Due to the distrust of incumbent politicians, immigration, and the rise of populist and anti-globalization sentiment, districts of “Leave” voters overturned the U.K.’s decades-long membership within the EU on June 23.
QGM examines the choices that the U.K. needs to make between sovereignty and trade access, through a four option game theory-like model of future access to the E.U. that range from a Hard Brexit to a Norwegian model. Financial markets appear to have overreacted for now, as FTSE 100 companies reap the benefits, given that 70% of their combined revenues are denominated in foreign currencies, increasing FX income with a lower-valued pound. However, uncertainty remains as the lack of cohesion between the BoE and the Prime Minister’s office signals even more investor anxiety as Article 50 is triggered by March 2017.
The winners of the Brexit vote could be long EU contenders such as Turkey, who have long contested to join the Common Market. These contenders, as well as periphery EU nations who are emerging economies such as Romania, with more favorable views of the EU could be the advocates that the union desperately needs amid international weariness towards the globalization era.