Late last night, after all the votes were tallied, it became official; Britain will be exiting the European Union (EU). While this is a historic event and a huge win for the British people, the media is in its predictable frenzy, touting apocalyptic scenarios. Economists will be making their authoritative predictions that are normally as reliable as a weatherman’s rain forecast. Listed below are some insights on BREXIT, absent the hype:
Why would the British want to leave the EU?
The European Union bureaucrats are located in Brussels and they decide approximately 60% of British law. Their decisions are broad-based and cover areas such as:
Labor laws – how many hours per week can be worked, etc.
Environmental issues – how much energy has to be generated by renewable sources, vehicle standards (cars and trucks).
Just imagine if we had an American Union (AU) based out of Buenos Aires and its bureaucratic leaders dictated laws of this nature to the American people. How long do you think the US people would tolerate that?
Great Britain is the fifth largest economy in the world. To think they are suddenly going to be ignored in a world economy, just because they are no longer part of the EU, is not realistic. They also consistently have trade deficits with the rest of Europe. The EU needs to continue trade with Great Britain. As Brian Wesbury has said, “The rest of the EU will chase them (Great Britain) to the ends of the earth.”
With that said, the markets do not like uncertainty, so the market declines and the volatility we are experiencing today is to be expected, but keep this in perspective:
At 2:00 pm today, the Dow was down approximately 500 point, sitting at 17,500. Last Friday, the Dow closed at 17,650, so in the last week the Dow has lost approximately 150 point, or less than 1/10th of 1%.
So what now?
When this all gets sorted out, we will see what the actual effects will be, but change will take time. Life and business in Great Britain today, looks a lot like it did yesterday, as it will for the foreseeable future. Prime Minister David Cameron’s resignation will not be effective until October and trade deals will take years to renegotiate.
Feel free to contact me with questions or for more information.
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