"Article 50 of the Lisbon Treaty gives the EU the upper hand"by John Springford / June 24, 2016 / Leave a comment
In the early hours of this morning—when we discovered “Leave” had won 52 per cent of the votes in this referendum—the rules of British politics were torn to shreds. David Cameron won last year’s general election by a relentless emphasis on risk: risk to the fragile recovery by the election of Ed Miliband; and risk to the United Kingdom itself, because the Scottish Nationalists might demand more concessions by supporting a Labour government. British votes are supposed to be won by appearing to be safer and more competent than your opponents. Yesterday, English and Welsh voters chose immigration over the economy, and, perhaps inadvertently, switched allegiance from David Cameron and George Osborne to a group of largely untested right-wingers who have no plan for managing the political—and potentially, economic—chaos that will now ensue.
The pound fell 8.5 per cent against the dollar overnight. Stocks are down by eight per cent. The Bank of England will probably intervene, providing emergency sterling liquidity to banks to calm financial markets. But beyond the short-term gyrations of financial markets, the future is enveloped in fog. The UK has a current account deficit of seven percent of GDP, meaning that we are relying on foreigners to lend to us. If markets bet that, by leaving the EU, Britain will have lower rates of investment and slower productivity growth in the future, the outflow of capital may be prolonged. And if the pound drops too far, the monetary policy committee may have to raise interest rates, pushing Britain into recession.
The political ramifications are equally uncertain. David Cameron had to resign, but should be allowed to stay on until a new leader is elected. Candidates for the leadership will have to set out their plans for taking Britain out of the EU, and Boris Johnson is likely to defeat a…