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'Brexit' Vote Leads To Uncertainty, But Does Not Need To Be Disastrous, Expert Says

Thursday’s vote for the UK to leave the European Union has had immediate consequences, including British Prime Minister David Cameron announcing he is resigning and global markets being thrown into turmoil.

Duke finance professor Campbell Harvey says such a reaction is understandable given the uncertainty caused by Thursday’s referendum, “but it is not a disaster.”

“The markets are overreacting. Yes, this is a negative for the UK and the EU and potentially the world, but it is not a disaster,” says Harvey, the author of “The European Union, the Euro, and Equity Market Integration.” “Many think that the UK will leave the EU today. This is not the case. They need to apply to leave. It will be a long process. It will allow plenty of time to renegotiate trade treaties.

“In addition, the UK is the fifth most important economy in the world. They will be at the front of the queue for most countries in the world.” Harvey says it is crucial that UK leaders assure the rest of the world that the UK’s exit from the EU will be orderly. “World leaders need to communicate a plan to reduce the uncertainty,” Harvey adds. “The worst possible scenario is a period of heightened uncertainty. This extra risk will repel capital investment in the UK and the other EU countries and this could potentially lead to a global recession. “A clearly communicated plan of action would go a long way to allay the concerns of investors. Surely, this plan has been in the works for months given the outcome of the referendum has been a coin toss for quite a while.”

Harvey says U.S. companies should have been planning for such a scenario, given that they have known for a while that the vote would be close.

“Obviously, a number of prominent U.S. companies are exposed to the UK exit. However, this risk has been known for a long time. This is completely different than, say, the Japanese tsunami. Corporations have had plenty of time to prepare for this risk. Their plans should kick in today. If they do not have plans, then it is a gross failure of basic risk management.”

Th Fuqua professor suggests that the rest of the world embrace the UK mantra: “Keep calm, carry on.”

Duke political scientist Tim Buthe, who specializes in the EU and the politics of international economic relations, blames "the near-complete failure of the British political leadership" for Thursday's results.

"Over the past half century, Britain's leaders have failed to make a case for EU membership based on something broader and deeper than a short-term utilitarian calculus," writes Buthe in an op-ed published prior to Thursday's referendum. "Building a political community requires a commitment to something larger than maximizing short-term economic benefits."