Episode 43: What have they done?

Episode Summary

Executive Summary: The episode centers on the immediate fallout from the UK’s Brexit vote and its broader implications for the EU, central banks, and globalization. The hosts and Paul Gordon emphasize the political shock, market turmoil, risks to the ECB and Bank of England, and the possibility that the result reflects a deeper backlash against liberal economic integration and uneven gains from globalization.

Main Topics: Brexit shock and market turmoil (Priority: 5/5): The conversation opens on the surprising Leave victory, the overnight reaction in London, and the panic visible in financial markets and workplaces, especially among bankers and traders. UK social and regional divisions (Priority: 5/5): The vote is framed as a split across age, wealth, and geography, with younger, wealthier, and London-based voters leaning Remain, while older, poorer, and many northern areas backed Leave; Scotland and Northern Ireland voted to stay. Implications for the ECB and European integration (Priority: 5/5): The discussion examines how Brexit could intensify strain within the euro area, empower anti-euro parties, and complicate the European Central Bank’s already difficult governance among 19 member states. Globalization backlash and elite disconnect (Priority: 5/5): The speakers argue Brexit may represent a rejection of the liberal, cosmopolitan economic order that has dominated since 1945, reflecting resentment that globalization’s benefits are unevenly distributed. Two-year negotiation uncertainty (Priority: 4/5): The likely exit process is described as a drawn-out, uncertain negotiation in which the UK must define its future relationship with the EU, with models like Norway or Switzerland mentioned but deemed imperfect. Central bank response and Mark Carney’s role (Priority: 4/5): The Bank of England’s preparations are discussed, including liquidity backstops and possible rate cuts, alongside the political sensitivity facing Governor Mark Carney, who was associated with the Remain side. Slower global growth and fragile outlook (Priority: 3/5): The episode broadens to a pessimistic view of global growth, citing unresolved structural issues such as demographics, limited productivity gains, and techno-pessimism that may keep growth subdued.

Key Arguments: Brexit was not a narrow fluke; the 52% to 48% result represents a real and decisive political break. The UK vote exposes deep demographic, regional, and class-based divisions that mirror economic inequality. Brexit may strengthen anti-euro and anti-EU forces elsewhere, making the ECB’s job harder. The EU and globalized economic model are facing backlash because many people feel left behind or do not perceive the gains of openness. The immediate crisis is manageable for banks because central banks can provide liquidity, but the bigger issue is medium-term policy and inflation constraints. The exit process will likely take about two years and remain highly uncertain, with no clear template fitting the UK. Global growth may remain stuck around 2% to 3% unless a new source of productivity or demand emerges.

Data Points: Brexit vote split: 52% Leave / 48% Remain - Result of the UK referendum discussed at the start of the episode Bank of England liquidity backstop: £250 billion - Amount the Bank of England can deploy to support banks if needed ECB policy rate: 0% - Referenced to show that rates can be cut very low if necessary Bank of England policy rate: 0.5% - Current rate discussed as limiting room for cuts, though still possible Expected negotiation period: About 2 years - Timeframe mentioned for negotiating the UK’s departure from the EU German investor survey: 40% - Respondents who believed Brexit would ultimately not result in the UK leaving the EU Global growth expectation: 2% to 3% - Range described as the likely persistent level of global growth

Pivotal Quotes: "What have we done?" — Paul Gordon: Describing the stunned reaction in London’s financial district after the referendum result "It's going to be good for the southern European economies." — Unidentified Starbucks barista / local worker relayed by Paul Gordon: An example of how some non-British residents interpreted the Leave vote in terms of Europe-wide economic effects "We’re being rejected here? Is our model of the economy and the way we see ourselves when we travel, when we buy things, when we think about our aspirations for the future, are we being rejected?" — Daniel Moss: A reflection on whether the cosmopolitan, globally integrated model is what voters are pushing back against

Implications: Listeners should expect prolonged uncertainty for UK politics, markets, and the EU project. The episode suggests Brexit may embolden anti-EU movements, pressure central banks, and reinforce a broader challenge to globalization and elite economic assumptions.