Yves Smith: Brexit is a crippling blow to the neoliberal order
Brexit: The Crisis Begins
Yves Smith
Naked Capitalism
British voters delivered a stunning repudiation to their political and economic elites by voting to leave the European Union by a margin of 52 to 48. The fallout has already started. The pound is down by over 11%, and some experts anticipate that it could ultimately fall to as low as 1.05 to the dollar, its low in the early 1980s sterling crisis. British bank stock prices have fallen by roughly 25%. Safe haven investments have spiked: gold is up 6% and the yen has traded through 100 to the dollar. The Nikkei fell by 8% and US stock futures suggest that the Dow could open down by 600 points.
But Brexit represents something much bigger than an economic or political crisis. Although UKIP played shamelessly on the anti-immigration fears, many of the Leave campaigners argued for national sovereignity and self-determination. And the Northern areas that came in strongly for Leave have been left behind as London and environs prospered. It is simplistic, although it will nevertheless be a popular stance among the elites, to depict the Leave vote as yet another proof that technocrats should be in charge. In fact, the very reason that so many UK citizens rejected the dire warnings of what was in store for them if they dared press the red Leave button was that those experts devised and implemented the neoliberal policies that have increased inequality, reduced their economic stability and accelerated political and social change.
Brexit is a crippling blow to the neoliberal order of unfettered trade and capital flows, and citizens being reduced to being consumers who have to fend for themselves in markets, and worse, increasingly isolated worker who are at the mercy of capitalists who are ever more determined to reduce labor costs and hoard the benefits of productivity gains for themselves. Whether they recognize it or not, and we’ll find out over the coming months and years how well different Leave voters saw the choice they made, they have chosen a lower standard of living as a price worth paying for a hope of more control over their destinies. Sadly, these voters are likely to realize the first part of that equation rather than the second.
In the meantime, there are immediate consequences and risks. The Transatlantic Trade and Investment Partnership is probably dead. The sterling crisis and the less dramatic fall in the euro are likely to leave some UK and Eurozone financial institutions with large losses on net dollar and other foreign currency positions. While the British banks, given the magnitude of the sterling plunge, are the obvious focus of concern, many Eurobanks are undercapitalized. Worse, the Eurozone in theory will use a bank bail-in if any institution becomes impaired. We’ve warned that this is a prescription for bank runs. And it’s not just banks that are exposed; operating businesses may have foreign currency commitments they will struggle to meet.
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