Friday 24 June 2016

What does "Brexit" really mean?

The result of the referendum has surprised many people, as many people, including me, previously believed that the British people would not vote out. An article suggests that the parliament technically does not have to make Britain leave the EU even after the referendum; however, I do not think this will be the case, as the parliament would become unpopular if it takes such action. So let's talk about the situation after Britain leaves the EU. Firstly, the Scottish independence and even the North Ireland independence may be reconsidered, as the majority in Scotland and North Ireland vote in. Secondly, the benefits of the multinational firms in Britain will be damaged, this means that there could be a decrease in job positions and some Europe head offices will be moved from Britain as well. This could cause a big damage on the British economy. Thirdly, the trade between Britain and other European nations will be affected by Brexit. Finally, the financial market may be driven into a crisis. The surprised result may lead some financial institutions to double check their debtors's abilities to pay back their loans. As the business of some multinational firms could be badly damaged, their abilities to pay back their loans will be doubted. Some of their bonds are rated as AAA, which means large financial institutions buy their bonds with short term negative rates. Once these bonds are downgraded, the values of the bonds will depreciate rapidly and it will cause a domino effect that other AAA-rated bonds will depreciate in their values. This will lead to a collapse of the bond market, as investors sell off their depreciating bonds with very limited market demand. Therefore, Brexit is not just a risk in Europe, it is a global risk as well.

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