Eurasia Group | Eurasia Group’s Europe team unpacks the results and implications of yesterday’s BREXIT vote

Eurasia Group’s Europe team unpacks the results and implications of yesterday’s BREXIT vote

24 June 2016

LONDON, 24 June - At 4:00 PM BST, members of Eurasia Group's Europe team hosted a conference call to unpack the results and implications of Britain's vote to leave the European Union. Eurasia Group President Ian Bremmer has called the vote "a tipping point for the transatlantic alliance and the US-led global order" and Eurasia Group has downgraded Britain's short-term trajectory from 'Neutral' to 'Negative.' The call featured European Practice head Mujtaba Rahman, Associate Charles Lichfield, and Global Strategy Director Karthik Sankaran.

"This outcome was not Eurasia Group's basecase, notwithstanding our 45% probability BREXIT could happen" Mr. Rahman stated on the call. "Resentment of immigration among working-class Labour voters led more than expected to vote Leave and we overestimated the impact of the Cox murder: it probably encouraged more shyness among Leave voters when speaking with pollsters."

Mr. Rahman went on to lay out three immediate implications of the Brexit vote:

- London and Berlin are set to clash over the Article 50 renegotiation.

- Berlin will not risk an offer of concessions to London that could bolster anti-EU sentiment in France.

- The Hollande, Tusk, Renzi and Merkel meeting on Monday will attempt to hammer out a common position ahead of Tuesday's EU leaders' summit, where there will be a push for a statement that clarifies the UK's exit intention.

Mr. Rahman was also quick to note that a political contagion impact across Europe is likely to be limited.

Mr. Lichfield weighed in on the US implications of the vote. "Washington will not be pleased. The UK remains a very close partner on security and military cooperation, but part of London's attraction for the US was its role as a liberal voice within the EU. Washington will try to bolster its relationship with Berlin and Paris. The blunt message, however, is that London has lost relevance to US foreign policy."

Speaking on BREXIT's market implications, Mr. Sankaran noted that questions about the asset quality of British banks and uncertainty about overall British growth will hasten the weakening of the pound.

"A sizeable portion of activity in Britain's financial sector is likely to repatriated across different parts of the EU, affecting the UK economy and sterling. Meanwhile, due to political difficulties, fiscal integration across Europe will become more difficult at least until there is much more pressure on peripheral government debt. The extent of that pressure, in our view, will be a critical thing to watch."

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