With specific reference to Brexit - an issue that we have analyzed extensively - we need to define both its effects on Europe's new geopolitical configuration and those relating to the structure of European and world finance.
In this phase it is highly likely for the central banks to allow markets to have only a limited reaction to Brexit, without favoring the spreading of contagion with excess liquidity for bailouts and with an unreasonable credit squeeze. The goal of the national central banks, and certainly of the ECB, will be to confirm the level of interest rates reached last February, with some fluctuations which will allow marginal gains for investors and a different distribution of potential risks.
The Bank of England has set aside over 344 billion pounds for "stability measures". For the time being they are certainly sufficient. As for the Stock Exchange, bankers will make it fall to minimum levels quickly so as to subsequently bring it back to more reasonable values - namely 50% approximately - reached immediately after the counting of ballots in the British referendum. There will be no summer collapse of the stock markets, which could certainly be electorally exploited by the US tycoon Donald Trump, and hence no snowball effect on European economies and financial markets. After Brexit, however, there is Italy around the corner. It is always worth recalling it.
But what is the real geopolitical effect of the undeniable weakening of the European Union after Brexit?
All global markets have simultaneously fallen after the news coming from Great Britain and the pound has dropped to its lowest level since 1985. The effects of an EU internal political choice are crucial and decisive for world markets considering that Great Britain is a country sitting in the UN Security Council since its creation, as well as a member of the nuclear club and a leading military power.
Great Britain is also a country that has strong economic ties with China, as evidenced by the visit paid by President Xi Jinping to London last September. The UK government is determined to make British private capital invested in Chinese state-owned companies, not to mention the project to build a large nuclear power station in England mostly with Chinese capital. It is worth recalling that currently China manages over 155,000 state-owned companies with a total amount of over 104 trillion yuan. If the British economy falls temporarily into a range between 0.6 and 3%, the UK internationalization and the integration of the Chinese economy into the EU framework will be severely damaged - with seriously negative repercussions also for the rest of Europe. And even without an expansion of the internal market, which will be further hit as a result of the new unfavorable pound-euro exchange rate.
But what is the real strategic framework in which we move after Brexit?
Let us analyze some medium-long term effects:
- Brexit makes the prospects for creating the Eurasian system recede further. But it could favor both the EU de facto separation from the NATO strategic framework and the complete weakening of the TTIP negotiations with the United States because a less politically credible EU will certainly not be in a position to face them.
- The new configuration of the Eurasian system is more complex than we could predict even a few months ago.
- The integration between Russia and China, the transformations of the Chinese finance and the new Russian posture in the Middle East mean only one thing.
- In other words, the EU expulsion from its Near Abroad and the elimination of its potential of mediation with the OPEC Arab region, as well as its marginal role in the new equilibria with Iran after the nuclear JCPOA, and finally its possible closure to the Chinese project Silk and Road Initiative, at least at maritime network level.
The solution could come from a EU comprehensive agreement with the Russia-China axis, to pacify the Maghreb region, on the one hand, and the region stretching from Central Asia to the Horn of Africa, on the other.
Finally, if the EU is not able to stabilize Libya, it will show everyone it has no geopolitical relevance and this factor will be clearly considered by the other global decision-makers. The Libyan issue is a typical case of European ignorance and foolishness: the fight against ISIS in Derna, and particularly in Sirte, is now led by the forces of the military operation Al Bonyan Al- Marsoos ("The solid structure"), somehow affiliated with Al Farraj’s Government of National Accord (GNA) but not receiving orders from it. While the only internationally recognized Libyan government has no control over its armed forces at a time of harsh and bitter confrontation, the international community has no leverage over Libya and, hence, over the whole Maghreb region, which is about to be integrated - not in a fully subordinate way - into the EU economic and regulatory framework.
According to the latest data available, trade between the North and South of the Mediterranean region has grown by 413% and 321% for Turkey and Algeria, respectively. Israel has recorded a 10% increase and we shall see how the Middle East and the Mediterranean region will change once the strategic and military agreement between Turkey and Israel will inure all its effects. This agreement - albeit with the Russian military protection - will restore the political-military contacts between Turkey and Israel for the passage of gas networks from the Israeli Leviathan gas field to the Turkish and Cyprus market outlets.
While it is worth recalling the agreement between Russia and Israel for military and intelligence coordination, which requires the actual protection of the Golan Heights from the Shiite jihad raids. Hence, a new Mediterranean framework which makes the EU smaller and strategically marginal, while the United States only plan to seal the Russian Federation on its borders into the Eurasian peninsula and to carry out some destabilizing operations towards the Chinese region, by selectively distorting some Chinese autonomous regions and other Central Asian countries, both through the rift created by the crisis in Ukraine and through autonomous actions from Northern India.
We are faced with a growing Eurasia, characterized by the ever closer union between the Russian Federation and China, while the EU weakens, shrinks and splits, with the now sickening propaganda against the "bad" and "nationalist" British people and against the most fallacious and imaginative approach of current political science, namely "populism".
If the EU is able to design a strategic system in relation to Eurasia, enabling Europe to expand its borders and make them safe and if NATO becomes a military tool à la carte for its major countries, the end of Europe - the Europe of Robert Schuman, as well as Thomas Mann’s - will be very near.
Professor Giancarlo Elia Valori is an eminent Italian economist and businessman. He holds prestigious academic distinctions and national orders. Mr Valori has lectured on international affairs and economics at the world’s leading universities such as Peking University, theHebrew University of Jerusalem and the Yeshiva University in New York.
He currently chairs "La Centrale Finanziaria Generale Spa", he is also the honorary president of Huawei Italy, economic adviser to the Chinese giant HNA Group and Khashoggi Holding’s advisor.
In 1992 he was appointed Officier de la Légion d'Honneur de la République Francaise, with this motivation: "A man who can see across borders to understand the world” and in 2002 he received the title of "Honorable" of the Académie des Sciences de l'Institut de France."