Brexit: What a Difference a Week Makes

Britain’s decision to part ways with the European Union in a referendum last week was a classic example of what former US Defense Secretary Donald Rumsfeld might call a “known unknown.” The vote was on the slate, the polls were very close through the end, and yet no one expected the British to actually cut the umbilical cord. But cut it they did, sending the pound sterling and stock markets reeling and leading to a widespread spike in risk aversion, reflected in record-low US Treasury bond yields.

The following is a recap of the turbulent week that followed the United Kingdom’s momentous decision to sever ties with the European Union after a 43-year membership.

Thursday, June 23

• More than 30 million Britons vote in the in-or-out referendum and, in a surprise to most, the Leave camp wins by a margin of 51.9 percent to 48.1 percent.
• Markets’ sharp response leads to an immediate depreciation of the pound and global equity market losses of $3 trillion. Stocks have since recovered, while the pound remains under pressure, as predicted by PIIE president Adam Posen.

Friday, June 24

• Reversing earlier claims, UK Prime Minister David Cameron says withdrawal from the European Union will not begin immediately. Instead, he resigns, saying he will step down in September and leave Article 50 to be triggered by the next prime minister, presumed to take office in October.
• Global markets come under severe pressure as the Brexit-led selloff deepens. Bank shares are particularly hard hit, not just in the United Kingdom but also in the euro area. The dollar, yen, and Swiss franc rally sharply as investors pile into currencies seen as safe havens, complicating efforts by those countries’ central banks to keep monetary conditions loose.
• European Commission president Jean-Claude Juncker pushes back against UK stalling: “It doesn’t make any sense to wait until October to try to negotiate the terms of their departure…. I would like to get started immediately.”

Weekend

• Political and racial acrimony rises: Abuse of immigrants increases, and the United Kingdom’s survival in its current form is called into question.
• Eleven Labour Party shadow ministers resign, questioning the party’s electability under Jeremy Corbyn’s leadership.

Monday, June 27

• Cameron rules out the possibility of a second EU referendum despite a popular online petition.
• The United Kingdom’s credit rating is downgraded.
• Stock markets rebound, but currency and bond markets remain under pressure.

Tuesday June 28

• German chancellor Angela Merkel says the United Kingdom can’t cherry pick access to the single market after the referendum to leave.
• Labour Party parliamentarians pass a no-confidence motion on Jeremy Corbyn, who continues to cling to power.
• Expectations for a possible US Federal Reserve interest rate hike this summer, and even later this year and next, all but vanish according to futures markets.

Wednesday, June 29

• EU representatives throw more cold water on UK hopes to participate in the single market while limiting freedom of movement. European Council president Donald Tusk insists there can be “no single market à la carte.”

Thursday, July 30

• Ex-London mayor and prominent Leave campaigner Boris Johnson surprises supporters by ruling himself out of the Conservative leader race.

Friday, July 1

• Slovakia takes over the EU Council presidency. An informal meeting on the future of the European Union is expected to take place in Bratislava in September.