Dust settles on Brexit as “Norway option” looks best for UK, EMs see some hope
A nervous calm is returning to global markets in the wake of Brexit. Global markets and the GBP are recovering slighting even as David Cameron received a “frosty” welcome at his final European Union summit on Tuesday. “I very much hope we’ll seek the closest possible relationship in terms of trade and co-operation and security, because that is good for us and that is good for them,” he said.
But how? The Financial Times’ (paywall) Wolfgang Münchau thinks the “Norway option” is the least painful solution. That is, getting full access to the single European market but without say in EU politics. “No British company would have to leave Europe. No City firm would have to transfer employees to Dublin or Paris. The City of London would keep its EU passport, the ability to do business throughout the Union from London. The Norway option is the economically most benign of all. It is economically almost neutral.”
What’s the Norwegian option? A former Norwegian foreign minister outlined it all for the Guardian, but says it’s not all it is cracked up to be, writing “we pay, but we have no say. … As an EEA member, we do not participate in decision-making in Brussels, but we loyally abide by Brussels’ decisions. We have incorporated approximately three-quarters of all EU legislative acts into Norwegian legislation – and counting.” Oh, and Iceland’s President says Britain could join it in the EEA, the Independent reports.
As for us over on this side of the world: The FT’s Steve Johnson writes that even though “uncertainty, volatility, weaker economic growth and global flight from risk” in the wake of Brexit are bad news for emerging markets, there are some positives. “One is expectations for US monetary policy. Last Thursday, the day of the UK referendum, the markets were pricing-in the likelihood of a US rate rise by July 2017. Now, the market consensus is that the Federal Reserve will not move before July 2018. Given the tendency for emerging markets to sell off whenever US rate rises near — as capital flows back to the US from the emerging world — this could provide some relief for EM assets.