Political fallout from Brexit

The first consequence of Brexit other than causing a sharp, short- term hit to Britain’s economy was a government crisis. David Cameron announced his resignation as prime minister and consequently as the leader of conservative party. There is the strongest belief that a new Conservative administration, one which is more anti EU is likely to replace him. There is a strong belief that if this process is not carefully managed then it will damage relations between London and other EU capitals. The exit of Britain from the EU will be a hammer blow to Europe’s unity going by the fact that Britain plays a pivotal role in the union. The EU will not be in a position to give out any post –Brexit deals for Britain for the main reason of protecting the unity. Consultation will be in danger of resulting into an rancorous tug of war , distracting Europe from other demanding business.

How are financial markets affected?

Second, the exit of Britain from the EU will definitely make financial markets more sensitive to the vulnerabilities of the 19-state eurozone. Observably, Brexit has already seen the plunge of the sterling pound to 30-year low. The question will arise from investors whether in the light of the Brexit shock, eurozone governments have the political will and civic shore up to reinforce the structural design of European monetary union. The Europe’s banking union including a plan for common deposit insurance will be one of the major tests facing the EU on how it progresses over the next 12 months, which is currently blocked. Seemingly, proposals such as the Italian plan for common EU ‘migration bonds’ which are more ambitious to finance the EU’s response to the refugee and migrant crisis will have little opportunity of being turned into action. Single eurozone states will be under intensified market examination. Yield spreads widened between German governments bonds ahead of the British vote and those of less financially solid southern European nations. Remarkably, a nation likes Portugal which is under a shaky coalition of the moderate and radical left is unsettling investors, while Greece’s deep problems have never gone away. The prospect of a stable government in Spain and economic reform are clouded by a fragmented political system and Catalan separatism.