Brexit: Opening Pandora’s Brox

Elite forecasts call for Britain to “remain” in the European Union at the June 23 “Brexit” referendum, but polls remain virtually tied with a large undecided component. If “leave” wins, there is no global systemic risk, as the UK doesn’t use the euro. We see no threat to the UK’s currency, markets, banks or trade, and a “leave” panic would be a buying opportunity. The UK is a large net importer, and thus a highly desirable trading partner for whom any necessary accommodations will be rapidly made. The risk is to Europe. Without the counterbalance of the UK, Germany lacks the moral authority to drive integration and reform. And with the financial crisis passed, reform is at risk. And now, “leave” or “remain,” with the UK having won substantial concessions from the EU, other large nations will demand the same special treatment. European integration will become a messy sequence of brinksmanship negotiations. Pandora’s Box is wide open.