As Britain’s vote to quit the European Union (EU) roiled global financial markets on Friday,
U.S. stocks fell sharply, with the Dow Jones Industrial Average dropping as much as 538 points. The S&P 500 index and the Dow posted their biggest intraday losses in more than five months and Nasdaq staged its biggest intraday drop in more than four months before clawing back ground in late morning trading.
Should we have seen this coming? Geopolitical Strategist Peter Zeihan sure did.
Zeihan predicted Britain’s secession from the EU and the ensuing shake-up of the global financial market as early as two years ago during a 2014 keynote speech in Chicago, and in several other speeches and articles since.
This morning Zeihan weighed in on the Britain’s secession from the European Union and the future of the EU in an interview with Bloomberg News:
Peter also goes into detail about this issue in his book, The Accidental Superpower: The Next Generation of American Preeminence and the Coming Global Disorder, where he forecasts the slow but eventual dissolution of the EU, the role Russia will play in the EU, and America’s transition towards becoming the world’s next energy superpower—future predictions which are now all beginning to come to fruition.
What’s next? Here is the geopolitical forecast from the expert who predicted the breakup years ago:
- The Brits will need a replacement trade association. There are two options. The easier of the two is a broad scale reinvigoration of the Commonwealth which will give the UK greater access to its old empire with countries large and small, near and far. The second is both simpler and more complicated: joining NAFTA. Simple in that the Canadians will make Brentrance a cause célèbre but complicated in that the Americans will make the Brits pay through the nose (think Lend-Lease). The Brits will ultimately succeed at both. Expect the Brits to be the only country in the world with a meaningful trade deal with India, and expect all the former British colonies that trade with the EU to shift loyalties.
- The EU leadership will want to hurt the UK, and hurt it badly, in order to dissuade others from following suit. In this they will fail. As the UK demonstrates that the EU isn’t inevitable a number of countries will see their own political systems reorder to the new reality. In particular, I’d keep my eye on Hungary (whose political system is departing from democracy and so just doesn’t fit in the club any longer), France (who feels the whole European project has gotten away from them), and Sweden (who only joined the EU because a united Europe served as a hedge against Russia).
- The UK was the one big country constantly pushing for the EU to expand and liberalize. Without London’s influence the EU’s slide towards parochialism, protectionism and a Fortress Europe mentality will harden. No more expansions. No more common foreign policy. No more Airbus.
- Expect the broad scale weakening of the European financial sector. Most of the EU’s financial business is settled in London and undoubtedly some of that will now relocate to the Continent. But most — to the EU leadership’s chagrin — will not. This will induce the EU to attempt to force its relocation using regulatory means. Considering that capital flight from the eurozone is already at record highs, expect such regulatory efforts to backfire. Horribly.