Brexit may seem a world away to Australian investors, but there are a number of European countries which could further bring the global economy to a halt, writes Ben Barlow.
AUSTRALIAN INVESTORS may feel isolated from the financial problems of Europe, but the region poses a serious risk to anybody hoping to make a return on their investments. After the UK voted to leave the EU in an historic referendum about its membership at the end of June, the Brexit effect has been growing. The markets have been rocked, the pound’s value has plummeted and millions of people are either overjoyed or distraught.
Actually exiting the EU could take another couple of years, during which time there are fears that the uncertainty surrounding it will spread across Europe and the wider world. For investors based in Australia these issues may seem a world away but there are a number of European countries which could further bring the global economy to a halt.
Potential Grexit
Greece has been the EU country that has struggled the most in recent years and came incredibly close to leaving the EU in 2015.
There are many reasons why Greece should be angry at the EU. From the harsh austerity measures it has implemented, to its handling of the migrant crisis, the country feels very let down by the EU.
At the moment, the Greek Government is still in favour of remaining in the EU. However, a lot of its citizens will be watching the fallout of Great Britain’s exit to see if it can be commandeered successfully, possibly paving the way for a future Grexit should they feel EU and Greek relations don’t improve.
Another big impact for Greece has been the British pound’s drop in value, which could have a negative effect on tourism. There are worries that fewer Brits and tourists from other nations will holiday in Greece, leading to a poorer economy.
"IMF recently admitted the failure to foresee the recessionary impact of austerity on Greece's economy" https://t.co/wRXJORqfLR
— ixnay (@atlatlist) August 13, 2016
Rise of the Far Right
The far right has seen a rise in activity across much of Europe and the right-leaning decision for the UK to leave the EU may only further fuel this fire. The uncertainty could lead to changes in power across many European governments in the near future.
France
There are many comparisons that can be made between France and the UK, and both countries have recently seen a rise in far-right politics. The likes of UKIP helped sway the UK to vote leave, while France has Marine Le Pen and the National Front. Should the UK’s Brexit prove successful, there are worries it will see the Party rise even further and possibly begin France’s own exit from the EU.
Austria
One of the main EU members that is critical of the union has been Austria. Many of its citizens are clearly angry, with the far-right Freedom Party coming incredibly close to victory in May’s presidential election. The country has taken strict action against immigration and, much like the possibility in France, a domino effect after the Brexit could occur.
Hungary
Hungary has also criticised the EU, despite being a member, with their Prime Minister Viktor Orban warning it needs to change its ways to avoid fragmenting. Its close proximity to Austria and as a passage for many migrants is one part of the rising tensions throughout the EU.
Outside of Europe
The main way Brexit has affected nations outside of Europe and the EU is through the pound’s drop in value. This has seen the likes of the US dollar and Japanese yen surge in price, as many investors tuned to them as safe options. While the pound hit its lowest value for over 30 years, the dollar has strengthened greatly.
Did you or anybody you know vote #Brexit thinking the British pound wouldn't collapse? pic.twitter.com/iNFyxcpWDw
— Tom C (@tomc001) August 10, 2016
Impact on Investments
The initial uncertainty before and immediately after the UK referendum result was announced saw huge movements in forex trading and other investment markets. Things appear to have calmed down quite a bit now, but a level of uncertainty remains.
Many investors will have experienced great losses across the time of Brexit, and the markets are bound to remain volatile until an exit is fully confirmed and potentially years after. Furthermore, if it has a knock-on effect with other EU nations threatening to leave, then the euro could also experience a tumultuous time. Only time will tell as to what the full extent the Brexit impact will have across Europe and the world economy.
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License
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Discussing the IMF’s confession – with Phillip Adams, LNL, ABC Radio National https://t.co/3HF0UCfB3O
— Yanis Varoufakis (@yanisvaroufakis) August 10, 2016
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