NEW YORK – While the Dow opened down more than 500 points and stock markets worldwide suffered deep declines, the serious economic ripple effect of Britain’s exit from the European Union remains the long-term damage to the fragile debt burden maintained by the European Central Bank of the EU.
The U.K.’s departure means the withdrawal of as much as $1 trillion in sovereign funds that the EU was counting on to keep struggling economies such as Greece’s afloat.
The “Brexit” decision has also seriously diminished the likelihood the Obama administration will be able to get passed through Congress either the Trans-Pacific Partnership, TPP, or its European counterpart, the Trans-Atlantic Trade and Investment Partnership, TTIP.
In a CNBC TV interview Friday, Alan Greenspan, former chairman of the Federal Reserve, warned that the U.K. vote to leave the European Union threatens to usher in an economic crisis “worse even than the darkest days of October 1987.”
Greenspan stressed that the euro currency is the immediate problem, with the debt of the southern tier of the Eurozone currently being financed by the northern countries and the European Central Bank.
The widely read economic blog ZeroHedge.com pointed out that “Greenspan was referring to the unprecedented combination of economic stagnation, deteriorating demographics, insolvent entitlement programs, social inequity and wealth division, and of course, a historic debt overhang which could and should have been cleared out in the crash of 2008 but instead was preserved to avoid wiping out the same ‘equity holders’ who also happen to be the Fed’s direct and indirect stake-owners.”
Free trade now in rough water
The TTIP has been “postponed until the distant future,” Gary Hufbauer, senior fellow at the Peterson Institute for International Economics told Politico on Friday.
But TTIP negotiations have had more headaches than the U.K. pulling out of the EU.
Politico’s “Morning Trade” bulletin noted major U.S. agriculture and food organizations warned top administration officials on the eve of Brexit not to drive toward a year-end goal of concluding transatlantic trade talks “at the expense of resolving the toughest EU market access issues for U.S. food and agriculture.”
According to Politico, the U.S. agriculture and food organizations argued a rush-to-the-finish that produces a TTIP-lite would do more harm than good.
“We could not support such an outcome and we would not accept as consolation any form of consultative mechanism to deal with the controversial agriculture issues later,” the groups, organized as the U.S. Food and Agriculture Dialogue for Trade Agreements, said in a letter sent Wednesday to U.S. Trade Representative Michael Froman and Agriculture Secretary Tom Vilsack.
The letter highlighted the fact that the U.S. maintained a positive trade balance with the EU in agriculture prior to 2000, but a trade deficit with the 28-nation bloc has grown to $8 billion in 2015.
Meanwhile, the TPP agreement is waiting in the wings, with Congress having already voted fast-track authority.
Fast-track authority allows a trade agreement to be given an up-or-down vote in Congress, with limited time for debate and no provision for making amendments.
But former acting U.S. Trade Representative Miriam Sapiro told Politico ahead of the vote that the U.K. has been a “force for greater liberalization” and “losing that voice in the negotiations would be a blow.”
“After an unusually trade-focused presidential primary season in the U.S., with candidates on both sides of the aisle taking shots at TPP, it is now starkly clear that the anti-globalization fervor is, well, a global force,” Politico’s “Morning Trade” bulletin warned Friday.
“Stay tuned for updates on how the U.K. will navigate these unprecedented waters and the implications for U.S. business interests.”