UK votes by 52% to 48% to leave the European Union; Fed to play long game dealing with the fallout; Pound and FTSE plunge even as Treasuries and gold soar; Global markets tumble before partial recovery; Second Scottish referendum 'highly likely'
The aftershocks from Britain's political earthquake buffeted markets and policy makers, creating political upheaval in London, dismay in European capitals and panic on trading floors around the world.
The pound plunged to the lowest since 1985, stocks in Europe and Asia tumbled and US Treasuries surged after UK voters decided in a referendum to leave the European Union. Prime Minister David Cameron resigned, saying he would serve another three months, after a 52 per cent majority rejected his pro-EU campaign.
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"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 told reporters outside his Downing Street residence, choking back tears. A jubilant Nigel Farage, leader of the UK Independence Party, said "the euroskeptic genie is out of the bottle and it will now not be put back."
Britain must now count the economic and financial cost of an exit that Cameron warned would spark a recession. JPMorgan Chase and HSBC Holdings have said a so-called Brexit would lead them to move thousands of jobs out of London. Central bankers pledged to safeguard financial stability. 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 puts him as his potential successor. Still, the vote widens fissures in the UK by raising the prospect of another push for Scottish independence and leaves London as a pro-EU island. Beyond Britain's shores, populist insurgents in France, Italy and the Netherlands cheered as did Donald Trump. France's Marine Le Pen called for an immediate referendum there. "This is the biggest shock to European politics since the fall of the Berlin Wall," said Rob Ford, professor of politics at Manchester University.
Crisis echoes
The market rout had echoes of the 2008-2009 financial crisis. "Panic is palpable," said John Gorman, the Tokyo-based head of US debt trading for Asia and the Pacific at Nomura Holdings, even before European markets opened.
The pound fell to as low as $1.3229, before trading down 7 per cent at $1.3839 at 11:15 am in London and still on course for its worst day on record - far exceeding its previous record decline in 1992. That's when it fell 4.1 per cent on Black Wednesday, the day the currency was forced out of Europe's exchange-rate mechanism. Oil tumbled 4.8 per cent, gold jumped 5 per cent and the FTSE 100 Index fell 4.5 per cent. HSBC plunged 4.2 per cent. The selloff was compounded by the fact that markets had rallied over the past week on optimism that the UK would vote to stay.
"This is not such a good day for Europe," Deutsche Bank AG Chief Executive Officer John Cryan said in a statement. "We cannot fully foresee the consequences, but there's no doubt that they will be negative on all sides." Financial services, which employs more than 2 million people nationwide and paid 66 billion pounds ($92 billion) in tax last year, is particularly threatened. The City of London's status as a financial capital may now be eroded, especially if the UK loses rights that allow its banks to sell their products and services throughout the EU.
JPMorgan CEO 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. Global companies said they would reassess their UK investments in the wake of the vote.
Exit trigger
The next steps are unclear as politicians in Britain and the rest of Europe feel their way through the unprecedented situation. Cameron said that the UK will wait until a new prime minister is in place before triggering exit talks and invoking Article 50 of the Lisbon Treaty. That threatens an immediate clash with Germany, which signaled it will push for a quick exit.
Negotiations should be concluded within a maximum of two years, said Manfred Weber, who heads the conservative EPP group in the European Parliament. "There cannot be any special treatment," Weber said on Twitter. "Leave means leave."
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, who discussed the outcome for 20 minutes on Friday morning, the EU is a symbol of Europe's resurgence from World War II.
Tough talks
Among the first decisions for Merkel and Hollande will be how tough they want to be on the UK 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. Foreign ministers from the EU's six founding members are due to meet in Berlin on Saturday, and finance ministers could confer as soon as this weekend.
Johnson is the bookmakers' favourite 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 voters across the UK may have to go to the polls for a third time in two years.
The vote doesn't end the sovereignty struggles. Scottish First Minister Nicola Sturgeon said the option of another independence referendum for Scotland, where 62 per cent voted to "Remain" in the EU, is "on the table." 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.
$345-bn Brexit Defence
As markets went into turmoil and the pound plunged to a three-decade low after Britain voted to leave the European Union, the Bank of England issued an early morning statement and its governor stepped in with a pledge to provide an extra 250 billion pounds ($345 billion) for the financial system. He also said the BOE has further measures if needed to deal with what he described as a "period of uncertainty and adjustment." "Some market and economic volatility can be expected as this process unfolds," Carney said in a televised statement in London. His comments followed Prime Minister David Cameron's announcement that he will step down this year, which will add an additional layer of political uncertainty to the tumult.
