Sunday, June 26, 2016

Brexit Calling

I am going to write about Brexit because I don't want to write about all the other garbage going on. Brexit is far away and only tangentially related to our lives, so we can safely have strong opinions about something no one knew anything about until two days ago.

Brexit--for those who are unaware--was the recent referendum asking the UK population if they wanted to leave the European Union. Everybody expected it to fail, because the UK derives a huge amount of benefit economically from being in the EU. Of course, this means that the UK voted to leave, which threw a monkey wrench into nearly everyone's plans.

The vote was non-binding, but it might as well be--the Prime Minister, David Cameron, promised to abide by its result, and backing out would cause a huge firestorm of criticism--and since an MP was recently assassinated over the issue, the threat of a full-scale riot or civil unrest is, while unlikely, no longer off the table.

Of course, it seems a lot of people are having second thoughts. (The immediate 5% drop in the value of the pound probably didn't help.)  While the vote was close, there isn't a whole lot of room for error, and so even if a small chunk of people retroactively changed their minds it still leaves most likely 40-45% of the people strongly in favor of leaving. That's not nothing.

Anyway, a lot of people are predicting the end of the world, but I think it's all mostly an overreaction.

The UK will be OK. The markets hate uncertainty, and this is absolutely an uncertain time. But while the details will change and no doubt there will be some rough structural transitioning,  by and large the UK will continue to be a top-5 economy regardless of whether they are in the EU or not. (The details are in flux, of course, but while they will lose a lot of trade with the rest of the EU, it's not going to disappear...and it's also going to open up new markets (like India) that they couldn't really compete with before as well as loosening up some regulations that really don't fit the UK economic model.) They hadn't bought in to the Euro, so there isn't much change there.

Culturally, it's a little different; this will end a lot of the universal movement laws in the EU, which will be a pretty big headache. It's not insurmountable, of course. The biggest issue for the "Leave" side of things is immigration, and that remains to be seen as to its effects.

In any case, from an economic standpoint I think this isn't going to be nearly as big a deal as people think it is.

However, I *do* think that the breaking apart of the UK will be trickier--Scotland has already made noises that they want to vote on independence, and Northern Ireland will most likely do the same. And the Conservative Party in the UK is in for a rough decade or so--even if they somehow miraculously power through this political disaster intact, there's a good two-year span while the exit is negotiated that will make things difficult for them.

Of course, it's always possible they *do* back out and not leave the EU, which I think is a non-trivial chance. And that will be a circus to see. Sadly, it looks like we're putting a show on ourselves here in the US, so we'll see.

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