The British empire strikes back

John Defterios / The Daily Star

On the set of our CNN studio in Abu Dhabi early Friday morning, reality started to set in at 0630 local time. What was a one and a half point percentage spread between the “leave” and the “remain” camps began to widen every few minutes. An hour later, the British pound sank like a stone to just over 1.32 against the U.S. dollar; gold shot up 5 percent and we witnessed an accelerated sell-off in Asian equity markets.

The grand assumption, based it seems in retrospect on hope, that Britain would remain as a member of the European Union was horribly off the mark.

Harry Broadman, director of the Center on Global Enterprise and Emerging Markets at Johns Hopkins University said the vote may usher in a serious review of what has been built by the EU.

“Brexit doubtlessly will usher in a period of ferment among the remaining EU member states about the benefits and costs of the EU as currently structured and governed,” said Broadman.

By 0800 UAE time, it was crystal clear Brexit became a reality. There are many angles to the U.K. referendum story, but two certainly dominated: the wide divide between the youth and older members of the electorate and the vote differential between rural and cosmopolitan Britain.

But the hard fact is over 17 million Britons voter in favor of an exit. It is fair to say a majority never liked the European model constructed after the fall of the Berlin Wall allowing the building up of what they see as a giant super state in Brussels that has shifted decision-making outside their borders.

When communism collapsed, European leaders like Germany’s Helmut Kohl, and France’s Francois Mitterrand rushed to maintain stability by offering hope to Eastern and Central European states. They moved quickly to create a single market of 300 million citizens in 12 countries. Trade barriers would come down, labor would eventually move freely and a single currency would over time be launched.

Having covered the launch of this single market in the early 1990s, it was evident from the get-go that the movement of workers and a single currency would never fly by a majority of people in Britain.

As we found out Friday, there was so much disdain for “Europe” as voters saw it, that they turned their back on a huge market of 740 million consumers with a collective GDP of $18 trillion.

Perhaps older voters bought the pitch from the likes of so-called “leavers” Boris Johnson and Nigel Farage that it was time to bring back the glory days of the British Empire and rebuild trade relationships on their own terms, one country at a time.

Early Friday morning, Farage called for June 23 to be marked as Britain’s own Independence Day.

According to the International Monetary Fund (and countless others) it will come at a high cost. In a sober assessment of what may lie ahead, the IMF said that Britain will likely tumble into recession, with rising unemployment, real wages stagnating and property prices falling along with foreign direct investment.

Property consultancy JLL said real estate transactions dropped by 20 percent in the first five months of 2016 ahead of the referendum. With so much uncertainty it is difficult to see that changing.

Farage added in his victory speech that the war against multinationals and merchant banks has been won and it was time to put British people first again.

That hardly sounds like the language of a country that built its trading empire over centuries and established a hard-earned reputation as an open and reliable economy.

The U.K. ranks ninth worldwide in terms of competitiveness, according to the World Economic Forum, and is also the ninth largest export economy. Nearly half, 47 percent, of those exports go to the EU. That will be a big hole to fill in the future.

It is ranked in the top five globally as a destination for foreign direct investment, averaging $40-$50 billion per year for the past decade and big players such as Tata, Nissan, Toyota and Airbus manufacture products on British soil. It is a key reason the U.K. unemployment rate of 5 percent is half the EU average.

Many believe there will be a big question market over Britain and future investments until clarity is provided. There’s talk of banks moving operations to Continental Europe, property prices falling and sovereign wealth funds looking for new horizons.

At its peak, Britain controlled the largest empire – some 450 million people – but today it’s a country of 65 million people looking to re-establish trade links that it safely enjoyed as a member of the European Union.