In World Economy News 27/06/2016
Turmoil unleashed by Britain’s vote to leave the European Union heightened anxiety in Asia on Sunday, with China, Japan and South Korea all fretting over the risk to world financial stability a few hours before markets reopen.
China’s finance minister said fallout from Thursday’s referendum “will cast a shadow over the global economy” while a senior official in Tokyo warned of the danger of “speculative, violent moves” in currencies.
In Britain, open political conflict spread from the ruling Conservatives to the opposition, and senior Labour lawmakers attempted a coup against their leader after traditional supporters rejected the party’s pro-EU stand in droves.
Splits widened across the nation. Over three million Britons signed a petition demanding a re-run of the referendum, with the number climbing by the hour, and an opinion poll showed a large majority of Scots now want to break with the United Kingdom.
Scotland’s leader promised she would do whatever it takes to keep her strongly pro-EU country in the bloc, including potentially vetoing legislation on a British exit from the world’s biggest single market.
But French President Francois Hollande declared there was no going back on “Brexit”.
“What was once unthinkable has become irreversible after the vote of a majority of the British people,” he said during the inauguration of a World War Two memorial in central France.
Hollande called for France and Germany to use their strong friendship for seizing the initiative, warning that “separated, we run the risk of divisions, dissensions and quarrels”.
KNEE-JERK REACTION
British Prime Minister David Cameron resigned on Friday after voters ignored his appeals to stay in the EU by 52 to 48 percent, delivering the biggest blow since the war to the European project of forging greater unity.
Cameron, however, left formally notifying the EU of Britain’s intention to leave to his successor, who is unlikely to be in office for about three months. That signals a long period of limbo.
Sterling fell as much as 10 percent against the dollar on Friday to levels last seen in 1985, while more than $2 trillion was wiped off the value of world stocks. The weekend gave some respite for markets, but apprehension grew as Monday’s reopening approached.
In China, where the ruling Communist Party puts stability above almost everything else, Finance Minister Lou Jiwei expressed his concerns about the threat to the global economy.
“It’s difficult to predict now,” he said at the first annual meeting of the Asian Infrastructure Investment Bank in Beijing. “The knee-jerk reaction from the market is probably a bit excessive and needs to calm down and take an objective view.”
Central banks promised through their global forum to do as much as they could to contain market uncertainty.
Already the Bank of England and some other of the world’s biggest central banks have offered financial backstops in the hope of calming investors.
Japan contemplated official action on the currency market. “Speculative, violent moves have extremely negative effects,” said Tomomi Inada, policy chief of the ruling LDP party, according to Nikkei daily. “If necessary, the government should not hesitate to respond, including currency intervention.”
South Korea also expressed concern while Hong Kong’s finance chief promised vigilance.
NO RESPITE
Beyond Asia, the United States – which during campaigning made clear it wanted Britain to stay in the EU – also showed signs of unease. Secretary of State John Kerry will visit Brussels and London on Monday. A senior U.S. official said Kerry would stress the importance of other EU members not following Britain’s lead and further weakening the bloc.
Despite the international expressions of concern, respite from the uncertainty is unlikely for months, at the very least.
Cameron has offered to remain as a caretaker, but refused to invoke Article 50 of the EU’s Lisbon Treaty, which allows for two years of exit negotiations. That duty will lie with his successor, who is due to be elected by his Conservative Party sometime before its annual conference in October.
Only after the formal move can work begin on thrashing out Britain’s new relationship with the bloc. The man widely tipped as the next prime minister is former London mayor Boris Johnson, the most prominent member of the campaign to leave the EU.
Cameron’s Conservatives have been at war with each other for years over whether to quit the EU. But the vote to leave a bloc that Britain joined 43 years ago also pushed Labour into chaos.
Labour leader Jeremy Corbyn sacked a top colleague on Sunday, setting off a wave of resignations from his “shadow” cabinet. Dismissed foreign affairs spokesman Hilary Benn called for Corbyn, who was elected last year largely by left-wing party members and supporters, to go. “He is a good and decent man but he is not a leader,” Benn told BBC television.
Corbyn’s critics accuse him of half-hearted campaigning for a “remain” vote in the referendum, and of failing to win over traditional Labour voters who were more receptive to the anti-EU message of the UK Independence Party.
NO LYING DOWN
The referendum has re-energised support for Scotland, which voted overwhelmingly to remain in the EU, to break away from the United Kingdom instead.
An opinion poll in The Sunday Post said 59 percent of Scots backed independence, rocketing from 45 percent of votes cast in a referendum in 2014.
Scottish First Minister Nicola Sturgeon has said a fresh independence referendum is possible. “There are going to be deeply damaging and painful consequences of the process of trying to extricate the UK from the EU. I want to try and protect Scotland from that,” Sturgeon told BBC television.
Under the UK’s complex arrangements to devolve some powers to Scotland, Wales and Northern Ireland, any legislation before the Westminster parliament to withdraw Britain from the EU may also have to gain consent from the three devolved parliaments.
Asked whether she would consider asking the Scottish parliament to block a motion of legislative consent, Sturgeon said: “Of course.”
Beyond Scotland, signs are growing that not all the 16 million Britons who voted to stay in the EU are willing to take the result lying down. Backing for the online petition demanding a second vote more than doubled in 24 hours, with signatures nearing 3.3 million on Sunday afternoon.
The petition, posted on parliament’s website before the referendum, said there should be another vote if the outcome was close on a turnout of less than 75 percent – three points above Thursday’s figure.
It will have to be considered for debate by lawmakers, but has no legal force and its backers compare with the 17.4 million who voted “leave”.
Source: Reuters (By Estelle Shirbon and Ben Blanchard, Additional reporting by Elizabeth Piper, Ingrid Melanderm, Christine Kim, Donny Kwok, William Schomberg, Minami Funakoshi, Francois Murphy and Warren Strobel; Writing by David Stamp; Editing by Anna Willard)
