After Friday’s surprising vote in favor of a Brexit, the something that has not happened, yet, is the UK’s intention to leave the European Union quickly and that is creating quite a lot of attention.
For those in the UK working their way through the five stages of grief (denial, anger, bargaining, depression and acceptance) there is also that rather strange question of whether or not the decision to leave will ever be implemented.
Very few outside the UK know that the legal position of UK’s Parliament is “Omnicompetence of statute,” which exists since the 1530s, yes since a little bit less than five centuries, when under Henry VIII (1529-1536), Parliament became omnicompetent, which meant and still legally means that no area involved in the government of the realm is outside the UK Parliament’s
authority.
In simple words that means, Parliament and of course her Majesty the Queen, are supreme and could, for example, overturn the decision of the referendum vote to leave.
In practical terms however, today, the politics of that do not work.
However, and this is much more important for investors, until article 50 of the Lisbon EU Treaty, which allows a member state to notify the EU of its withdrawal and obliges the EU to try to negotiate a ‘withdrawal agreement’ with that state,
is triggered, the UK remains “in” the EU with no immediate prospect of “exit.”
The uncertainty, as many, please take care not all, EU key players urge a swift decision/action, but this is certainly not in the interests of UK Prime Minister Cameron to trigger an exit before his departure, which in clear language means there will be no certainty before October and before the expected appointment of a new Prime Minister.
By the way, Cameron is due to address Parliament.
To complicate matters, the leader of the “Labor” opposition Jeremy Corbyn has seen a large proportion of his shadow cabinet resign from underneath him, plus he fired the shadow Foreign Secretary. He may face a vote of no confidence from the Parliamentary Labor Party, which does not mean he ceases the be the leader of the
Labor Party.
No, there has not been a period, certainly not in the last 150 years or so, when both major political Parties in the UK have had a leadership contest at the same time.
So, what are the implications?
Two events over the weekend are worth highlighting.
The first is that Lord Hill, the UK’s European Commissioner for financial services has resigned his position. Maybe worth taking note of the fact that the UK retains the rights and duties of membership until it formally leaves the European Union and is obliged to send a new commissioner to Brussels. The EU commission already has said it was ready “to discuss swiftly” with Prime Minister Cameron a replacement for Hill, as well as a potential
portfolio.
Nevertheless, fact is, one of the major ways in which the UK contributed to the EU was through its expertise of financial services and financial regulation and that expertise will disappear in the not so far future, which means that EU financial regulation will be more Continental and less Anglo-Saxon in its style.
The second event was the Spanish elections on Sunday, which saw Prime Minister Rajoy increase his seats in the Spanish Parliament, although still falling short of a majority. Political
commentators in Spain attributed this as a reaction to the uncertainty of the UK vote.
However, and although the anti-establishment political party “Podemos” did not perform as well as opinion polls had predicted, forming a government in Spain will still prove to be difficult given the spectrum of
parties and the absence of what might be a "natural" coalition with the governing majority.
However, it’s probably wrong to try to assess the impact of the EU referendum on anti-establishment political parties.
In fact, it’s probably best to consider the EU referendum as part of a trend across
OECD countries towards anti-establishment sentiment.
When combined with modern media, which tends to focus on single issues that create tribal politics, this is something that could be a very big problem for financial markets, which is of course very important for long-term investors.
Markets rarely price politics well and they price polarized politics very poorly.
Investors could ask themselves in today’s world, when we could face further weaker global growth momentum, weaker asset prices, heightened uncertainty in next few months, if it would be such a bad idea to “sell in June and go away.”
Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments. To read more of his articles,
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