The Economist’s headline was ‘Brexit and the markets: a seismic shock’
Doomsday scenarios – warnings of its consequences – abounded: the British Pound will weaken, favourable trade conditions will disappear, housing values will tumble, the markets will plummet, job losses will mount.
The implication is that the effects of the referendum vote will reverberate throughout the world. Nigel Farage, the individual most identifiably responsible for Brexit, described it accurately as a “seismic result”.
‘Seismic’ means the earth moves. Gigantic pressures, which had built up over a long period, at last forced a breakthrough, a rupture, an earthquake. Brexit is both cause and effect. Simultaneously.
Cause of a multitude of instant economic and political responses most visible in the collapse of the currency and in the office of the prime minister. Effect of a mounting rejection of attempts to overcome the recessionary, deflationary crisis of capitalist globalisation. Cause becomes effect, and effects in their turn become cause.
From all sides came dire warnings reflecting the fear of a self-feeding chain reaction that was just awaiting a trigger.
Now the genie is out of bottle. The early effects are already becoming clear: the nose-diving exchange rate of the pound against the euro and the dollar is likely to drive inflation up locally, in a capitalist world driven mad by falling prices.
The availability of credit to the UK commercial property market took an immediate downturn as investors rushed to pull their cash out – a credit crisis likely to find its way into residential property where hundreds of thousands of speculatively-built luxury flats stand empty and buy-to-let investors look on nervously.
On the 12th July, Barclays bank economists were the first to announce that the UK economy had gone into recession, and is likely to continue contracting for the foreseeable future. With the City of London as the main source of tax revenues, and as income from that shrinks, the incoming prime minister faces a sharpening economic and political crisis and is certain to ramp up austerity measures to unprecedented levels. Tax income from North sea oil was cut off by ex-chancellor Osborne in his April budget to keep the profits flowing after the five year slide in commodity prices.
Rejection of the austere consequences of a failing process of globalisation isn’t restricted to Britain. The process is widespread, deep-seated and irreversible. British voters can hardly be blamed. Like millions of unemployed young people throughout Europe, those voting to leave have nothing to lose. Not even their chains.
Despite efforts to improve the stability of the finance sector in the wake of the 2007-8 crash, the IMF is warning that banks in Europe and worldwide are exposed to a renewed threat of contagion from the worsening Italian banking crisis. Deutsche Bank is on the point of collapse, its stock now worth 10% of its 2007 value with a massive exposure to the highly volatile derivatives market.
EU funds for Greece – paid for by more wage cuts and slashed pensions – have gone straight back to the derivatives market. So the Greek workers – the poorest of the poor – are directly propping up finance capital.
Economic and political crises are locked in a deadly and tightening embrace everywhere in the world. China is set to report its lowest growth since the crash and set to slow further with devastating impacts on global markets. Brazil, awaiting the Olympics, is caught up a political coup and in its worst recession for a century.
Brexit has triggered many pent-up processes. The financial and economic crash of 2008 is returning with a vengeance.
Now we have to develop democratic alternatives to Brexit and the EU together that can take us beyond the anarchy of the market and a capitalist society that grows more unequal by the hour.