One of the most historicals EU summits is taking place today in Brussels with 27 instead of 28 member states attending the meeting, leaving Britain and David Cameron out due to the recent decision of the British people to vote in favor of leaving the European Union.
The EU referendum has caused severe consequences not only to the bloc but to the rest of the world as well. The financial markets have hit unprecedented low levels in the last five days forcing the European leaders to speed up the negotiations with the UK regarding the latter’s fast exit.
The EU leaders also fear that more countries will follow UK’s path and conduct “in” or “out” referendums of the EU, something that which will be disastrous for the Union. France, Austria and Holland are among the countries where the far-right parties already propose similar referendums. Furthermore, the current political situation in Spain together with the outcome the EU referendum has urged the head of the Catalan government to once again consider reclaiming independence from Spain.
The financial world continues trembling right after the announcement of the EU referendum results last Friday morning. The British pound has plunged against the euro and the u.s. dollar and all main indices have experienced severe losses. More specifically, the gbp/usd exchange rate has dropped by 10,29% since June 23. Similarly, the gbp/euro exchange rate has slided from 1,3072 on June 23 to 1,2057 on yesterday’s session.
The main indices show similar trends. FTSE 100, the index which represents 100 most highly capitalized companies traded on London Stock Exchange, dived 3,28% whereas CAC 40 (Paris market indicator) and DAX 30 (German Stock Index) fell by 8,19% and by 7,7%, respectively. IBEX 35, the Spanish Market index, is also following the downfall of the European indices by experiencing a 11,42% drop. Overall, Stoxx Europe 600, a European index which represents small, medium and large capitalization companies across 18 EU countries, has dropped by 8,7% showing that Brexit has clearly and severely affected the European stock markets.
Outside Europe now, S&P 500 and Nikkei 225 have also been affected by the EU referendum outcome and declined by 5,33% and 5,64%, respectively. What is more, investors seem to have preferred safe-haven choices such as gold which has risen by 5,4% in just two days.
However, extreme volatilities are expected in the short-run of such events due to uncertainty and correlation between global markets. It must be outlined though that the European stocks and British pound have indeed gained momentum yesterday changing the harsh outlook of the previous days. This market stabilization has been probably occurred by speculation that the policy makers will do whatever it takes to minimize the effects of Brexit.
More EU referendums?
The shocking result of the UK referendum has risen several reactions to major countries all over Europe. First of all, Marine Le Pen, leader of the Front National in France, has made it clear that will hold a referendum within six months once she wins the next French presidential elections. Secondly, Geert Wilders, leader of the Dutch far-right party, mentioned last Friday that will follow the footsteps of the British Prime Minister holding an EU referendum. Austria, through its far-right candidate Norbert Hofer, is among the countries which are also thinking of calling for an “in” or “out” of the EU referendum if Europe keeps moving towards a “political centralization”. According to Mr Hofer, Europe should only focus on its economic and trade role.
Spanish elections deadlock create more EU uncertainty
The Spanish citizens voted again after a six month-period but the polls showed similar results leaving the country once more in a political paralysis. Prime Minister Mariano Rajoy’s conservative People’s Party won 137 seats which were not sufficient again to form a majority in the parliament. That is forcing the People’s Party to attempt to form a coalition or be forced to continue ruling as a minority party with Mr. Rajoy as prime minister.
However, this outcome is causing more uncertainty to the political life of Spain and by extension to the entire Old Continent. Such political situations together with the recent Brexit vote increase the possibilities for Catalonia to seek the much desired independence from Spain. Carles Puigdemont, head of the government of Catalonia, mentioned last Friday that Catalonia could claim independence without Madrid’s consent since UK decided to vote to leave the EU without the approval of the rest EU member states. More specifically, Carles Puigdemont said: “It demonstrates that it is perfectly possible to take a decision about sovereignty as all other countries do.”
Europe’s inability to listen to EU citizens
The outcome of the UK referendum has clearly showed that the British people have been displeased by the policies followed by the European Union. The same probably applies to some of the EU member states since many far-right parties are gaining ground.
The latter needs to be seriously taken into account by the European leaders and officials who will need to think now first how to endorse prosperity of the real EU citizens and then the European business and banking sector.