The world survived the possibility of the Greek exit (“Grexit”) from the European Union—caused by major defaults—through last minute economic heroics. 1 However, there is now concern over Britain’s status as a member and its potential for a voluntary withdrawal from the EU. One of the most fervent topics of discussion in the United Kingdom today is the pending vote concerning Britain’s ongoing membership in this significant organization. Will there be a grand “Brexit”?
What You Need to Know About the EU and Britain
Established in 1992 by the Maastricht Treaty, the EU has governed much of the economic and cultural life of Europeans since then. It has generally been considered a positive action that has made Europe more competitive in global markets.
The prime minister of Britain, David Cameron, negotiated a new deal for his country’s participation in the Eurozone. The ultimate effects of this new proposal on both other countries and the English are unknown, and there are vocal proponents on both sides of the Brexit question.
Nonetheless, even some Europeans have now been saying, “If the Brits want to leave, let them leave.” 2 That is not the stand of knowledgeable economists and politicians, however. Many fear the possibility of a Brexit on two fronts:
- The indeterminate direct consequences of such a radical move
- The potential for “contagion,” or other countries choosing to also leave the union
Possible Economic Implications of a Brexit
With the looming national referendum in June, many in England, Europe and the rest of the world are asking questions about what such a removal from the Brussels-run EU could ultimately mean. At the least, it is believed that such an action would profoundly shift the economic structure of the country and those of remaining EU members.
A poll by the Financial Times of more than 100 economists found 75 percent believed a Brexit would adversely impact the UK economy over the medium-term. At the same time, proponent members of what is called the “Leave Coalition” discount such predictions, pointing to the ability to reestablish the significance of the British Pound. Additionally, they claim that the freedom from the EU’s protectionist and bureaucratic policies would reinvigorate the economy. 3
Brexit and Precious Metals
Market analysts always point to market uncertainties as factors in pricing of commodities such as gold and oil. In this case, however, the issue of a Brexit has investors in gold and gold buyers carefully weighing both sides of the issue and possible consequences.
Between now and June 23, the date of the referendum, these uncertainties will continue to create buying opportunities for gold and other precious metals. Already this year, the price of gold in pounds sterling has risen more than 20 percent. When priced in dollars, the increase has been only 16 percent. This spread indicates a concern over the strength of the pound relative to the dollar, with or without an exit in June.
Overarching all this discussion is concern among knowledgeable economists and analysts over the real economic concerns facing European countries. Many of these feel the Brexit is both a distraction and a threat. The heated discussions take the immediate focus off the problems of countries such as France and Spain. The concern is that the reality of a Brexit could well be the proverbial straw that causes the ongoing deficit spending and massive governmental debt to wreak the havoc thus far narrowly avoided.