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The UK and EU at a Crossroads

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The UK and EU are at a crossroads today. The combination of economic and financial crisis, anxiety and public concerns regarding immigration and multiculturalism, dissatisfaction with the political systems in place, and the prospect of a Brexit have amplified uncertainty regarding the future of the EU.

The referendum results reflect the growing tension and divide between the forces for integration and the forces for separation within EU. At stake is far more than the economy. The results pose a novel and serious challenge to the unity of the world’s most integrated regional bloc that was designed, primarily, to promote peace and harmony in Europe. Indeed, chances of a Balkanized E.U. and another exit within the EU increase with UK Referendum.

Although the Brexit will take few years to implement (unless blocked or overturned), the referendum results have clearly unsettled global markets because of uncertainty of what might happens next. We have already witnessed the immediate impacts on the UK and the rest of the world as the British pound and the global stock markets were severely affected. A mild recession is impending, but a greater disruption to the economy is likely if uncertainty is prolonged. For the U.S., the impact is multidimensional and could touch, among others, consumer and business confidence, U.S. international trade due to exchange rate fluctuations and trade deals, US direct investments in the UK, and U.S. Capital Markets. 

But we can only speculate about the long-term impact on the global business environment.  It all depends on the kind of a withdrawal agreement Britain might strike with the EU if it chooses to invoke Article 50 of the Treaty of Lisbon and notify the EU of its withdrawal. Unless the agreement keeps the restrictions to the cross-border flow of products, services, capital, and labor eliminated as they are now under the terms of EU membership, there is a threat of more severe economic and political consequences. 

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