Weekly Geopolitical Report – Brexit (February 29, 2016)

by Kaisa Stucke, CFA

The U.K. joined the European Common Market, what is now known as the EU, in 1973.  In 1992, the Maastricht Treaty formally created the EU.  However, as part of the treaty, the U.K. negotiated that it would be exempt from adopting the euro and joining the Eurozone.  Despite the EU’s founding premise that members should seek an ever closer union, both politically and monetarily, the U.K. is questioning the net benefits of its membership altogether.

The British public’s perception of the benefits of the U.K.’s EU membership has always been mixed.  Following a recent increase in public opinion asking to separate from the EU, U.K. Prime Minister David Cameron set a referendum on membership for June 23.  Cameron supports remaining in the EU, especially after he was able to negotiate a deal with the EU regarding some hotly contested issues for the country.  However, several other highly visible members of Cameron’s Conservative Party have stepped out in support of leaving the EU.  Political discussions have recently become quite heated and will likely remain so until the June referendum.  Additionally, political uncertainty will likely weigh on financial markets, increasing volatility as we move closer to the referendum date.

In this week’s report, we will take a look at the main factors leading to the call for Brexit and their impact on the economy and the markets.  As always, we will conclude with market ramifications.

View the full report