In the execution and aftermath of the European referendum, the British political class has commemorated Shakespeare’s quadricentennial by serving up a 21st anniversary version of The Comedy of Errors. The ripples of the 23 June vote to leave the EU are spreading. Sterling, the third most important reserve currency, has fallen by 13% against the dollar, interest rate rises everywhere are on hold, and one more source of risk is stalking the global economy. All these issues are high on the agenda at OMFIF’s Main Meeting in St. Louis on 14-15 July. One important side effect: Theresa May, the quietly confident UK home secretary, bottom right in our cover picture, has replaced David Cameron as prime minister – joining Angela Merkel, Christine Lagarde and Janet Yellen in a march of female economic power. As Meghnad Desai wrote, now that the decision has been made, ‘We can ignore the miracles promised by the Brexiteers or the dire predictions of the Remainers.’ But the litany of political, psychological and purely human miscalculations by protagonists on both sides of the struggle casts considerable doubt on the judgement of those in, or aspiring to, high office. A referendum Cameron never truly expected to hold and his opponents didn’t think they could win was, at bottom, a stratagem to heal Conservative party divisions and help Europe regain a sense of purpose. It has ended up deepening Tory splits, inflaming anti-integrationist spirits around Europe (despite early Franco-German protestations of unity) and, in a dash of Bard-like knife-twisting, drenching many of the dramatis personae in their own and their rivals’ blood. George Osborne, the UK chancellor of the exchequer, who has gone from hero to hapless in a few short weeks, has cast aside his ill-thought out threat of emergency budget cuts in the event of an ‘out’ vote. Niels Thygesen in Copenhagen, Philippe Lagayette in Paris, Stuart Mackintosh in Washington and Jacques Lafitte in Brussels analyse the ramifications of the biggest setback to the EU since the European Economic Community was set up in 1958.
In central and eastern Europe’s sensitive circumstances, the technical issue of the European Central Bank’s controls on non-monetary assets on the balance sheets of national central banks takes on additional significance, as a special correspondent reports from Warsaw. challenges abound elsewhere. With the Swiss franc once again a safe haven, Peter Warburton and Federico Corrado investigate the post-referendum challenge for Swiss monetary policy. At a time of rising constraints on central banks’ independence, Boris Vujčić, the Croatian central bank governor, outlines the finely calibrated navigational instruments they must deploy to steer between competing exigencies. Patrick Schena explains the changes under way in Saudi Arabia’s sovereign fund. Ben Robinson describes how emerging market central banks – in particular the People’s Bank of China – are reacting to upheavals in the UK and European economies. Low or negative interest rates are inciting fund managers to open their portfolios in novel ways. Harald Walkate from Aegon Asset Management extols the effect of impact investment on institutional holdings. The US Federal Reserve has understandably decided once again to put interest rates on hold, as Darrell Delamaide relates. However, better jobs data for June, released on 8 July, may change the picture. Kevin Kliesen of the St. Louis Fed writes on the mixed signals facing US policymakers. Peter Petri, visiting fellow at the Peterson Institute of International Economics, focuses on the US elections and trade policy. In a section on new technology, Caroline Butler outlines the potential ramifications of ‘Big Data’ on global risk management, while Steven Bardy from the Australian Securities and Investments Commission explores how regulators can better understand the opportunities and meet the challenges of blockchain as it permeates financial transactions. William Keegan provides an epitaph for the referendum struggle with a mournful book review of former UK Prime Minister Gordon Brown’s plea for a maintained British place in Europe. The OMFIF advisory board reminds us of battles to come: Greece’s fundamental problems are set to re-emerge in 2017.