To me the term Brexit reads as if it was a declension from the Latin verb brexo, which I would define as “to leave the European Union (EU) as a Brit.” To everyone else, however, the term Brexit is far more than just an etymological exercise in word play. It is a serious withdrawal from a political and economic partnership that, until now, seems to have been quietly working. Or, in light of the recent referendum in the U.K., was it?
The EU had its beginnings after World War II, banking on the notion that countries allied in political and trade matters were less likely to be at war with each other in the future. Eventually, this coalition grew to include 28 countries. It has emerged as a single market for trade goods and services, and people from any member country could travel easily or work in each other’s countries as if they were in their own. The EU also has its own currency (the Euro) and parliament housed in Brussels, Belgium.
On June 23, the U.K. held a referendum to decide whether or not the country should stay in the EU. The final result, by a margin of 52% to 48%, was to leave the EU. The voting turnout was high, at 72%, and more than 30 million people voted. No nation has ever left the EU, though Greenland (a territory of Denmark) was allowed to do so in 1982.
Support for the U.K. leaving the EU was strongest among older voters. Among voters 18-24 years of age, 73% voted to stay in the EU, with each increasing age cohort increasingly leaning toward leaving. The 65+ voter segment favored leaving by 60% to 40%. Interestingly, London proper and Scotland and Ireland to the north voted to stay.
So, what does all this mean to the U.K. and its European and North American allies?
The short answer: Nobody knows.
On the day that I write this column and three weeks after the Brexit vote, its political fallout is causing British Prime Minister David Cameron to step down. He will be replaced by Theresa May, Britain’s home secretary for the past six years. She will have the task of keeping her country and its institutions calm and intact during the U.K.’s departure from the EU.
It will take some time for the U.K. to negotiate its exit from the EU, and during that time EU law still prevails in the region. At some point the new Prime Minister will invoke an article in the Lisbon Treaty. This is the 2009 treaty that formed the EU as it now stands. Invoking this article commences the legal process of the U.K. extricating itself from the EU and gives the exiting country two years to complete the process. The fact is that the referendum result is not legally binding, and only Parliament can bring about the legal circumstances for the U.K.’s departure from the EU. Members of Parliament are now faced with the task of passing laws that will get Britain out, a circumstance that will undoubtedly provoke some heated debate in Westminster.
In the aftermath of the Brexit vote on this side of the Atlantic, the uncertainty-averse U.S. financial markets spent the first couple of days shedding hundreds and hundreds of points from their stock indices. Nonetheless, after the panic and the headlines settled, most of the financial loss was regained in short order.
If you do business in the U.K. or have interests there, do not panic. In the near term, just keep it business as usual.