Britain faced angry calls from other European leaders to act quickly to resolve the political and economic chaos unleashed by its vote to leave the European Union which the IMF said could put pressure on global growth.
Financial markets recovered slightly on Tuesday after the result hammered global shares and sterling fell to its lowest level in 31 years, but trading was volatile and policymakers vowed to take all necessary measures to protect their economies.
British finance minister George Osborne, whose attempt to calm markets fell on deaf ears on Monday, said he would have to cut spending and raise taxes to secure fiscal stability after a third credit ratings agency downgraded the country’s debt.
Firms have announced hiring freezes and possible job cuts, dashing voters’ hopes the economy would thrive outside the EU.
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European countries are particularly worried about the impact on the rest of the European Union of the uncertainty created by Britain’s vote to leave, with little idea of when, or even if, the country will formally declare it is quitting.
European Commission President Jean-Claude Juncker told the European Parliament he would be urging British Prime Minister David Cameron to “clarify as soon as possible” the British position, but did not expect him to launch the two-year withdrawal process “today, or tomorrow morning”.
“We cannot be embroiled in lasting uncertainty,” he said in a speech which he interrupted to ask pro-Brexit lawmakers why they were there.
Cameron, who resigned after it became clear he had failed in his efforts to persuade the country to stay in the EU in the referendum, which he called, says he will leave it to his successor to formally declare Britain’s exit.
His party says it aims to choose a new leader by early September, but those who campaigned for Britain’s leave vote have made clear they hope to negotiate a new deal for the country with Europe before triggering the formal exit process. European leaders have said that is not an option.
“No notification, no negotiation,” Juncker said. Cameron arrived in Brussels on Tuesday went into a meeting with Juncker without exchanging any words in front of the media.
NO CHERRY PICKING
Cameron will hold bilateral meetings with his European counterparts in Brussels on Tuesday before addressing them all at what promises to be a frosty dinner to discuss what has become known as Brexit.
EU lawmakers have made clear they hope he will trigger the exit process at the dinner, but an EU official said on Monday that was unrealistic given the political chaos in London, where both Cameron’s party and opposition Labour are deeply divided.
The ruling Conservative Party in parliament is split into pro and anti EU camps and the leader of the opposition Labour Party, Jeremy Corbyn, faces a no confidence vote on Tuesday from parliamentarians who accuse him of lukewarm support for the EU.
For Britain, the outlook is bleak. Fitch joined other major credit ratings agencies in downgrading its sovereign debt on Monday and the promises by leave campaigners that Britain’s economy would be stronger outside the EU appeared empty.
“We are absolutely going to have to provide fiscal security to people, we are going to have to show the country and the world that the government can live within its means,” Osborne, who, like Cameron campaigned to stay in the EU, told BBC radio.
Asked if that meant tax rises and spending cuts, he said: “Yes, absolutely.”
After Cameron has addressed EU leaders on Tuesday evening, they will meet the next day to discuss Brexit without him.
Leave campaigners in Britain, among them Cameron’s possible successor London Mayor Boris Johnson, have suggested Britain can retain access to the European single market and curb immigration – goals which are mutually incompatible under EU rules.
But German Chancellor Angela Merkel said Britain would not be able “cherry pick” the parts of the European Union it wants, such as enjoying access to the single market, without accepting principles like freedom of movement when it negotiates its exit from the bloc.
“I can only advise our British friends not to fool themselves … in terms of the necessary decisions that need to be made in Britain,” she said.
Scotland, where people voted strongly to remain in Europe, was due to hold a parliamentary vote seeking backing for a drive to keep Scotland’s EU status. Scottish leader Nicola Sturgeon has suggested holding a possible second referendum on leaving the United Kingdom given the vote to leave the EU.
GLOBAL GROWTH CONCERNS
The impact looked likely to spread far beyond Britain’s borders although European shares rose for the first time in three days after a heavy sell-off, partly due to hopes of a more co-ordinated central bank response to financial market losses.
European Central Bank President Mario Draghi said central banks around the world should aim to align monetary policies to mitigate “destabilising spillovers” between economies.
Shares in European banks have come under particular pressure, particularly those based in Britain, over doubts about future market access, and Italy, with high levels of bad loans.
Sources told Reuters on Monday Italy was preparing to protect its banks from a destabilising share sell-off following the Brexit vote and that Prime Minister Matteo Renzi would ask for more flexibility from the EU regarding public spending.Brexit creates huge political uncertainty and will put pressure on global growth, the International Monetary Fund (IMF)’s Deputy Managing Director Zhu Min said on Tuesday at the World Economic Forum in Tianjin in northern China.
A key economic adviser to Japanese Prime Minister Shinzo Abe said the country should not give up the right to intervene if investors seeking safe havens drive the yen up too high, but that he thought Brexit would have less of an impact over the longer term.
“I think currency and stock markets overreacted to the shock caused by Brexit. I think the real effects of Brexit will not be as big as people fear no,” he told Reuters.
Asian stocks rose and Chinese stocks hit a three-week closing high. They are protected from some of the turmoil by capital controls, but Chinese Premier Li Keqiang sought to reassure nervous investors.
“It’s hard to avoid short-term volatility in China’s capital markets, but we won’t allow roller-coaster rides and drastic changes in the capital markets,” said Li, speaking at the World Economic Forum (WEF) in the city of Tianjin.