Finally, and perhaps most disturbingly, the British referendum has produced an extremely fractured and polarized society—with huge majorities for Brexit among elderly and poor voters and in relatively under-developed rural regions vehemently opposed by almost equal majorities that supported EU membership among young and highly educated voters and in the prosperous cities—not only London, but also Manchester, Bristol, Newcastle and the whole of Scotland. This extreme polarization on a national issue of existential importance would raise risks of social and political tension even in benign economic conditions. If, as is likely, Britain now suffers some kind of financial crisis and recession, the people who voted for Brexit will discover that leaving the EU has not resolved any of the economic problems and social grievances that provoked their protest against the political establishment. If this happens, public anger will presumably intensify, rather than calm down. A similar disillusionment is likely in other countries whose voters decide simply to overthrow political elites and dismiss the analysis of economic “experts”, without having any serious alternatives to put in their place.  

Eoin Treacy's view

Here is a link to the full report. 

Populist nationalism is a theme which is gaining adherents all over the world. Xi Jinping’s appeal to nationalism in order to inspire support for economic reform and to sustain the Communist Party’s monopoly on power is an example in China. While I personally support the UK’s decision to leave the EU, because of the democratic deficit evident within the political union, there is no doubt that there was a populist tone to the rhetoric that presaged the decision. The growth of similar movements in the Netherlands, Finland, Denmark, France, Italy and Spain suggests this is not simply a UK phenomenon. The surprisingly large support base both Donald Trump and Bernie Sanders appealed to in their respective campaigns for Presidential nominations are also evidence of populist nationalism in the USA. 

Another way of thinking about the evolution of this kind of political perspective is that the trend towards greater cooperation appears to have changed. National self-interest is increasingly seen as a more important priority and not least in geopolitics. The Syrian refugee crisis could have been forestalled if NATO has been willing to set up safe zones for displaced people within Syria but no country was willing to do it. Russia’s adventurism in Eastern Ukraine is only possible because it has judged, correctly, that no other country has the appetite to stop them. The rise of ISIS and the deplorable acts they commit so publicly could be stopped but no country with the means to eradicate the threat has the will to act. China’s increasingly muscular actions in the South China
Sea are only now being met with some form of resistance from the USA and then in a very soft way. 
The failure of extraordinary monetary policy to stoke growth while simultaneously inflating asset prices, which has conspired to deflate living standards, has contributed to the economic malaise that has helped fuel the rise of populist solutions. For the USA two expensive wars in Afghanistan and Iraq with little success to show for a massive expenditure of human life and money has also contributed to a more insular mind set.

So far this has not translated into protectionist policies, a rolling back of globalisation or widespread antitrust cases against major corporations. However the risk is that these could become targets for populist policies if they are seen as threats to domestic living standards. That suggests the risk premium attached to markets is higher now that it was last week and could well intensify. It brings politics further into consideration of the markets which in itself is not a positive development. 

Thanks to a subscriber for this report from Weldon which includes a large number of highly informative charts highlighting the UK’s relative position within the EU and the global economy and may be of interest to the Collective.