BlackRock Report Unpacks ‘Brexit’

BlackRock Report Unpacks ‘Brexit’

(Boris Johnson, the Conservative mayor of London and freshly minted Brexit partisan, contemplates the liminal space between ‘inside’ & ‘outside’.)

[Photo credit: David Holt]


Americans who follow business and financial news know that a Brexit, the potential exit of Britain from the European Union, could have a major impact on the global economy.

But the detailed mechanics of a potential Brexit — which are filled with acronyms, byzantine politics, jargon, and European history — can often come across a little vague to an American audience.

This week, BlackRock released a public research report that does an excellent job of unpacking those details.

The title of the BlackRock report — ‘Brexit: Big Risk, Little Reward’ — should leave no doubt about where Blackrock ultimately lands on this issue.

The full report, which is available now for free download in PDF  on BlackRock’s website, can be tough sledding in spots due to dense terminology — but is still very much worth a read.

Blackrock summarizes the findings of their research report in a seven point introduction.

In a nutshell, the seven points can be collapsed down to an essential three — a kind of CliffsNotes to the CliffsNotes:

One: In the event of a Brexit, independence would be a major net loss for the UK — an inevitable consequence of weakened trade, blunted diplomatic leverage, painful regulatory restructuring, and an all around ugly transition.

For Britain, that would translate, first and foremost, into downward pressure on the pound; the potential for increased British sovereign borrowing costs; a heightened risk of tighter monetary conditions; the potential deterioration of domestic equities; and the very real threat of diminished power and influence for Britain’s mighty financial services sector.

Two:  A Brexit would be no picnic for the European Union either.

In the event of a Brexit, the EU would lose revenue from the departure of the UK (it’s 2nd largest economy); London, a crucial financial center for Europe and the world would be separated from the union; countries in the EU that are less committed to free markets would gain philosophical idea share; and, finally, separatists movements within other EU nations could gather steam, after being galvanized by Britain’s departure. But, ultimately, Blackrock does not see the EU breaking apart in the event of a Brexit.

Three: Win or lose, the run-up to the June 23 referendum will very likely increase the volatility of British and continental risk assets. (Not surprisingly, a win for Brexit would make the situation far worse, whereas a loss would ‘reassure markets’)

Fasten your seatbelts: The road ahead for Britain — and the EU — may get bumpy.