Brussels, 24/06/2016 (Agence Europe) - Central bankers and finance ministers across the whole world were on high alert the day after the British referendum that ended in a vote for the United Kingdom to leave the EU. The world's financial markets fell sharply on opening. At the London Stock Exchange, the main bank shares fell by 30% and the pound sterling hit its lowest level in 30 years.
The first words of reassurance from the British Prime Minister, David Cameron, were for the financial markets. He said on Friday morning, 24 June, that “Across the world people have been witching the choice and I reassure market and investors that British economy is fundamentally strong”.
Faced with upsets on the markets, the finance ministers and central bankers of the G7 said in a press release that they were “monitoring market developments following the outcome of the referendum on the UK's membership of the EU. We affirm our assessment that the UK economy and financial sector remain resilient and are confident that the UK authorities are well-positioned to address the consequences of the referendum outcome”.
Mark Carney, governor of the Bank of England, said on Friday “As a backstop, and to support the functioning of markets, the Bank of England stands ready to provide more than £250bn of additional funds through its normal facilities. The Bank of England is also able to provide substantial liquidity in foreign currency, if required. But we are well prepared for this. The Treasury and the Bank of England have engaged in extensive contingency planning and the Chancellor and I have been in close contact, including through the night and this morning”.
The European Central Bank published a similar statement, saying it was ready to provide additional cash where necessary. The Federal Reserve in the US made similar noises.
Speaking for credit rating agency Standard and Poor's, Jean-Michel Six, chief economist for Europe, said “The market reaction was more severe because in recent days most polls had suggested that the 'remain' camp would win. More fundamentally, the reaction illustrates that we are moving into completely uncharted territory, where the only certainty will be uncertainty”. According to initial S&P estimates, British growth could lose a percentage point in 2017 in a moderately severe scenario in which direct investment does not totally dry up. In the short-term, the economic impact will depend on the Bank of England's capacity to stabilise the pound.
The European Financial Markets Authority, which warned in the past about the consequences of a Brexit, urged the European and British authorities to pay particular attention to the need for short-term stability and for negotiators to ensure that the markets can continue to operate effectively in the longer-term.
Tom Parker, vice-president of the British Chamber of Commerce, described what's at stake at a breakfast briefing on Friday morning. “I think what is more importantly and a major issue for chamber members is the issue of influence. The UK will undoubtedly be able to negotiate some sort of a deal which will give the access that they want for products and services. But now they are likely to forgo their ability to influence the policy framework which support and govern the market within which they operate. And this will be a big deal not just for companies that are UK origin but also for many businesses, particularly those of an international nature where the UK has always been a strong advocate for a competitive Europe, a Europe with open market, a Europe where we don't have protectionism”.
The banks will now assess what the referendum result means in the long-term, explained Wim Mijs, managing director of the European Banking Federation.
Some observers wonder what will happen to the London-based European Banking Authority. A European source asked about this simply said that the question would need to be taken into consideration during the UK's withdrawal negotiations.
A number of articles in the press mentioned German MEP Elmar Brok (EPP) who is reported to have called for resignation of the European Commissioner designated by the British government, Jonathan Hill, who is responsible for financial services. Some rumours talk of a resolution to be voted through by the EP at a special plenary on Tuesday 28 June. Elmar Brok's office refused to comment when contacted.
The same European source points out “As regards the commissioner, again, the normal treaty rule applies until the moment the withdrawal becomes effective”, which would also apply to the Commissioner, legally speaking. Commissioner Hill's office had not commented on Friday at the time we were going to press. (Original version in French by Elodie Lamer and Sophie Petitjean)