In recent interviews and articles I have suggested that the single largest risk to global markets in Q2 and beyond is the prospect of a “Brexit” or British exit from the European Union. The risk of a “Brexit” has immense implications for not only the British and European Union but also for many other established political and separatist factions in Europe and beyond. Additionally, it could well have a significant impact on the EU/Greece debt talks.
The EU has been under tremendous pressure both politically and economically since its inception but most especially for the last six years. Highlights include the fallout from the financial crisis, peripheral economic crisis’s in Portugal, Italy, and Spain. Greece’s political/economic turmoil, stagnant growth, persistently elevated unemployment and now, the influx of millions of Syrian refugees. The EU has been brought to a point of existential crisis. It is as if EU and ECB are reeling from one dire challenge to another.
Now Chancellor Merkel of Germany, the face of the EU, is under the gravest threat to her position of power in her career as a result of the Syrian refugee crisis. That challenge is made all the more poignant following the terror attacks in Paris, France and Belgium.
It is not difficult to appreciate the tension present in the Brexit narrative both in Britain and the EU. With each passing crisis that the EU and ECB face, the more attractive the opportunity appears to be for the British to exit the EU. Most analysts believe that Britain will formalize full union with the EU and remain but not all. In the event Britain takes the steps necessary to exit the EU, look for global markets to devolve into volatility this summer and more importantly look for the fallout to take the shape of separatists from Scotland to Catalonia stepping forward to make their voices heard.