Marvin Ryder on Brexit: What the ‘Leave’ vote means for Canada, Britain and Europe

Thursday evening, Canadians went to sleep assuming Britain would remain in the European Union. Early exit polls indicated the “Remain” side would prevail by a razor-thin margin in the landmark Brexit vote.

By Friday morning, everything had changed.

The “Leave” campaign emerged victorious with 51.9 per cent of the vote, sending shockwaves around the world as global markets plummeted and the British pound hit a 30-year low. British Prime Minister David Cameron announced his resignation following the vote, while political leaders in Scotland renewed talks of seceding from the United Kingdom. Calls for similar EU exit referendums have already begun in France, Italy, the Netherlands and Denmark.

Marvin Ryder, Assistant Professor of Marketing at the DeGroote School of Business, offered his thoughts on what Brexit means for Canadians, and how Britain and Europe will respond to mounting political and financial turmoil:

The TSX and Dow Jones Industrial Average plunged several hundred points Friday morning. What kind of activity can we expect in North American markets in the days and weeks ahead? 

Before today is out, I suspect the Canadian and American stock markets will be down somewhere between 500 and 1,000 points. The reason is simple – uncertainty. I don’t think they’re going to bounce back immediately, either. In other words, we’ll have the weekend to reflect on it, but I suspect there will still be volatility next week. Nobody really understands what the “Leave” vote means yet. Britain is still a member of the EU, and it’s not yet clear when they’re going to begin the negotiations to leave.

When will the process of leaving formally begin? 

The Treaty of Lisbon, which created the modern European Union, has something called Article 50. This allows countries to trigger a process of exiting the union. David Cameron, who has agreed to stay on as Britain’s Prime Minister until October, has indicated he is not going to use Article 50. So, it will be two years from whenever that process is actually triggered, which could be as early as this fall. It’s also possible that Britain could take a half-step out of the EU without using Article 50. In other words, Britain could gain special status within the EU, which is not quite what people voted on but may accomplish the same things when it comes to revising immigration and employment policies.

Friday morning, the loonie dropped 1.64 cents against the U.S. greenback. How can Canadians expect our currency to perform in the short term? 

Short term, we’re going to go down. We’ve been kissing 80 cents U.S. a few times, and I’m sure there are people planning their summer holiday thinking, “oh, 85 cents could be in our future,” but that’s definitely not going to happen now. We’re probably going to hit 75 cents, which is not good for vacationers but is actually great news for Canada’s manufacturing sector. With Britain leaving the EU, it may be looking for other countries to supply goods – especially if the EU were to start putting in new tariffs. Britain is our third largest trading partner, after China and the United States.

Is Europe poised for a recession as a result of the Brexit vote? 

Europe has been struggling for some time now. It fell back into recession in 2010 and 2011. Some of that was brought on by instability in Greece, and some of it by Spain, Italy and Portugal. However, during the latter half of 2015 and into 2016, it looked like Europe was finally emerging. It was firing on all cylinders again. Well, now there’s a hiccup. In the back half of 2016, which is the third and fourth quarters of this year, they’re going to fall back into recession. Not deep, but uncertainty is what’s going to cause it. The general thinking will be, “we simply don’t know what the future holds, so let’s not make investments.” Also, there were several companies looking to build new headquarters in London, which would serve as their entree into the European Union, and I suspect we’ll start to hear that some of these projects have been cancelled. In that sort of climate, I think you’re going to see things fall back.

There are already rumblings of London potentially remaining in the European Union as an independent economic zone. Is that a real possibility? 

No. But there are two other rumblings I’m taking very seriously. Scotland last night voted almost unanimously to stay in the European Union. Many leaders there are now saying, “wait a minute, two years ago we held a referendum on the future of Scotland, and it was said to us that if we leave, we wouldn’t automatically be members of the EU. Well Britain wants to go now, and we don’t!” They’re already arguing there should be another referendum on Scottish independence. Northern Ireland also voted largely to remain in the European Union. I think that’s partly because the Republic of Ireland, in the south, is part of the EU. There’s great concern now about whether or not there will continue to be an open border between the two sides. That would, of course, cause a major disruption to travel and trade and just on people’s lives in general.

What does all of this mean for young people in Britain?

I think young people in Britain felt that they had a world of opportunities in a market of 500 million people across Europe. In other words, they might start a career in London and then go to France or Germany with no barriers. So as Britain now tries to extricate from the EU, can those opportunities be left on the table? If that’s possible, young people may begin to accept this new relationship as a good thing. However, if they’re building a wall along the English Channel, so to speak, those opportunities may be reduced.