I am an anarchist
Don't know what I want
But I know how to get it
I want to destroy the passerby
Apart from causing a sharp, short-term hit to Britain’s economy, the first consequence of Thursday’s vote to leave the EU will be a government crisis in London. David Cameron is now almost certain to resign as prime minister and Conservative party leader — most probably sooner rather than later. A new Conservative administration, distinctly more anti-EU in tone, would replace him.
Unless carefully managed, this process will damage relations between London and other EU capitals. The latter will interpret the Brexit vote as a hammer blow to Europe’s unity. For the sake of protecting that unity, they will be in no mood to offer generous post-Brexit deals for Britain. Negotiations will be in danger of turning into an acrimonious tug of war, distracting Europe from other urgent business.
Second, Brexit will make financial markets more sensitive to the vulnerabilities of the 19-nation eurozone. Sterling has already plunged to a 30-year low. Investors will ask whether, in the light of the Brexit shock, eurozone governments have the political will and public support to strengthen the architecture of European monetary union.
One test will be whether Europe’s banking union, including a plan for common deposit insurance, makes progress over the next 12 months. At present it is blocked. More ambitious proposals, such as an Italian plan for common EU “migration bonds” to finance the EU’s response to the refugee and migrant crisis, will have little chance of being turned into action.
Individual eurozone countries will be under intensified market scrutiny. Ahead of the British vote, yield spreads widened between German government bonds and those of less financially solid southern European countries.
The outlook for Portugal, which is ruled by a shaky coalition of the moderate and radical left, is unsettling investors. The deep-seated troubles of Greece have never gone away. In Spain, which holds a general election on Sunday, the prospects for stable government and economic reform are clouded by a fragmented political party system and Catalan separatism.
Not to mention the almost assured rise of Marine Le Pen and the French nationalists in Paris. Count on other countries to hold referendums as well, and it's not going to be pretty.
Now it's still possible that the next government will find a way to stay in and will not invoke Article 50 and leave the EU within two years, but the odds of that are pretty low. We won't know the full damage from this for several years at the minimum, but this is a cautionary tale: fear of the other won an historic victory in the UK last night. I'm thinking at some point it will win here in the US, too. Maybe not Trump, but somebody far worse.