The UK may have just opened 'Pandora's Box' in Europe

pandora's boxWikimedia

It’s official: Britain has chosen to leave the European

Britons voted Thursday on whether the UK should stay in or
leave the 28-nation bloc, with the results counted

As of 7 a.m. BST (2 a.m. ET) on Friday, the final results
showed that 51.9% voted to leave the EU versus 48.1% that voted
for Britain to stay within the EU.

Notably, a team of Barclays analysts
previously argued
that should the Brits choose to
leave, the outcome could have serious consequences for the rest
of Europe.

Here’s what they wrote (emphasis ours):

“A UK exit would set an unwelcome precedent for countries
to leave the EU whenever domestic priorities conflict, and would
do so at a time when political risks and potential for
sovereign-EU confrontation already high.
the UK would present Continental opponents of immigration with a
politically potent example (and threat) of how to deal with one
of the thorniest and most emotionally charged trans-national
issues confronting European voters: immigration. […]

The precedent of a member state leaving the union would
open Pandora’s box:

it could be used as a
political argument by populist and extreme parties in several
countries, both from the right and the left, to push for an EU
exit, including for some euro area countries. […]

Such events would certainly revive the ‘redenomination
risk’ in the euro area.”

More recently, a Morgan Stanley research team led by
Elga Bartsch
wrote something similar in a note to clients

“ our view, the political discontent that
is being displayed around the public debate about Brexit is
deep-rooted and likely to be echoed elsewhere. The political
fragmentation that currently manifests itself in an increasingly
populist debate about the UK’s EU membership is neither limited
to the UK or Europe nor it is likely to dissipate quickly,
we think. In our view, the voter backlash against established
political parties and international institutions is on the

As an example of the kind of backlash Bartsch describes, Austria

nearly elected
in May the first far-right European head
of state since World War II.

Another example, which many people might have missed given
the anxiety surrounding the Brexit vote, is that the Eurosceptic,
antiestablishment Five Star Movement was the big
in Italy’s recent municipal elections. Most notably,
Five Star’s candidate for mayor of Rome, Virginia Raggi, won 67%
of the vote, which is more than twice the vote share that the
mainstream center-left Democratic Party (PD) candidate

hsbc rise of eurosceptic parties in the euBusiness Insider Australia

And Europe has a bunch of other elections coming up. The
Spanish will head to vote
again on June 26 after elections in
December failed to produce a government. And over the next year,
the Netherlands, France, and Germany –
three major countries where far-right populist parties are
growing in popularity
– will have elections, too.

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Plus, almost immediately after news outlets called a Brexit,
several European politicians made comments about having their own
referendums. As
Business Insider’s Natasha Bertrand outlined

  • Scotland’s first
    minister, Nicola Sturgeon,

    that Scotland “sees its future
    as part of the EU,” suggesting that Scotland may hold another
    referendum to decide whether to separate from Britain and
    re-negotiate an entry back into the European Union as an
    independent country.
  • The Irish political party Sinn Fein, meanwhile, called
    for a referendum on uniting Northern Ireland with the rest of
    the country as the Brexit results came in.
  • France’s Marine Le Pen,
    leader of the far-right National Front party, called the Brexit
    – and then changed her Twitter avatar
    to the Union Jack
    . Meanwhile, the party’s vice
    Florian Philippot, called
    for a French referendum on leaving the EU.
  • Geert Wilders, the leader of the far-right
    Dutch Party for Freedom, called on the country to have
    its own EU referendum in light of Britain’s successful Leave

“Overall, Eurosceptic movements could receive a significant
boost from a UK decision to leave the EU,” argued Deutsche Bank’s
Jim Reid in his daily morning note to clients.

He continued:

“This is akin to a cascade of ‘prisoner’s dilemma’
scenarios, with an increasing probability of getting stuck in the
non-cooperative solution over multiple games. As such, the risk
of disintegration would not materialize as a ‘big bang’ but
rather as a drawn-out process, implying multiple points at which
Europe could still put things back on a more positive path. In
this scenario, the EU would become increasingly irrelevant for
its members, for its neighbourhood and on a global scale.”

A few days ahead of the Brexit vote, another Deutsche

research team
wrote in a note to clients
, highlighting the upcoming
elections as well as the migrant crisis and Greece:

“Beyond the immediate risk events of the Brexit referendum
and Spain election, geopolitical agenda remains in focus.

This backdrop makes policy progress very unlikely as
domestic politics drive the agenda [leading to] limited room for
country-level structural reform [and] little progress toward EU
or eurozone reform or integration.”

The team added that “policy uncertainty is and will remain
high,” noting that policy uncertainty in Europe is now around
2011-12 levels during the height of the
Eurozone crisis

And, for what it’s worth, Yanis Varoufakis, the
former Greek finance minister and outspoken political activist,

had a few things to say about the Brexit vote,

“OUT won because the EU establishment have made it
impossible, through their anti-democratic reign (not to mention
the asphyxiation of weaker countries like Greece), for the people
of Britain to imagine a democratic EU,” he
in a post Friday on
the blog OpenDemocracy

“The EU’s disintegration is now running at full speed,” he

Screen Shot 2016 06 21 at 9.56.37 AMDeutsche Bank Research

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