If the bluff and bluster dominating headlines in the UK is anything to go by, it would be easy to jump to the conclusion that the same headlines are adorning news outlets across the continent. But the simple fact is that they are not.
On the ground, people don’t really care. On my travels in Europe in the last few weeks, the only person who mentioned Brexit to me was a friend in Vienna. And he’s Welsh. It’s not featured on the television, not mentioned in newspapers; it simply isn’t relevant to most Europeans. Indeed, in most parts they have never really considered the UK to be part of Europe.
At the federal and political level, however, there is real strength of feeling. The federalists, committed to the European project above all else, will continue to dominate the Brussels-centric newsflow and will carry on banging the drum to the beat of ‘the UK is making a grave error and will be punished’.
At the political level, the reaction over the coming months and years is likely to be somewhat more nuanced. Europe’s right wing politicians and parties will no doubt use Brexit as an example of an electorate expressing the ‘will of the people’, whereas establishment (centre/centre left) figures look likely to keep their heads firmly in the sand and insist that all is rosy in the European garden. Much like the federalists, there is a strong desire from the political establishment to maintain the status quo.
While the UK’s exit negotiations play out, we expect the EU’s leaders to try and downplay any institutional challenges. What might have been a nightmare summer ahead for Greece is likely to result in a further bailout for the floundering member state. ‘Pretend and extend’ looks set to be the order of the day until negotiations with the UK are complete. Indeed, only once the dust has settled on the UK’s departure do we expect an EU reassessment of the European project.
There is, of course, one event that could put a spanner in the EU’s works: a Marine Le Pen victory in the French election. A win for the Front National leader – who has promised to take France out of the euro – would be horrendous for markets and would most likely result in a fall in the value of the euro à la sterling last summer. However, we believe it would also be a buying opportunity; as Donald Trump has learned, campaign promises are easier said than delivered. And for the UK, any ‘Frexit’ plans would probably mean the EU’s approach to negotiations becomes a whole lot more punitive.
But as far as the triggering of Article 50 and the countdown to Brexit is concerned, we expect Europe’s economy and markets to carry on regardless.