Europe presses Britain for swift exit to limit global fallout

Financial markets recovered slightly after the result of Thursday’s referendum wiped a record $3 trillion off global shares and sterling fell to its lowest level in 31 years, but trading was volatile and policymakers said they would take all necessary measures to protect their economies.

British finance minister George Osborne, whose attempt to calm markets fell on deaf ears on Monday, said the country would have to cut spending and raise taxes to stabilise the economy after a third credit ratings agency downgraded its debt.

Firms have announced hiring freezes and possible job cuts, dashing voters’ hopes the economy would thrive outside the EU.

European countries are particularly worried about the impact on the rest of the EU of the uncertainty created by Britain’s vote to leave, with little idea of when, or even if, the country will formally declare it is quitting.

European Commission President Jean-Claude Juncker told the European Parliament before meeting British Prime Minister David Cameron in Brussels that he would urge him to clarify London’s position as soon as possible.

But he said he did not expect him to launch the two-year withdrawal process “today, or tomorrow morning”.

“We cannot be embroiled in lasting uncertainty,” Juncker said in a speech which he interrupted to ask British lawmakers who campaigned to leave the EU why they were there.

Cameron, who offered to resign when it became clear he had failed to persuade the country to stay in the EU in the referendum he called, says he will leave it to his successor to formally declare Britain’s exit.

“Britain will be leaving the European Union but I want that process to be as constructive as possible and I hope the outcome can be as constructive as possible,” Cameron said on arrival in Brussels for a summit with other EU leaders.

Holding out hope of maintaining good relations with other European countries, he said: “And I very much hope we’ll seek the closest possible relationship in terms of trade and cooperation and security. Because that is good for us and that is good for them.”

His party says it aims to choose a new leader by early September, but those who campaigned for Britain’s leave vote have made clear they hope to negotiate a new deal for the country with Europe before triggering the formal exit process. European leaders have said that is not an option.

“No notification, no negotiation,” Juncker said.

NO CHERRY-PICKING

Cameron and Juncker exchanged no words as they met. The British premier will meet other European counterparts one-on-one before addressing them all at what promises to be a frosty dinner to discuss what has become known as Brexit.

EU lawmakers have made clear they hope he will trigger the exit process at the dinner, but an EU official said that was unrealistic given the political chaos in London, where both Cameron’s party and opposition Labour lawmakers are deeply divided.

The ruling Conservative Party in parliament is split into pro- and anti-EU camps and Labour Party leader Jeremy Corbyn faces a no confidence vote on Tuesday from parliamentarians who accuse him of lukewarm support for the EU.

“The 27 other members of the EU should not wait for the disorientated Tory (Conservative) party to get its act together,” former Belgian PM Guy Verhofstadt, leader of the liberal group in the European Parliament, said on Tuesday, denouncing what he called the “lies” of the Leave campaign.

The chamber jeered loudly when the leader of Britain’s eurosceptic UKIP party gave a scathing speech saying Europe had deceived its population and Britain would be its “best friend” if it agreed to extend a tariff-free trade deal.

For Britain, the outlook is bleak. Fitch joined other major credit ratings agencies in downgrading its sovereign debt on Monday, making the promises by leave campaigners that Britain’s economy would be stronger outside the EU appear empty.

“We are absolutely going to have to provide fiscal security to people, we are going to have to show the country and the world that the government can live within its means,” Osborne, who, like Cameron campaigned to stay in the EU, told BB radio.

Asked if that meant tax rises and spending cuts, he said: “Yes, absolutely.”

After Cameron has addressed EU leaders on Tuesday evening, they will meet the next day to discuss Brexit without him.

Leave campaigners in Britain, among them Cameron’s possible successor, former London Mayor Boris Johnson, have suggested Britain can retain access to the European single market and curb immigration — goals which are mutually incompatible under EU rules.

German Chancellor Angela Merkel said Britain would not be able to “cherry-pick” the parts of the EU it wants, such as enjoying access to the single market, without accepting principles such as freedom of movement when it negotiates its exit from the bloc.

“I can only advise our British friends not to fool themselves … in terms of the necessary decisions that need to be made in Britain,” she said.

The 52-48 percent vote to leave, which seemed unlikely until the last minute, has deepened multiple geographical as well as political divisions within the United Kingdom.

Reflecting deep concern over the referendum result in London, where a majority voted to stay and people fear job losses if the city loses its status as a global financial centre, Mayor Sadiq Khan said access to Europe’s market was key.

“On behalf of all Londoners, I am demanding more autonomy for the capital – right now,” he said.

Scotland, where people voted strongly to remain in Europe, was due to hold a parliamentary vote seeking backing for a drive to keep EU status. Scottish leader Nicola Sturgeon has suggested holding a possible second referendum on leaving the United Kingdom given the vote to leave the EU.

GLOBAL GROWTH CONCERNS

The impact looked likely to spread far beyond Britain’s borders although European shares rose for the first time in three days after a heavy sell-off, partly due to hopes of a more co-ordinated central bank response to financial market losses.

Sterling also rose and Wall Street was expected to open up.

European Central Bank President Mario Draghi said central banks around the world should aim to align monetary policies to mitigate “destabilising spillovers” between economies.

Shares in European banks have come under particular pressure, particularly those based in Britain, over doubts about future market access, and Italy, with high levels of bad loans.

Sources told Reuters on Monday Italy was preparing to protect its banks from a destabilising share sell-off following the Brexit vote and that Prime Minister Matteo Renzi would ask for more flexibility from the EU regarding public spending.

Brexit creates huge political uncertainty and will put pressure on global growth, the International Monetary Fund (IMF)’s Deputy Managing Director Zhu Min said on Tuesday at the World Economic Forum in Tianjin in northern China.

Asian stocks rose and Chinese stocks, protected by capital controls, hit a three-week closing high. Chinese Premier Li Keqiang sought to reassure investors by saying the country would not allow “roller-coaster” rides in capital markets.

A key economic adviser to Japanese Prime Minister Shinzo Abe said the central bank should intervene if investors seeking safe havens drive the yen too high, but that he thought Brexit would have less of an impact in the long term.

“I think currency and stock markets overreacted to the shock caused by Brexit. I think the real effects of Brexit will not be as big as people fear now,” he told Reuters.

U.S. President Barack Obama took a similar line. “There’s been a little bit of hysteria post-Brexit vote, as if somehow NATO’s gone, the trans-Atlantic alliance is dissolving, and every country is rushing off to its own corner. That’s not what’s happening,” he told National Public Radio.

In view of the disarray in Britain, some people questioned whether Brexit would happen at all. Nordea bank analysts gave it a likelihood of 70 percent and a senior EU official involved in the process said he thought the country may find a way never to announce its formal departure to the bloc.

Dutch Prime Minister Mark Rutte said England had collapsed “politically, monetarily, constitutionally and economically”.

“I would argue to give them some space.”