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How Will Brexit Affect the European Union?

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Aug. 11 2016, Updated 8:26 a.m. ET

The effect of Brexit on the European Union

When asked about the impact of Brexit on the world economy, Troy Gayeski, partner and senior portfolio manager at SkyBridge Capital, said that Brexit will create a bigger problem for the European Union (EZU) (IEV) (DBEU) than for the world economy (ACWI) (VEU) (VT).

He said, “The biggest negative of Brexit is potential of the Eurozone dissolution.” Because one country made its exit successfully, there is a question about whether it will prompt other member nations to do so. A problem in the European Union is that there isn’t coordination between the monetary policy and fiscal policy of the member countries, which raises the question about the purpose of the union.

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However, Britain (EWU) had access to the EU’s common market through the use of the British pound (FXB). Still, the country voted to leave the EU in part due to its easy migration laws. The employment problem in the UK was another major issue for UK citizens. Billionaire investor George Soros also warned that Brexit May Spark Disintegration in the European Union.

In the next part of this series, we’ll analyze what the Fed’s role should be in the earnings recovery environment.

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