Brexit: “Ever closer union” is no more

World Today

A store closing sale banner stating "Everything Must Go" on a window next to the colors of the Union flagA store closing sale banner stating “Everything Must Go” on a window next to the colors of the Union flag in the City of London, Friday, June 24, 2016. (AP Photo/Matt Dunham)

A commentary by Saruhan Hatipoglu,
CEO of BERI and CCTV America Global Economics Analyst
Follow Saruhan Hatipoglu on Twitter @sshatipoglu

In what is labelled as a “shocking” move, the U.K. yesterday voted to leave the European Union (EU). With opinion polls running so close to one another last month, we all knew the result could go either way.

Yet, we are still shocked by the outcome. As the dust is slowly settling, we are now concerned about the global implications of this drastic turnaround. I strongly believe that the economic and financial implications of the decision will be well-contained in the short-term, as we are already seeing some rebounding in key markets. Central banks will also be there to provide more liquidity. This is not to say we will not witness volatility in the next week.

We definitely will. But, it is important to remember that this decision is the start of a process and the global economy will have time to digest it. It will take two years for the UK to exit the EU and 4-5 years to negotiate all the trade and investment deals.

The EU is right to be upset but it should have realized the reasons as to why this decision was made in the U.K.. The organization also realizes that the economic implications will be harder on the region than the U.K. itself with London being the third largest contributor to the operating budget and the EU receiving almost 45 percent of the country’s exports last year. Economic linkages are still there and will continue to drive relations in the future despite visible fracture in relations. A Switzerland or a Norway type of agreement will be established.

So, why should we worry then if the immediate global economic and financial implications can be contained with responsible policymaking? I think the issue at hand is long-term economic concerns and politics. Let’s start with the first:

The EU and many parts of the world are facing an aging population coupled with significantly low productivity. Add to this lethal combination decreasing size of markets, lack of competition for domestic players and the slowing down of new idea and skills exchanges that foreign investment and immigration bring, and we have every reason to worry about long-term implications of the Brexit and the domino effect it can have on the global economy.

But, I believe that the real casualty is regional politics and ideals of a Continent. Today, we woke up to a day where the concept of “ever closer union” was assassinated. Political, economic and social integration model that the Continent was aspiring to effectively ended today and there is no turning back. That is a cause for concern.

Secondly, foreign policy of the EU has officially entered unchartered waters. The U.K. was an important balancing factor in foreign affairs of the organization with Germany and France in disagreement over key issues. Now, with that balance off, the foreign policy will be determined by a reluctant leader, Germany, and a protectionist France. The results can be devastating for geopolitical stability at a time we need it desperately.

Finally, expect growing protectionism and anti-immigrant sentiment in other parts of the region as well as in the U.S. The vote will embolden populist leaders who might just increase their support at a critical time for the global economy. Donald Trump rising to power in the U.S.; AFD in Germany, National Front in France as well as other populist and right-wing parties in Italy, Netherlands and Spain are all possibilities now that are closer today than yesterday.

It is a new day with much uncertainty on the way, but my concerns are more for the long-term impact of the decision: political, economic and financial.

Saruhan Hatipoglu discusses the economic consequences of the Brexit

For more on the aftermath of the Brexit, CCTV’s Susan Roberts spoke to Saruhan Hatipoglu, CEO of BERI and CCTV Global Economics Analyst, about how the split will affect the economy.