‘An act of deliberate self-mutilation’ was the headline of what Spiegel’s London correspondent, Christoph Scheurmann, commenting on the Brexit result:
‘Brexit was a decision based on gut instinct rather than reason. The predominant sentiments in play were nostalgia, fear and a vague hatred of the establishment. On top of this comes a fear of foreigners that was deliberately stoked by Brexit strategists during the campaign — and that’s what makes this decision both sad and depressing.
It’s also a lashing out against “the powers that be” in both London and Brussels. The British have followed a patriotic whim. All the flags, the drumming, the pledges and promises of the Brexiteers worked in the end — and that’s what makes this day so frightening.
Brexit has come to pass largely because of voters in England and Wales. A majority of voters in London and several electoral districts in southern England voted to remain in the EU, as did Scotland and Northern Ireland. It is now possible that Scotland may soon hold a second referendum on independence from the United Kingdom. It is a possibility that the United Kingdom could break apart. The economy is already in tumult.
The negative ramifications of a Brexit vote were predictable — and were widely discussed prior to Thursday. But none of the warnings prevented the British from voting to leave. It is no less than an act of deliberate self-mutilation.
Britain has now become a little more foreign to us. The British voted against pragmatism and for risk. That’s part of what makes this morning so surreal.
England in 2016 is a divided, uncertain country. It is difficult to believe what has happened here in the past several months. A relatively small, relatively unknown group of activists, gamblers and egocentrics managed to incite and drive a country out of Europe against the will of the prime minister and against the advice of economists, friends and allies around the world.
The Europe that woke up this morning is a weaker one. It will take years before Britain’s exit from the EU is finally completed. Until that time, the Continent faces a period of uncertainty and tumult, as does Britain.
Brexit is a democratic decision that cannot be changed. Now Europe needs to learn a lesson from it — it has no other choice.’
And the Economist sums up the grim prospect as the following:
‘Investors hate uncertainty and the result of the referendum gives rise to a surfeit of it. But the falls in Asia’s equity markets are also in large part an early judgment about the impact on the world economy. Of course, markets often overreact. Britain accounts for just 3.9% of the world’s output; it is not big enough to make the global economic weather in the way America or China can. Then again, America’s economy has been sluggish of late and there are grave worries about China’s ability to escape the shadow of its mountainous debts. Britain’s economy looms large in Europe, where it is a reliable consumer in an otherwise high-saving continent. And any disruption to European growth is particularly unwelcome now.
The Bank of England said this morning: “We are well prepared for this.” It may cut its main interest rate from its present level, of 0.5%. It may even revive its quantitative-easing programme, buying bonds with freshly minted electronic money. A recession in Britain nevertheless seems likely. Corporate investment will be hurt by uncertainty about future access to both the single market and to other places where Britain has piggybacked on trade deals negotiated by the EU. In unsettled times, businesses defer whatever spending they can.
The same is true for consumers. The majority who voted to leave the EU may think that forecasts of recession in the event of a Brexit vote were a tactic to scare voters. If so, they are unlikely to curb their spending overnight. But as the bleak consequences for the economy become clearer, spending on big-ticket items is likely to slump. The collapsing pound will drive up inflation up, crimping real incomes. Some jobs will go. Hours worked and wage growth will fall. And Britain is big enough for a recession there to have a meaningful effect on Europe’s economy. As a rule of thumb, whatever the reduction in Britain’s GDP growth, Europe’s economy will suffer a drop of about half as much.
Brexit will hurt the world economy in other ways. A big concern is the extent to which a retreat from financial risk will disturb the existing fault lines in the world economy, notably in China and southern Europe. Italy has a referendum of its own (on constitutional change) in October. Matteo Renzi, Italy’s reform-minded prime minister, says he will resign if the result goes against him. The Brexit vote scarcely helps his chances. A widening of bond spreads in southern Europe seems likely in the run-up to the poll. The European Central Bank can intervene to swamp the symptoms of anxiety by buying bonds, but it can’t do much more to cure the underlying problem of weak growth.
It is trickier to draw a line from Brexit to China. A weaker European economy will certainly hurt Chinese exports. Perhaps a bigger risk is a renewed bout of dollar strength, as Europe’s currencies weaken, which might in turn put renewed downward pressure on the yuan.
Even if some investors have short horizons, tumbling stockmarkets reflect some long-term worries. If Britain, long a champion of free trade, can vote to revoke a regional trade deal, how much faith can businesses worldwide put in other international economic agreements? An EU shorn of Britain’s deregulating influence is a troubling portent for the liberal world order. Nationalist, populist and protectionist forces in other countries will be greatly encouraged by Brexit. The WTO recently gave warning that protectionist trade measures in the G20 are multiplying at their fastest rate since 2008. In such circumstances, it would be surprising if the Brexit vote did not have some chilling effect on investment worldwide. It makes curbs on migration of workers a little more likely, which will be costly for businesses. And if Europe exports some of its misery to Asia and America through weaker currencies, it may increase pressure for restrictions on capital flows, too.’