The U.K. voted to quit the European Union after more than four decades in a stunning rejection of the continent’s postwar political and economic order, prompting Prime Minister David Cameron to resign and sending shock waves around global markets.
The pound plunged to the lowest since 1985, Asian stocks tumbled and U.S. Treasuries surged in one of the most dramatic 24 hours in modern British history. The final tally, announced just after 7 a.m. London time, showed voters had backed “Leave” by 52 percent to 48 percent. The government’s pro-EU campaign was defeated by more than 1 million ballots.
“The British people have made a very clear decision to take a different path, and as such, I think the country requires fresh leadership,” Cameron said in an emotional statement to reporters outside his Downing Street residence in London on Friday. He said he’ll stay on for the next three months with a new leader to be installed by October.
The result sets the U.K. up for years of bitter divorce talks with the first salvos likely to be fired at an EU leaders’ summit next week. The U.K. must now count the economic and financial cost of an exit that Cameron warned would spark a recession. JPMorgan Chase & Co. and HSBC Holdings Plc have said a so-called Brexit would lead them to move thousands of jobs out of London. The outcome is a victory for Boris Johnson, the former mayor of London who broke with former schoolmate Cameron to help lead the “Out” campaign and sets him up for a potential tilt at the premiership.
“This is the biggest shock to European politics since the fall of the Berlin Wall,” said Rob Ford, professor of politics at Manchester University.
The vote widens fissures in the U.K. by raising the prospect of another push for Scottish independence. Beyond Britain’s shores, it will fan speculation that more countries could withdraw from the EU and gives a fillip to populist insurgents such as Donald Trump and Marine Le Pen. Above all, the outcome shows just how disillusioned Western voters have become with the political establishment for failing to deliver more inclusive economic growth in the era of globalization.
“Hurrah for the British!” tweeted Geert Wilders, the anti-EU, populist leader of the Dutch Freedom Party that leads in opinion polls ahead of elections in the Netherlands next spring. “Now it is our turn.”
The White House said that President Barack Obama had been briefed on the results as they came in and was expected to speak with Cameron during the course of Friday. In Europe, governments from Ireland to Malta convened emergency cabinet meetings to discuss the way forward.
Firefighting
The market rout had echoes of the 2008-2009 financial crisis. The pound fell to as low as $1.3229, before trading down 7.8 percent at $1.3703 and still on course for its worst day on record. Oil tumbled 4.8 percent, gold jumped 4.9 percent and the FTSE 100 Index fell 6.7 percent. HSBC, which earlier this year opted to keep its headquarters in London, plunged 5 percent in London trading. The selloff was compounded by the fact that markets had rallied over the past week on optimism that the U.K. would vote to stay.
Finance officials have are already started firefighting. The Bank of England said it was “monitoring developments closely” and will take all necessary steps to ensure stability. Governor Mark Carney may end up having to cut interest rates or revive quantitative easing. The decline in the pound already far exceeds its previous record decline in 1992, when it fell 4.1 percent on Black Wednesday, the day the currency was forced out of Europe’s exchange-rate mechanism.
The Swiss central bank intervened to stabilize the franc and pledged to stay active in the market. The result may also prompt the Federal Reserve to delay raising rates.
Some Asian and European companies with operations in the U.K. said they would reassess their investments in the wake of the vote. Hankook Tire Worldwide Co. of South Korea said the company will respond by “diversifying global production capability,” while a board member of Japanese car parts maker Exedy Corp. said the company may have to consider moving its U.K. office to continental Europe. Maurice Levy, chief executive officer of French advertising giant Publicis Groupe SA, said it was “out of the question” to open new sites in the U.K. as the advertising market will “surely suffer.”
Rag-Tag Victory
The result marks a victory for a rag-tag band of politicians and executives who took on Britain’s establishment and won. Conservatives Johnson and Michael Gove broke with Cameron to form a loose alliance with the U.K. Independence Party, arguing that the island nation can go it alone in an era of globalization. It was also a massive victory for UKIP leader Nigel Farage, who has campaigned for the U.K. to leave the EU for a quarter century.
“Let June 23rd go down in our history as our Independence Day,” said Farage, a former commodities broker. “The euroskeptic genie is out of the bottle and it will now not be put back.”
Tapping into voters’ worries about immigration, the pro-Brexit leaders said that Britain can only exert full control over its borders and budget by leaving the EU. That promise overcame repeated warnings from Cameron and a cast of supporters that included the Pope, the Archbishop of Canterbury and the U.S. president.
The murder of pro-EU lawmaker Jo Cox last week slowed without stopping the momentum behind the Brexit message.
The next steps are unclear as politicians in Britain and the rest of Europe feel their way through the unprecedented situation.
Exit Trigger
Cameron said that the U.K. will wait until a new prime minister is in place before triggering exit talks and invoking Article 50 of the Lisbon Treaty. That will set a two-year clock ticking on negotiations.
For the EU and its most powerful leader, German Chancellor Angela Merkel, the result presents yet another challenge after years of crisis. EU unity has already been sorely tested by Greece’s seemingly endless debt woes, sanctions on Russia and the Syrian refugee crisis.
Now, Merkel and French President Francois Hollande need to rally confidence in a project increasingly questioned by populists like Le Pen in France and Italy’s Five Star movement. To Merkel and Hollande, the EU is a symbol of Europe’s resurgence from World War II. But to others it’s resonant of weak economic growth, high unemployment and overbearing regulation.
Tough Talks
Among the first decisions for Merkel and Hollande will be how tough they want to be on the U.K. in the upcoming negotiations, especially as some countries will surely want to make an example of Britain to stop others from leaving. The first indications of their joint position may come on Monday, when Hollande travels to Berlin ahead of a June 28-29 meeting of EU leaders. Finance ministers could confer as soon as this weekend.
German Finance Minister Wolfgang Schaeuble called in an e-mailed statement for a clean break between Britain and the EU, saying he’s in touch with his Group of Seven colleagues following the vote.
The referendum decision “causes damage to both sides,” Manfred Weber, a member of Merkel’s party who heads the conservative EPP group in the European Parliament, said on Twitter. “Exit negotiations should be concluded within 2 years at max. There cannot be any special treatment. Leave means leave.”
Cameron, 49, became leader of the Conservatives in 2005 and prime minister five years later at the helm of a coalition government. He won an outright parliamentary majority in May 2015. Having navigated the economy away from recession despite deploying the tightest fiscal squeeze since World War II, he departs Downing Street having failed to meet his onetime pledge of stopping the Tories from “banging on about Europe.”
A key question now will be who leads Britain’s negotiations after one of the biggest foreign policy failures by a British prime minister in the modern era.
Who’s In
Johnson is the bookmakers’ favorite to succeed Cameron. Other potential heirs include Justice Secretary Gove and Home Secretary Theresa May. Whoever takes over is likely to seek his or her own mandate with another general election, meaning British voters may have to go to the polls for a third time in two years.
There’s also a question mark over the future of the Brexit lobby and its key figures such as Farage, who were excluded from the official “Leave” campaign. Having led the country to the EU door, it’s unclear whether they will be content to leave exit negotiations to the Conservative government. In a statement outside the Houses of Parliament, Farage called for a “Brexit government.”
The City
One industry particularly under threat is financial services, which employs more than 2 million people nationwide and paid 66 billion pounds ($91 billion) in tax last year. The City of London’s status as a financial capital may now be eroded, especially if the U.K. loses “passporting” rights which allow banks to reside in the U.K. and sell their products and services throughout the EU.
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon, who has 16,000 employees in London and other British cities, said this month a vote to leave could mean a quarter of those jobs might be cut. Morgan Stanley and HSBC have made similar noises.
The vote could set in motion the breakup of the United Kingdom. First Minister Nicola Sturgeon may now use the decision to revive talk of independence for Scotland, where 62 percent voted to “Remain.” The vote also complicates things for the Irish, who will now face barriers to the free movement of goods and workers between the Republic of Ireland and Northern Ireland.
“I don’t know the forces they have unleashed in winning this,” Steve Fielding, a professor of political history at the University of Nottingham, said by phone. “I don’t know this is in the capacity of any one person to control.”
For one American visiting Britain this week, the result will be of particular interest. An anti-establishment campaign, talking tough on immigration, accused of stretching the truth? Its victory will surely bring a smile to the lips of Donald Trump.