June 24, 2016
In one of the most eagerly anticipated referendums in the history of the European Union, the UK has voted to leave the EU, by 51.8% to 48.2%. Across the EU, politicians, businesses and the media have closely followed the campaign and are now reacting to the outcome of the vote and considering its consequences.
FTI Consulting’s network has come together to provide you the very latest analysis on how the outcome of the referendum is playing out around European capitals – from Rome, Paris, Berlin, Madrid, London and Dublin – as well as the latest reaction from EU leaders in Brussels.
You will need as much clarity as possible at each step of this fast moving process to understand how this could impact your company and core business activities to secure your trading, regulatory and operating environment. FTI Consulting is ideally placed to support you. We focus on the political and regulatory environment 24/7.
There is wide consensus across Europe of the vote’s seismic implications. As this snapshot shows, the business and financial ramifications are not confined to the UK – markets across Europe and indeed globally are reacting quickly and immediately. And with blanket media coverage, the issue will feed the appetite of the media for days and weeks to come with implications for the EU, Governments and companies coming under close scrutiny.
While the domestic political fallout in the UK is well underway with the resignation of Prime Minister Cameron, across the EU, leaders are acting quickly to shore up the European Union ‘project’ for the benefit of the remaining 27 member states.
There is, however, little room for respite. Ahead of the meeting of all EU leaders in Brussels next Tuesday – which David Cameron will attend – focus is now rapidly turning to the precise process and timing for the UK’s exit from the European Union; the once unheard of, but now ubiquitous, ‘Article 50’ negotiation.
The pound has fallen to a 30-year low, setting a record intraday swing of more than 10% between its high and low points; the FTSE 100 slumped 8.7% on opening before regaining a little ground. Bank stocks took a hammering, with Lloyds down 30%, Royal Bank of Scotland down 34% and Deutsche Bank falling 17% The Governor of the Bank of England, Mark Carney, released a statement this morning stating that it “will not hesitate to take additional measures as required as markets adjust”, insisting the Bank of England was “well prepared” for the volatility and stands ready to provide more than £250bn of additional funds. Rating agency S&P confirmed the UK is likely to lose its final triple A credit rating. The Swiss National Bank became the first bank to intervene directly in the markets, attempting to curb the appreciation of the franc. In Japan, the Nikkei index slumped by 8% as the Brexit vote looked set to be confirmed, a loss of over 1,100 points; its worst one-day fall since the Fukushima disaster of March 2011.
30.4% of Brexit conversations are taking place in the UK, followed by 21.8% in the U.S., 8.5% in Brazil, 6.4% in France, 3.5% in Japan, 3.4% India, 3% Spain, 2.7% Germany, 1.9% Canada and 1.8% Australia.
Prime Minister David Cameron has announced his resignation, and wants his successor in post by the start of October. The Prime Minister said that Article 50, the official procedure outlined in the EU treaties to leave the EU, would not be invoked until a new leader was in place. There is however a growing view amongst politicians likely to be involved in the negotiations that the two year period prescribed by Article 50 would be insufficient.
The immediate priority of the Government and Bank of England has been to provide stability and calm to highly jittery markets, which sent sterling tumbling to levels unseen since the mid-1980s.
Victors will also want to lower tensions within the Conservative Party, which faces an imminent leadership election and where the careers of some senior Ministers hang by a thread. With a strong vote for remain in Scotland, the Scottish National Party’s case for a new referendum on Scottish independence is significantly strengthened. Nicola Sturgeon – leader of the Scottish Nationalist party – signalled the strong possibility of a second referendum on Scottish independence, stating “Scotland clearly voted to remain.” Sinn Fein has called for a similar poll for a united Ireland.
As the domestic political situation develops there will continue to be market volatility and growing concerns and questions on procedures for leaving and the negotiation framework. However, the UK remains a full member of the EU for the time being.
A joint statement was issued by Donald Tusk, President of the European Council; Martin Schulz, President of the European Parliament; Mark Rutte, Prime Minister of the Netherlands, and current head of the Presidency of the Council of the EU and Jean-Claude Juncker, President of the European Commission, expressing their regret at – but respect for – the UK’s decision to leave the EU, whilst emphasising an EU of 27 Member States would continue.
The start date and scope of the exit negotiations remain unclear. However, the UK will be under pressure to enter into – and conclude – negotiations swiftly. The four presidents called on the UK government to officially state its intention to leave at the earliest opportunity; the main political groupings in the European Parliament expressed similar sentiments.
Article 50 stipulates that a ‘withdrawal agreement’ must be negotiated between the EU and the UK within two years of the notification date. After which, the European Council will adopt a decision by qualified majority voting (in which the UK cannot vote), i.e. 21 of the 27 remaining states would be required to confirm; in addition, the European Parliament will have to consent.
If no agreement is reached after two years, either the EU Treaties (and EU law) cease to apply to the UK or the remaining 27 countries can unanimously decide to extend this period.
In parallel, negotiations on a new arrangement between the UK and EU are expected to take longer than two years.
Until this process is over, the UK remains a member of the EU and can continue to attend and vote in Council meetings; UK Commissioner Hill (responsible for financial services) and UK Members of the European Parliament can remain in office. Politically, however, they are likely to be sidelined. Whether the UK takes on the rotating Presidency of the Council of the EU in the second half of 2017, as scheduled, is unlikely but remains to be seen.
The European Council summit of 28 and 29 June will include an informal meeting of the remaining Member States to discuss next steps. The European Parliament will hold an extraordinary plenary meeting on 28 June to adopt a resolution on the referendum outcome.
In Berlin, political containment is the order of the day. Chancellor Angela Merkel expressed her deep regret, but called on Europe to act in a “calm and considerate manner”, saying: “Europe is strong enough to give the right answers to this challenge.” With the financial markets falling, Finance Minister Wolfgang Schäuble attempted to portray the situation as business as usual: “The EU rules for an exit vote by one of the member states are clearly defined and will be applied. This guarantees reliability.” He also highlighted the global impact, noting he was in close contact with his G7 counterparts.
Vice-Chancellor Sigmar Gabriel and Foreign Minister Frank-Walter Steinmeier – of the Social Democrats, the junior partners in the Government – expressed their dismay, Herr Steinmeier speaking of a “sad day for Europe and Great Britain.”
In the Bundestag – the national parliament – Foreign Affairs Committee Chair Norbert Röttgen (Christian Democrat) called for a new sense of togetherness and unity among EU members. The opposition Green party called on the EU to learn from the experience, calling for more open and democratic institutions, while populist members called for the resignation of Jean-Claude Juncker, President of the EU Commission, and Martin Schulz, President of the European Parliament.
No doubt: Germany’s political leadership is back in crisis mode, as German media has noted the far-reaching implications – comparable with the fall of the Berlin Wall in 1989 – focusing on the consequences for Germany, and the EU- particularly regarding whether the result will trigger a “domino effect” and encourage other members to hold similar referenda. There is also consensus that the British vote will have negative effects for the German economy.
The Franco-German relationship will again take centre stage. Even before the results of the referendum were known, Hollande and Merkel announced they would meet on Monday 27 June in Berlin, to “work together no matter what the scenario”.
As one of the founding members of the European project, France will see the opportunity to emerge as the driver of a renewed EU. President Hollande has called for a rapid application of Article 50. He also stated that “we need to reinforce the Eurozone and its democratic governance” and that “France has a particular responsibility because it is at the heart of the European project”. Mainstream parties were united around the same message without having a clear roadmap as how to go forward. Ahead of the presidential elections in May 2017, the aftermath of Brexit could provide an opportunity for Socialist President François Hollande to get back in the political race. Alain Juppé, one of the prominent presidential candidates within Les Républicains, has stated that business as usual is no longer an option. Both Marine Le Pen and her Front National party, and Jean-Luc Mélenchon and his Left Party were quick to ask for a similar referendum to take place in France; leading to the possibility that Brexit could lead to ‘Frexit’.
Within the French media, financial implications figure strongly. The Paris stock exchange fell by 7%. Le Figaro notes that Brexit may undermine the French economy and markets, still recovering from the financial crisis. Leading business paper Les Echos predicts “years of uncertainty” and also agrees that “divorce” for the UK will be “complicated”. More broadly, the media highlight how the result calls into question the European project, with papers analysing the implications for nationalism and Euroscepticism across the EU.
The vote is seen as a wake up call for Europe, and an opportunity for the revival of the common policy for growth, defence and immigration. Prime Minister Renzi said on his Facebook account: “We have to change Europe, to make it more human and more right. But Europe is our home and our future”.
An emergency meeting has been convened at Palazzo Chigi with the Ministers of Economy, Foreign Affairs, Economic Development, the Governor of the Bank of Italy and the Undersecretary for National Security.
Pietro Grasso, President of the Senate, said on Twitter: “Big disappointment for the result of Brexit. Now it’s time for cohesion. EU must react and get stronger“. Paolo Gentiloni, Foreign Affairs Minister, declared that, although respecting the decision of the British people, Italy would have preferred a different outcome. In any case, the United Kingdom will remain “a friendly country and a NATO ally, but it will have to follow up the decision to exit”. A long period of uncertainty would only further fuel a feeling of instability in European integration.
Matteo Salvini, Leader of Northern League Party has stated: “Long live the courage of free citizens of Great Britain! Thanks UK, now finally Europe is going to change. Now it’s up to us.”
In Italian media the general perception is that, one way or the other, the EU will not be the same anymore and Brexit will change the current European political dynamic.
The UK referendum result is partly overshadowing the last day of the general election campaign ahead of Sunday’s vote (Saturday being a “reflection day”). In parallel, the Madrid stock market opened this morning 12% down, the largest loss in its history.
At 9.30 am, Prime Minister Rajoy appeared before the media to reassure citizens and foreign investors. He expressed his “sadness” at the result and re-stated Spain’s commitment to the EU; further Government reactions are expected following the weekly Council of Ministers meeting.
Opposition leaders – such as Pedro Sánchez (Socialists), Alberto Rivera (Ciudadanos) and Pablo Iglesias (Podemos) had expressed their hopes that the UK would remain.
Pro-independence politicians in Catalonia recognised that Brexit could set a precedent for how the EU copes with a reconfigured Europe; Raül Romeva, the Catalan minister for foreign affairs, saw the referendum as a chance for citizens to decide freely on their sovereignty in a democratic way.
According to recent polls, Spanish citizens were the fiercest EU supporters of the UK staying in the EU; it remains to be seen whether the Brexit vote will condition them in one way or another when on Sunday they turn to the ballots.
Spanish media coverage focused on the potential economic impact a Brexit could have on the Spanish economy – British tourists spent €14bn in Spain (or €444 a second) in 2015 – and on Spanish companies with significant investments in the UK, such as Santander. It has also revived the issue of sovereignty over Gibraltar, which voted overwhelmingly (96%) to remain.
Pablo Lopez-Alvarez, Managing Director from FTI Consulting’s Spanish team
Early reaction is one of shock and concern. The implications for Ireland are potentially far reaching; business leaders have already voiced their concerns that the vote could have greater economic impact on Ireland than other EU countries.
The Irish An Taoiseach (Prime Minister), Enda Kenny, said that the Government has prepared a contingency plan though there are no immediate implications for the movement of goods, services or people. The Irish Parliament is being recalled on Monday and the Minister for Finance is liaising with the Irish Central Bank, the National Treasury Management Agency and the European Central Bank to monitor and address short term volatility. Implications of the referendum result for Northern Ireland will require careful consideration, which will be reflected in negotiations on Britain’s exit. He also said the Government will seek to maintain and minimize disruption to the Common Travel Area.
Micheál Martin, leader of the main opposition party which is central to the continuing support of the current minority administration, made clear that Ireland must work constructively to reform the EU from within. He emphasised the case for Ireland’s membership of the EU remains overwhelming, but there was a need to minimise damage.
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