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June 16, 2016
What The First 100 Days After Brexit Would Look Like
the first 24 hours.
Before dawn on June 24, if an exit vote becomes clear, the EU’s top brass from Berlin to Brussels will be forced into damage control. In echoes of the Greek debt crisis, euro-area finance ministers may hold an emergency meeting as soon as that evening. Wild swings in the pound, more aggressive interventions by the Swiss National Bank and a ratcheting up of global instability rank as likely market reactions.
Currency markets haven’t priced in the U.K.’s exit from the EU, so if it happens, “a crash is pretty likely,” Lothar Mentel, chief executive officer of Tatton Investment Management in London, said on Bloomberg Television. “We would have to brace ourselves for quite a rough awakening on that Friday.”
The political fallout may be even more fraught. Europe’s traditional counterweights, France and Germany, whose enmity the EU was set up to banish, will seek to gain some of the initiative. They are planning a response as early as June 24 that could include a commitment to deeper euro-area integration as well as a declaration that the EU dream remains alive, according to three people familiar with the plans.
“The European Union will need to have a credible strategy,” said Guntram Wolff, of the Brussels-based policy group Bruegel. “To avoid a gradual disintegration of the EU, political leaders will need to strengthen the attractiveness of the EU and especially the Franco-German alliance.”
Then the first week:
As the weekend begins and the reality dawns in the U.K. that it has voted to leave the world’s largest trading bloc, the rest of Europe will have their own questions to answer. Amid fears that a “Leave” vote could further fuel populist and anti-establishment sentiment throughout Europe, the EU’s leaders could choose to take the unprecedented step of calling an emergency summit without British representation as early as Saturday, June 25.
The reason would be two-fold: send a message to Spanish voters who go to the polls June 26 that the EU remains strong; and to work out what to offer -- or, more likely, what not to offer -- the U.K. in areas such as free movement of people and access to the EU’s single market.
There will be divisions to overcome even without the British. In France, where opinion polls say the euroskeptic National Front may make it through to the runoff in next year’s presidential elections, President Francois Hollande will have cause to show the electorate that leaving the bloc carries negative consequences. Other leaders, such as those of the Netherlands and Denmark, where anti-EU feeling is also growing, may consider it more politically beneficial to offer support to Britain, their traditional ally.
Nations outside the euro area, especially those where anti-EU sentiment has been on the rise, such as Hungary, Poland and Sweden, could form a group of countries resisting any French and German attempts to move the EU in a more integrationist direction. With Britain’s exit, non-euro countries would lose their crucial partner -- they would represent only 14 percent of the EU’s gross domestic product. David Cameron is scheduled to meet the other 27 EU leaders at a summit in Brussels the following week. It’s at this gathering that the prime minister is likely to trigger the EU’s Article 50 -- the never-before-used law that catapults nations out of the club.
That would set a deadline of two years -- until the end of June 2018, during which time the U.K. would have to negotiate its exit. Will Cameron want the U.K. to become like Norway or Iceland and maintain a close working relationship with the bloc as part of the European Economic Area? Or could there be another set-up that means the U.K. would have to trade with the EU under the World Trade Organization framework?