As you might have heard, last night the United Kingdom voted to leave the European Union. From the outset, I want to say that I am not an expert in either British or European politics, but I’m going to try my best to explain why this is actually a big deal.
First, the United Kingdom:
Commonly referred to as “Britain” or even just “England” this nation is actually made up of four separate — somewhat autonomous — countries: Scotland, Northern Ireland, Wales, and England.
These separate countries can crudely be compared to states within the United States — except that they have a much longer history, and even more profound cultural differences.
Indeed, such differences actually led Scotland to have a referendum for independence in September of 2014.
Remembering these differences between the countries of the UK will be important in understanding some of the broader ramifications.
Okay, so what is the European Union?
The European Union is the governance organization over all Europe-based member nations. The Union provides economic coordination for Europe, including maintaining the Euro — which is the trans-Europe currency which the UK is not currently a part of. In addition, the EU has their hands in immigration issues — which is a big gripe of those who support leaving.
What is important to remember, however, is that the origins of the EU date back to a trans-European Steel and Coal Community that was formed after World War 2. The primary goal of that community, and all those that followed, was to prevent another World War in Europe. Looking past the EU’s shortcomings — of which there are a few — there can be no doubt that it succeeded in that goal.
So, what triggered this referendum?
The UK is currently governed by the Conservative Party, who have a majority of the seats in the House of Commons. The party’s leader — and the nation’s Prime Minister — David Cameron has continuously opposed leaving the EU, but many elements of his party felt differently. To resolve the issue, Cameron called for a non-binding national referendum that would settle the debate once and for all.
It was an incredibly tense campaign, actually resulting in the murder of Labour MP, Jo Cox. Leaving the EU means a lot of uncertainty. How will this affect commerce? How will it affect trade? How will it affect the value of the pound (which is the UK’s currency). However, in the hours before polls closed, markets stabilized with the consensus that the United Kingdom was going to vote to stay. Unfortunately for the traders, that’s not what happened.
What the final vote looked like:
The final vote revealed deep fault-lines across the United Kingdom. Scotland and Northern Ireland decisively voted to stay, while Wales narrowly voted to leave, and England (the biggest country) voted to leave.
These divides are important, because already in Scotland there are discussions about whether to have another referendum for independence, so that an independent Scottish country could remain in the EU. Likewise, some voices in Northern Ireland have suggested holding their own vote to rejoin the rest of Ireland, and leave the United Kingdom.
What’s happening right now?
Prime Minister David Cameron has announced his intention to resign as Prime Minister before October, allowing a new Conservative member to take over at 10 Downing Street and head-up the negotiations for leaving the EU. Meanwhile, the strength of the pound (how much it is worth in comparison to other currencies) has plummeted. Indeed, reports have come in that certain institutions in other nations are not exchanging or dealing with British pounds at the moment, because nobody knows quite how much value they’ve lost in the last 24 hours.
Throughout the campaign, proponents of the “Leave” side suggested that the economic ramifications of leaving were going to be small, and that the “Remain” side was merely using the economy as a scare tactic. While today is only one day in the market, and markets do rebound, today is certainly ugly, with the pound sterling hitting a 30 year low.
One bank source told the following to Buzzfeed, which is tragically amusing if nothing else:
The effects aren’t isolated to just the UK or Europe either. The DOW Jones Industrial in the US is down today, as are markets all over the world. Uncertainly just isn’t a good flavor for investments. Many economists have already predicted a Brexit Recession in the UK, which could sour economies in Europe and all over the world.
Presidential candidates Hillary Clinton and Donald Trump had both weighed in on the decision:
Trump applauded the move to leave, saying that Britain has taken back their country from the EU, just like he’s going to take back America from…?????
Hillary Clinton took a more somber tone, saying she respected the decision but hoped to work with an independent UK and a unified Europe:
Many people have compared the UK’s “Leave” campaign with Donald Trump’s campaign, saying that they both prey on xenophobia and anti-immigration sentiments. Boris Johnson, a leader of the “Leave” movement, even has Trump’s haircut.
How the rest of this will play out, only time will tell.