Turbulence and a lot of uncertainties

LONDON—No one really knows what happens now. The collective imagination leads to dark places.

The world map has been redrawn with the rules of commerce across Europe, the largest marketplace on earth.

Britain’s vote on Thursday to leave the European Union has set in motion an unprecedented and unpredictable process that threatens turbulence and potential crisis—for Britain, for Europe and for the global economy.

Of most immediate consequence, Britain’s vote to leave Europe sent global markets on a wild descent. Investors gaped at this major refashioning of the global landscape and decided it looked perilous—or at least so pockmarked with uncertainty that they preferred to pull their money out of riskier corners like stock markets.

Few expect that Britain’s departure from Europe will set off a full financial crisis like that seen after the collapse of the investment banking giant, Lehman Brothers, in 2008.

But no one knows enough to rule that out, either. The world has never been here before.

Whatever happens, a long confusing period now unfolding seems certain to yank Europe back into acute anxiety just as it seemed to be finally recovering from a punishing economic downturn, one that had thrust Greece and Spain into veritable depressions while erasing years of wealth across the continent.

The “Brexit” vote, or Britain exit from the EU, raised the prospect of sustained anxiety in the global economy as investors struggle to surmise what is happening.

China’s economy, the world’s second-largest behind that of the United States, is slowing significantly, and the markets have little faith in the data provided by the Communist Party government.

‘Draped in uncertainty’

Brazil, once a darling among emerging markets, is in full-blown crisis. Europe and its common market, home to 500 million people, have been plunged into turmoil, their prospects difficult to divine.

Markets crave known facts and fret about variables, seeing potential risks in all unknowns. An enormous portion of the map is now draped in uncertainty, effectively impervious to calculation.

The vote appears likely to prompt multinational banks to shift significant numbers of jobs from Britain to competing financial centers in the EU led by Paris, Frankfurt, Dublin and Amsterdam.

Many experts assume Brussels will move quickly to restrict trading of euro-denominated assets—a major business for Britain. Prominent banks including JPMorgan Chase and Citigroup warned during the campaign that a Brexit would cause them to transfer some operations elsewhere.

As investors pulled back in fear Friday, entrusting their money only to the safest places like US Treasuries, the moves appeared to foreshadow a tightening of credit for many.

Emerging markets may find it difficult to secure investment, limiting economic growth. Borrowing costs are likely to rise in heavily indebted nations, including Greece, Italy and Portugal, as investors demand extra inducements to put their money in riskier locales.

Bank of England may have to raise interest rates to halt a plunge in the pound, the opposite from the usual playbook when an economy suffers a shock.

‘Dismay over globalization’

Most broadly, the Brexit vote is likely to resonate as a sign that major democracies are increasingly vulnerable to the influence of populist political movements that curry favor by demonizing immigrants and external forces—officials in Brussels and Washington, and low-wage workers in China and Mexico.

The noisy and acrimonious campaign for Brexit played on inchoate fears in Europe and much of the developed world: dismay over globalization at a time of intensified competition for jobs and angst over immigration as it refashions conceptions of national identity.

These sentiments will surely find additional avenues for expression, challenging trade arrangements, reinvigorating existential questions about the shared euro currency and sowing uncertainty throughout the financial realm.