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Home / Analytics / Forex analysis & forecasts / Forex Fundamental analysis / The Brexit consequences. Fundamental analysis for 24.06.2016
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The Brexit consequences. Fundamental analysis for 24.06.2016

There goes the British referendum. 51.9% of the Brits voted to exit the European Union. Even before the midnight, nothing foreboded such outcome, and the leaders of euro skeptics even started congratulating the Remainians, who had the leading positions in all polls and surveys. However, when small towns started sending their results, it became clear that the Outers were winning more votes that social scientists predicted. Not the least of all factors was turnout – the Outers voted more actively.

David Cameron, the Prime Minister of the UK, has already declared that he is going to resign. The irony of the situation is that he is the person, who organized the referendum. According to his words, the country needs a new leader, and he was planning to remain on his position until October, when his party chooses a new candidate. It is probably be a new Prime Minister, who would “complete the divorce” between the United Kingdom and the EU, which might take up to two years. And the brexit, which now is real, brought along a long period of uncertainty, because no one knows how to negotiate with the EU and what it might lead to in the end.

In fact, the UK has 5 possible variants of this further relations with the EU:

 - Like Norway. The country is not a member of the EU, but is included into the European Economic Area (EEA; free movement of persons, goods, services and capital – almost the same as the EU) and The European Free Trade Association (EFTA; access to the EU’s internal market).

- Like Switzerland. Switzerland is a member of the EFTA and Schengen countries. This case is unlikely to happen, because even when the United Kingdom was in the EU, it had its own visa system.

 - Like Switzerland, but without being a member of Schengen countries. In this case, there may be a lot of problems as countries will have to obtain each other’s visas, and everyone fell out of a habit to do it.

- Like Turkey. European Customs Union relations. The business will hardly like this.

- Like Russia. Relations only in the Council of Europe.

Because no one wants visa borders for short-term trips, then probably the negotiations will consider the Norway case, but with several restrictions, such as limitations of the right to work.

Why the Schengen zone is no good? Because the Schengen agreement has nothing to do with relations of countries in the EU – European citizens deal with the “Schengen” only when they have to go through a passport check-point on borders. If the United Kingdom were a member of the Schengen zone, it would accept Schengen visa, but the Brits grants personal visas to non-European citizens.

What are the consequences of the Brexit?

- Finances. The Eurozone countries may become more vulnerable due to possibility of new referendums. Nationalist parties in France and Italy are already demanding to hold similar referendums. Due to this instability, financial problems of Greece, Spain, and Portugal may become more strained. Moreover, due to the nationalists’ demands, it would be more difficult for the European Commission to implement planned budget reforms to order to promote integration and cohesion of the countries inside the Eurozone.

- Politics. The United Kingdom’s exit the EU is making Germany more important, which very few people want to happen. Accusations against Berlin about power grab will be heard more often, and it’s an excellent “food” for populist. Moreover, the country’s exit will be held up as an example by Nationalist parties to their voting public. As a matter of fact, the French “National Front” is already doing this.

- Government. The Prime Minister, David Cameron, has already declared his resignation. It’s obviously that a new leader will be one of the euro skeptics, and it will make the “divorce” negotiations with Brussels even more complicated.

Consequently, the UK’s exiting the European Union caused way too many problems. Both for the UK, and other European countries. However, every cloud has a silver lining – on the other hand, there will be a lot of new jobs, because now the country needs the army of negotiators to come to new arrangements, and journalists will have extra working hours for covering all these events.
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