The U.K. voted to quit the European Union after more than four decades in a stunning rejection of the continent’s postwar political and economic order, prompting Prime Minister David Cameron to resign and sending shock waves around global markets.
Why Britain Voted to Leave the EU
The pound plunged to the lowest since 1985, European stocks followed Asian equities in tumbling and U.S. Treasuries surged in one of the most dramatic 24 hours in modern British history. The final tally, announced just after 7 a.m. London time, showed voters had backed “Leave” by 52 percent to 48 percent. The government’s pro-EU campaign was defeated by more than 1 million ballots.
David Cameron makes his resignation speech with his wife Samatha Cameron on June 24.
David Cameron makes his resignation speech with his wife Samatha Cameron on June 24.
Photographer: Chris Ratcliffe/Bloomberg
“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 said in an emotional statement to reporters outside his Downing Street residence in London on Friday. He said he’ll stay on for the next three months with a new Conservative leader to be installed by October.
The result sets the U.K. up for years of bitter divorce talks with the first salvos likely to be fired at an EU leaders’ summit next week. The U.K. must now count the economic and financial cost of an exit that Cameron warned would spark a recession. JPMorgan Chase & Co. and HSBC Holdings Plc have said a so-called Brexit would lead them to move thousands of jobs out of London.
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 sets him up for a potential tilt at the premiership. Still, the vote widens fissures in the U.K. by raising the prospect of another push for Scottish independence and leaves London as one of few pro-EU centers. Johnson was greeted by jeers and boos when he briefly emerged from his north London home.
Beyond Britain’s shores, the result will fan speculation that more countries could withdraw from the EU and gives a fillip to populist insurgents such as Donald Trump and France’s Marine Le Pen. Above all, the outcome shows just how disillusioned Western voters have become with the political establishment for failing to deliver more inclusive economic growth in the era of globalization.
“This is the biggest shock to European politics since the fall of the Berlin Wall,” said Rob Ford, professor of politics at Manchester University.
The White House said that President Barack Obama had been briefed on the results as they came in and was expected to speak with Cameron during the course of Friday. In Europe, governments from Ireland to Malta convened emergency cabinet meetings to discuss the way forward.

Firefighting

The market rout had echoes of the 2008-2009 financial crisis. The pound fell to as low as $1.3229, before trading down 7.2 percent at $1.3807 and still on course for its worst day on record. Oil tumbled 4.1 percent, gold jumped 4.8 percent and the FTSE 100 Index fell 4.2 percent. HSBC, which earlier this year opted to keep its headquarters in London, plunged 3.7 percent in London trading. The selloff was compounded by the fact that markets had rallied over the past week on optimism that the U.K. would vote to stay.
Finance officials have are already started firefighting. The Bank of England said it was “monitoring developments closely” and will take all necessary steps to ensure stability. Governor Mark Carney may end up having to cut interest rates or revive quantitative easing. The decline in the pound already far exceeds its previous record decline in 1992, when it fell 4.1 percent on Black Wednesday, the day the currency was forced out of Europe’s exchange-rate mechanism.
The Swiss central bank intervened to stabilize the franc and pledged to stay active in the market. The result may also prompt the Federal Reserve to delay raising rates.
Some Asian and European companies with operations in the U.K. said they would reassess their investments in the wake of the vote. Hankook Tire Worldwide Co. of South Korea said the company will respond by “diversifying global production capability,” while a board member of Japanese car parts maker Exedy Corp. said the company may have to consider moving its U.K. office to continental Europe. Maurice Levy, chief executive officer of French advertising giant Publicis Groupe SA, said it was “out of the question” to open new sites in the U.K. as the advertising market will “surely suffer.”

Rag-Tag Victory

The result marks a victory for a rag-tag band of politicians and executives who took on Britain’s establishment and won. Conservatives Johnson and Michael Gove broke with Cameron to form a loose alliance with the U.K. Independence Party, arguing that the island nation can go it alone in an era of globalization. It was also a massive victory for UKIP leader Nigel Farage, who has campaigned for the U.K. to leave the EU for a quarter century.
“Let June 23rd go down in our history as our Independence Day,” said Farage, a former commodities broker. “The euroskeptic genie is out of the bottle and it will now not be put back.”
Tapping into voters’ worries about immigration, the pro-Brexit leaders said that Britain can only exert full control over its borders and budget by leaving the EU. That promise overcame repeated warnings from Cameron and a cast of supporters that included the Pope, the Archbishop of Canterbury and the U.S. president.
The murder of pro-EU lawmaker Jo Cox last week slowed without stopping the momentum behind the Brexit message.
The next steps are unclear as politicians in Britain and the rest of Europe feel their way through the unprecedented situation.

Exit Trigger

Cameron said that the U.K. 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, a member of Merkel’s party 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. But to others it’s resonant of weak economic growth, high unemployment and overbearing regulation.
“Hurrah for the British!” tweeted Geert Wilders, the anti-EU, populist leader of the Dutch Freedom Party that leads in opinion polls ahead of elections in the Netherlands next spring. “Now it is our turn.”

Tough Talks