research conducted by the business group Confederation of British Industry (CBI), the British vote to leave the EU could cost its economy about 100 billion pounds (137 billion dollars) and 950,000 jobs by 2020. In an article written in The Guardian newspaper, George Soros estimated that the long-term economic consequences of Brexit will reduce the annual income of British households by between 3,000 and 5,000 pounds (4,110 and 6.850 dollars).
According to most expert economists, Brexit will affect the UK economy in four different fundamental ways: 1. A significant devaluation of the pound. 2. The UK’s AAA credit rating is no longer sustainable and the major rating agencies, Fitch and Moody had already stripped the UK of that rating before the start of the referendum campaign. 3. It is very likely that most companies will suspend their investments in the country due to the huge uncertainty in the UK economy in the short term. 4. From a long-term perspective, Brexit will have a negative effect on the country’s economic growth, as it will result in a decrease in trade and investment, as well as the arrival of people from Europe who will occupy work positions of old people who have retired.
Moreover, many economists say that the UK leaving the EU could cause problems for the rest of Europe, which has led the Washington-based Peterson Institute for International Economics to the view that Brexit will cause a decline in economic growth in the EU. The British newspaper The Economist also noted that other countries voting to leave the EU would be very serious and cause lasting damage to the politics and economy of the UK.
With regard to the ‘global economy’ all the world’s leading authorities, from the International Monetary Fund to the US Federal Reserve and the Bank of England, warned that Brexit could have repercussions all across the global economy which is just recovering from the 2008 crisis. The Associated Press (AP) said it is reasonable to assume that the vote to leave the European Union will cause changes in the global market in the short-term as investors will sell their risky assets, such as stocks, to seek the safety of government banks, so the value of the pound could fall against other major currencies, while gold will surely rise.
Central banks could try to achieve stability through additional loans to private banks or using other measures to make credit more available to the consumer. This volatility could help persuade the US Federal Reserve Bank (Fed) to postpone an interest rate increase, although it seems that it will not happen this year.
Finally, the effect Brexit will have on the Chinese economy is being studied and in this case it is estimated that the impact will be minimal because their financial assets have very little exposure to financial risks originating abroad. However some analysts say there could be a feeling of extreme caution that could discourage investment in the Chinese stock market and increase pressure to devalue the yuan, as global investors would choose to buy dollar-denominated assets.
According to Cui Hongjam, a researcher from the Institute of International Studies in China, although with the departure of the United Kingdom from the European Union China will have a freer British market, at the same time it will lose the UK as a gateway to the EU, as it is likely to increase the level of protection for foreign investors.
But the end result of Brexit is still unknown, because in the last days of June France, Holland, Germany and Italy will meet to assess their own continuation in the European Union and the rebuilding of their weakened relations with the United States and Japan.
Addendum: Brexit is just one of the many changes now occurring throughout the Western world which has become a very complex jumble involving what is left of the federal democratic republican model, the dispute over territories still under colonial control in Africa, Asia and America, the manipulative reaction of the macro millionaire elite who continue to control the distribution of money printed in the world, the virulence taken on by some religious groups, xenophobia, mergers between large corporations that want to control the military, commercial and financial world, as well as the tatters of some monarchical systems like those of Britain and Spain.
It is obvious that the great scientific and technological developments of recent decades have been replacing the old religious, cultural and political systems that governed the world over the last few centuries, but fortunately for everyone, it seems that the new human society will be rebuilt without violence or with a lesser degree of violence than there was in the past 20 centuries.