Brexit: Time for calm in the face of market uncertainty

There has been much commentary on the vote by the United Kingdom last Thursday in favour of leaving the EU. It is regrettable that much of this commentary has exclusively focussed on criticising UK voters and politicians for bringing about this outcome and emphasised the need for an exit to occur as expeditiously as possible. Speaking as someone who has spent much of my career working in London, is a committed European and is personally devastated by the result of the vote, I believe the reaction I have described above is wrong on many fronts.

Government is one of the most complex of human endeavours. The generation of consensus among populations is always extremely difficult, driven by many complex factors, and any given election or referendum is part of a continuum rather than necessarily conclusive in itself.

To reinforce this point, Ireland initially voted against the adoption of both the Lisbon and Nice treaties, yet today there is almost unanimous support for the EU in a Dáil which has rarely being more divided on many other issues.

This referendum is not binding on the UK parliament and there is a large majority of parliamentarians who do not agree with the outcome. Legally, the invoking of Article 50, which commences the two-year negotiation period with the EU, is a matter for the UK government.

Further, all the possible implications of a UK exit were not obvious to most voters in advance of the vote, not least the implications of positive votes in Scotland and Northern Ireland and the pretty unequivocal 1:1 linking of Single Market access for the UK to free movement of people post Brexit by the EU Council of Prime Ministers.

For the last eight years or so, the world has been living in the shadow of the global financial crisis and the Great Recession, the most painful economic and social event in Europe that anyone born after the end of the second World War has experienced. The living standards of large proportions of the populations of many countries have been severely impacted and are only recovering slowly. The decision to hold a referendum and the result of the referendum must be seen against this broad background.

Financial services

The EU has made significant errors in this period, including vis a vis the UK, with France and Germany (who in Ireland will forget the impact of Merkel and Sarkozy’s discussions at Deauville) forming what appears to be an unhealthy hegemony, combining to effectively exclude the UK, at Council, Commission and Parliament levels, from influence on the governance of the financial services sector, the UK’s most important industry.

It would be like Germany being excluded from influence over the motor sector. The enormous over-reaching of the EU Competition Directorate is another example, applying inconsequential principles of state aid to insist on being the final arbiter of proposals to restructure banks at a time of existential financial system crises in some countries, including the UK.

It has been quickly forgotten that the UK, with Ireland and Sweden, were the only countries to open their labour markets to EU Eastern European Accession countries in 2004, with others, including France and Germany, not following until seven years later.

It is ironic that this decision has obviously had a significant impact on the recent vote, driven by the perceived impact on low-paid workers in the UK. It has also led to the UK government taking a more cautious stance than others to the most recent refugee crisis.

London is the only truly multicultural city in Europe and no city in Europe has been more open to young people from other European countries to live in and work. Further, no country in Europe has succeeded in integrating ethnic minorities, a political and economic challenge of enormous difficulty and complexity, as successfully as the UK.

There is hardly anyone who doesn’t agree that the referendum result was not an occasion of enormous consequences nor that an ultimate decision of the UK to leave the EU would not be historically significant.

The least the UK deserves is the opportunity to carefully reflect on how best to respond to the referendum result in accordance with its own political and constitutional arrangements. It should be given whatever time is necessary to reflect on this and not be bullied by external commentators and other countries to take a rushed decision. It is true that markets abhor uncertainty but, even more so, markets would prefer an optimal outcome, in terms of political relationships, trade, growth and living standards, than a rushed outcome which has an unnecessarily adverse effect on all of those. Patience, understanding and generosity are the appropriate responses to these difficult circumstances.

Willie Slattery is former head of investment services for Europe, the Middle East and Africa at State Street and one-time chairman of Financial Services Ireland.