Brexit: The International and Iberian Fallout

Brexit The International and Iberian Fallout There’s still a long way to go before anyone really knows what Brexit means to the UK and the international economy but the immediate effect has not been positive.

When the markets closed on June 27, the FTSE Index had lost another 156 points. Banking shares were hardest hit with the Royal Bank Of Scotland plunging by 25 per cent at one point in the day. Against all this, the pound fell to its lowest point against the dollar for 31 years and Britain lost its final gold plated AAA rating.

The day the result was announced, Larry Summers, former director of the US National Economic Council said it would take a while to understand the full economic impact.

However, that didn’t stop him speculating on what could happen. Even as he was speaking, the stock markets in Italy and Spain were down almost twice as much as the UK and he said, ‘There is the real risk of populist exit contagion in a number of countries. A credit crunch is a serious risk. The effects on the rest of the world will depend heavily on psychology.’

John Van Reenen, director of the Centre for Economic Performance at the London School of Economics, said, ‘You get a rabbit in the headlights phenomenon where businesses don’t want to make new decisions or new investments because they are uncertain about the future. The immediate effect will be a lowering of investment activity, a lowering of hiring. There will be an immediate slowdown of growth.’

British supertycoon Richard Branson who counts Virgin Atlantic and Virgin Media among his companies told The Guardian shortly after the result, ‘I met with a group of Chinese businessmen yesterday who have invested heavily in England and who are now going to stop investing and withdraw investments they’ve already made.”

He believes that leaving the EU will damage investment in Britain and says that every person he has met abroad shares this opinion. Since the referendum, his own stake in Virgin Money has dropped 40 per cent.

BREXIT AND GIBRALTAR

One region facing uncertainty is Gibraltar with Jose Manuel Garcia-Margallo saying Spain would now look to jointly govern it with Britain.

Spain will seek to jointly govern Gibraltar with Britain following the British vote to leave the European Union. Just before Spain’s elections, foreign minister Jose Manuel Garcia-Margallo said, “It’s a complete change of outlook that opens up new possibilities on Gibraltar not seen for a very long time. I hope the formula of co-sovereignty to be clear. The Spanish flag on the Rock is much closer than before,”

However, Chief Minister of Gibraltar Fabian Picardo countered by saying in the territory’s parliament that there would be no such talks. He has the backing of Gibraltarians as, in 2002, the concept of Spanish governership was rejected by around 99 percent of them in a referendum.

“Let others make irrelevant noises about flying flags over our Rock if they want to waste their breath. Such ideas will never prosper,” he said.

As for what the people of Gibraltar thought about Britain leaving the EU, they voted overwhelmingly against it but the ‘Leave’ vote victory in the motherland now leaves them facing uncertainty not of their own making. Aaron Payas, a 31-year-old lawyer, told Reuters: “There is a lot of concern within the financial services sector given the outcome. The result is a massive shock.”

WHAT IT COULD MEAN FOR SPAIN

S&P Global Ratings has produced a document called The Brexit Sensitivity Index and it contains thoughts on how it could affect the Spanish economy. As far as possible fall out from Brexit is concerned, S&P believes there are far more vulnerable countries than Spain and it is placed eighth with a vulnerability rating less than half that of Ireland, which tops the table.

The report says, ‘Spain has large financial and FDI [Foreign direct investment] exposures to the UK, in particular through its large retail banking subsidiaries and telecom operations. Despite its strong market share in the UK in services, particularly tourism, Spain’s goods and services exports to the UK only amount to 2.7% of GDP, which is substantial for such a large economy, but only barely above the median of the 20 economies included in our survey. ‘

According to the report, the financial factor and the FDI factor are most likely to be affected by the Brexit move with migration and export not expected to see major swings.

BREGRET

The vote to leave the EU has caused bitter anger among much of Britain’s population and many who voted for the change are starting to regret their decision as immediate financial consequences are being seen and promises from the ‘Leave’ campaigners, which won their vote, are proving to be false.

The day the result was announced, Nigel Farage, a leading Leave campaigner, admitted that the promise of 350 million pounds being redirected from the EU to Britain’s health service, had not been true. It had been printed as a huge advert on campaign buses, and in an interview with breakfast TV, Farage said, ‘That was one of the mistakes that Leave campaign made.’ When pressed that this was why many people voted for it, he said, ‘They made a mistake in doing that.’

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