It’s been described as a watershed moment for Europe, the decision by just over half of all voting Brits to break from the European Union caused shock and panic because no one really expected it to happen.
But as political experts, economists, journalists and BBQ conversationalists the world over debate whether it’s a good or disastrous event, there’s a very real need to take a chill pill and here’s why.
Firstly let’s look at Australia, the shock factor of the British exit from the EU will have more of an impact on investor confidence here than anything else, largely because while we are listening to all the reactions through media, Europe remains one of Australia’s smaller trading partners.
A drop in confidence is likely to influence the Reserve Bank of Australia’s (RBA) decision on rates and reinforce a view to lower the cash rate further, as many economists are already tipping.
Lower rates are aimed at stimulating the Australian economy, encouraging greater activity in housing and other sectors, and putting downward pressure on the Aussie dollar (what the RBA wants anyway) so that it becomes more attractive to offshore trading partners.
Now to why I think there’s a need to get some real perspective on Brexit beyond the headlines that might make you feel that the world is ending.
Much of Europe has been in financial strife since the fall out from the global financial crisis. For years there’s been talk that some of the 28 member countries would leave to try and in doing so devalue their currencies, rebuild their own economies and forge independence.
While it’s easier said than done and the path ahead will no doubt be a long and bumpy one, no one knows how it’s really going to go.
But what’s clear is that an overwhelming number of working class in Britains have had enough of financial pressures, job losses to “outsiders” and open-door immigration policies, which have been only worsened by global terrorism.
Financial markets have lost trillions of dollars because the event was unexpected. But let’s not forget that as markets sold off, someone somewhere was making money. But these losses are also not as bad as the 2007/08 global financial crisis. Dr Shane Oliver from AMP Capital points out:
“Eurozone shares fell 8.6 per cent on Friday they only fell 2.6 per cent over the last week. Over the week as a whole US shares lost 1.6 per cent, Japanese shares lost 4.2 per cent, Chinese shares fell 1.1 per cent and Australian shares fell 1 per cent. Bad but not monumental. Believe it or not the British share market actually rose 2 per cent over the last week,” he said in a note to investors.
It’s going to take many years before the real split between the EU and Britain takes effect. Over which time financial markets will have time to adjust and expectations of further volatility and slower economic growth are likely to remain. This is actually nothing new. Ever since the GFC, many economists have been predicting a prolonged period of economic weakness. In fact some have gone as far as calling it the new normal.
There have also been claims that Brexit signals the end of globalisation if it leads to measures that stifle the free flow of people. But aside from this leading to tougher boarder protection measures, the biggest influencer of globalisation has been the rise of internet and social media.
You only have to look at the most popular tweets and social conversations to realise that these methods of communication are alive and well, and keeping us firmly connected i.e. globalised.