UPDATE: UK Votes ‘Leave’, PM to resign, GBP Tumbles, Stocks Fall.
June 24, 2016: The UK’s EU referendum is over, and the country has voted to leave the EU by a vote of 51.9% to 48.1%.
Early in the night, before the ballots were counted, polls indicated a sizable lead for the ‘In’ campaign. However, Brits today awoke to the news that the country had voted to leave the UK.
Note: The UK EU referendum is a breaking and ongoing story. All facts and figures are accurate according to our sources at the time of writing, but are subject to change.
Prime Minister Resigns
Prime Minister David Cameron who called the referendum but campaigned strongly for the country to remain in the EU, has announced that he will resign in October.
British Pound Falls 9.8% against USD, 6.4% against the EUR, Stocks fall 8.7%
The pound has hit it’s lowest point against the USD since 1985. This morning it fell 9.8% to USD 1.3236, and dropped 6.4% against the euro to EUR 1.2222. Britain’s FTSE 100 fell by 8.7% – the largest fall since 2008 after Lehman Brothers collapsed at the beginning of the FInancial Crisis. The financial sector was hit hardest, as banks like Barclays and RBS each fell around 30%.
Track the GBP agains the CAD, USD, EUR and other global currencies yourself with Rate Watch.
Vote Breakdown
With 72% voter turnout, the referendum had the highest UK voter turnout for decades. Regional differences defined the vote, and could lead to future uncertainty for the UK.
- England voted 53.2% to leave
- Scotland voted 62.3% to remain
- Wales voted 51.7% to leave
- Northern Ireland voted 55.7% to remain
- Gibraltar voted 96% to remain
Younger people generally heavily favoured remain, while those 50+ favoured leave. Scotland, Northern Ireland, and London voted strongly in favour of remain, while the rest of England and Wales strongly favoured leave. Already there are talks of potential referendums for Scotland and Northern Ireland to leave the UK.
What Happens Now?
Even those in the ‘leave’ campaign acknowledged that a vote to leave the UK would hit the pound and the stockmarket hard, but insisted that it would only be short term – Brits everywhere will now hope that they are right.
Parliament still has to repeal key pieces of legislation to formally withdraw from the EU in a process which could take up to two years (and strictly speaking Parliament could still refuse to do so, although this would be political suicide and could stoke unrest, uncertainty and boost the far right). Until Britain does formally leave the EU the country will still abide by EU laws and regulations, however it will no longer have a say in making EU laws or decisions.
The FTSE 100 and GBP will likely recover eventually, but how quickly and how fully remains to be seen.
*ATTENTION: The sections below were written prior to the vote and presents some information that is out of date.
Everything you need to know about Brexit
A year ago the snappy portmanteau that was on the lips of every europhile was ‘Grexit’, but despite much fear and hyperbole Greece remains part of the EU, and a new phrase now dominates the European lexicon: Brexit.
What is Brexit?
Brexit is a combination of the words ‘Britain’ and ‘exit’. It has arisen because Britain is holding a referendum on its EU membership, and might vote to ‘exit’ the organisation.
What is a referendum?
A referendum is a nationwide vote. All registered voters take part to decide a large issue of national importance. Quebec held two referendums in the 1990’s to decide if it should remain part of Canada (it did). Scotland recently held a referendum to determine whether it would seek to become independent from the rest of Britain (it didn’t).
What is the EU?
The European Union is a political and economic organisation made up of 28 countries. It has evolved from The European Coal and Steel Community (ECSC) created shortly after WWII, into the worlds largest economy (if the EU is counted as one economy). In 1993 the European Union was officially created thanks to the Maastricht Treaty. Some major components of the EU include:
- a single market called the ‘eurozone’ made up of 19 countries that have no trade restrictions and all use the same currency – the euro.
- the Schengen Area which is made up of 26 EU countries that have open borders with free movement of people – effectively no borders between the countries – so EU citizens don’t need Visas (or passports) to travel, live, or work in other countries
- A governing system made up of three pillars:
- The European Parliament which is made up of elected MEPs (Member of the European Parliament), elected every 5 years by each member state at the national level and organised into coalitions within the European parliament
- The European Commission which is made up of one representative of each country appointed by the government of that country
- The Council of the European Union, which is actually 10 different configurations of one representative of each member state. Depending on the subject, the configuration changes: for the Economic and Financial Affairs (EcoFin) each state sends their Finance Minister (or equivalent), for Agriculture and Fisheries, each state sends their Agriculture Minister, etc.
How is Brexit different than Grexit?
Concerns over a possible Brexit are far more justified than those of a Grexit a year ago. Greece never held a referendum. Instead Grexit fears concerned the country’s financial situation.
Some speculated that refusing to play by the EU’s and ECB’s (European Central Bank) rules could force the EU to throw Greek out of the EU or eurozone (although this was never seriously considered). Others suggested that radical elements in Alex Tsipras’s Syriza party would choose to abandon the EU, or hold a national vote similar to Britain’s current referendum, in order to try to tackle their debt crisis.
Britain is also much larger than Greece economically (and in terms of population and stature on the world stage) and the third largest contributor of funds to the EU after Germany and France.
Why is Britain holding an EU referendum?
During the UK’s 2015 general election David Cameron’s ruling Conservative party came under a lot of pressure from ‘euro-skeptics’ within the party, and from the right wing UK Independence Party (UKIP).
Cameron bowed to the pressure and promised to hold a referendum. Consequently he won a majority government, and announced that a referendum would be held on June 23, 2016.
What is a euro skeptic?
Euro-skeptics aren’t skeptics in the usual sense. They very much believe that the EU exists, however they don’t like the idea of a supranational body dictating laws, regulations, and other policy to Britain. They believe that the EU is undemocratic, and bad for Britain.
What is the ‘in’ argument?
Those in favour of staying in the EU argue that the UK gets a major economic boost from being part of the EU. Trade is unrestricted with the rest of Europe, and the Schengen Area allows the best and brightest to enter Britain with less restrictions. The ‘in’ crowd also believe that Britain can better negotiate global trade and diplomatic deals as part of the EU. (Read more from the Stronger In Europe website)
What is the ‘out’ argument?
Many believe that the EU is inherently undemocratic, and that being part of the EU hurts Britain. They believe that the laws and regulations passed by the EU hurt Britain’s economy, and that the Schengen Area has allowed in too many immigrants who take advantage of Britain’s social services. Most of all they reject the EU’s directive of an ‘ever closer union’ which they fear will turn the EU into a sort of United States of Europe. They also believe that the net GBP 8.5 billion Britain spends on funding the EU each year, could be better used elsewhere. (Read more from the Vote Leave website)
When is the British EU referendum?
The referendum is on June 23, 2016.
When will the results of British EU referendum be announced?
The results of the referendum will be announced almost as soon as the polls close on June 23rd. Like most modern elections, the results will appear in real time. Europeans, Brits, and the world will be able to watch the decision unfold live. The results should be finalised by the next day.
The Economics
Exchange rate Consequences of a Brexit
A Brexit could weaken both the pound and the euro, and already both currencies have been hurt by the uncertainty leading up to the referendum.
USD to 1 GBP – moving in favor of the USD over the past year
USD to 1 EUR – fluctuating wildly over the last year
Should I buy euros before or after the British referendum?
There is no way to tell for certain how currency exchange rates will move. The euro has been affected by the uncertainty caused by the referendum, but a Brexit would likely cause the euro to fall even further. On the other hand, if Britain votes to remain in the EU, it could boost the euro. It might be better to buy now during the period of uncertainty, rather than risk a euro rebound.
Should I buy pounds now, or after the British EU referendum?
Again, only you can decide when to buy currency, rates fluctuate for many reasons, and they are unpredictable (if they were predictable there would be many more millionaires around). However, the pound is currently depressed due to the uncertainty of the referendum, so it might be a good time to buy. If the UK leaves the EU, it could depress the GBP further, but if they vote to remain it would likely boost the pound.
Track the GBP and EUR
To track the value of the EUR and GBP consider using Continental’s Rate Watch app. It allows you to track multiple currencies over the last 5 years, and compare all global currency rates against one another.
Economic Impact of Brexit
Both the ‘in’ and ‘out’ campaigns have made radical claims about the economic impact of Britain leaving the EU. According to Open Europe however, it all depends on what happens after the referendum. If Britain can quickly reach favourable trade agreements with the EU and other global powers, it will be better off. If not, it could be a serious blow.
Best case scenario
Worst Case
According to the Financial Time’s survey of 100 economists, “almost three-quarters of the economists polled thought leaving the EU would damage Britain’s outlook; just 8% thought the country would benefit from leaving. Less than 20 per cent thought it would make little difference.” They also argue that it would cost Britain 2-7% of GDP.
Brexit could also hurt Britains red hot real estate market (which is actually a benefit to those priced out of the city), capital would flow less freely and the best and brightest would have a harder time entering the UK. Inflation could also climb as goods may cost more (due to a diminished pound, and the result of trade deal uncertainty).
The politics
Mr. Cameron’s Compromise
David Cameron entered negotiations with the EU to win special concessions for Britain. He hoped this would swing public opinion strongly in favour of remaining in what he called a ‘reformed’ EU. As part of his deal he got:
- A commitment to exempt the UK from “an ever closer union”
- A so called “red card” which means that if 55% of national parliaments vote together then they can block EU legislation
- Reforms to paying child care and migrant benefits (many believe that migrants are ‘scamming’ Britain’s welfare system)
- A guarantee that no country outside of the eurozone would have to fund any bailouts (looking at you Greece)
- A promise to cut red tape to boost competitiveness
Critics in the EU say that Britain wants special treatment or “Europe a la carte”, viewing the deal similar to how some view Quebec in Canada. Eurosceptics in Britain argue that the deal does not do enough, and is just designed to placate them.
If Britain votes to leave the EU how long will it take to leave?
If Britain does vote to leave it could take years for the process to move forward. The referendum is not actually legally binding. Parliament will still have to repeal the laws which bind it to the EU, and begin to negotiate new terms with the EU.
It would likely take a matter of years, but Britain would be immediately removed from the voting and decision making process in the EU. David Cameron (who announced the referendum but is himself pro-EU) has suggested that a Brexit would lead to a minimum of 7 years of uncertainty.
Is the Brexit referendum final?
No, despite claims to the contrary the referendum is not necessarily final. Remember, it is not legally binding, technically Parliament still has to repeal EU legislation. If MPs refuse to vote to repeal the laws (which would potentially be political suicide) then that would qualify as a vote of non-confidence, and an election would be held. If a new party wins the election, they could argue that a new mandate has been set and that they do not have to abide by the results of the referendum. Alternatively, such an affront to the popular vote could create a new tide of anti-establishment politics, and EU skepticism and result in gains for extreme parties like UKIP. More uncertainty would also hurt both the pound and the euro.
Will British citizens still be allowed to travel freely in the EU?
No one is sure yet. It is likely, but if Britain proposes travel restrictions or other legislation that targets EU members, then those member states would likely enact their own restrictions on the UK in retaliation.
Consequences for travellers
Visitors to Britain will be unaffected for the time being (remember it would take years to leave the EU) but in the future, if negotiations go sour, then there may be stricter border controls between Britain and the EU.
How a Brexit would affect the EU?
EU supporters throughout the 28 member states are concerned that a Brexit would lead to greater support for right wing parties in their own countries. No country has ever left the EU, and a Brexit would damage the legitimacy of the institution on the global stage and domestically. Foreign powers may be less likely to deal with the EU if they view it as impermanent. It would possibly affect the EU’s ability to gain better deals resulting from its size if people perceive weaknesses or the potential for it to fracture.
What EU countries think of the referendum
As expected EU skeptic parties (usually on the extreme political left and right) are applauding the vote as a triumph of democracy over Eurocratic interest groups. Those in the centre are concerned about the economic and political consequences. Many see Britain as trying to pick and choose what it wants from the EU, taking the positives without any responsibility. Some EU countries may seek to make a Brexit as painful as possible, in order to make a similar move less appealing in their own countries, in order to stymie right wing voters.
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