What does the Brexit crisis mean for Europe?

On 23 June the United Kingdom voted in a referendum to leave the European Union. For most, this was a totally unexpected result and there is no question it will have deep political and economic consequences, not just for the UK but for the whole of Europe.

The UK is now navigating uncharted territory, where the country’s integrity is now under threat and its relationship with the EU undefined. Moreover, even the future of the EU itself is now under scrutiny amidst fears of further fragmentation. The economic and political shifts taking place in Europe are seismic and will take years to resolve.

Unsurprisingly, the financial markets and currencies have fluctuated wildly. London’s benchmark index, the FTSE100, plunged 8.7 per cent in the immediate aftermath of the vote but has now fully rebounded – as have other European indexes – partly on the back of hopes of a monetary stimulus. The pound fell to a 31-year low, losing around 10 per cent of its value.

But it is not just the UK that is exposed to this turbulence, and the wider implications of Brexit can already be seen by the subsequent downgrade of the EU of its long-term credit rating from AA+ to AA. This will increase borrowing costs for the 28-member bloc and intensifies concerns over its future economic performance.

So what of the European cement industry? Clearly, the ongoing uncertainty will cast a shadow over all construction markets in the region for some time.

The immediate share price reaction for many of the leading building materials companies has been swift, with LafargeHolcim and HeidelbergCement both dropping by nearly 10 per cent between 23 and 29 June.

According to Bernstein analysts, cement companies have tried to play down concerns, arguing that UK housing and infrastructure spend remains intact, with limited repercussions expected across the rest of Europe.

Nevertheless, the investment house also argues that it’s too early to confidently assess the fallout from Brexit. On the one hand, “the market reaction clearly seems to be pricing in a pan-European slowdown that goes well beyond the impact on the UK market”. On the other hand, Bernstein also expects that any further slowdown in construction is likely to be “countered by stimulus”.

The UK government is yet to invoke Article 50 of the Lisbon Treaty, which will start the formal and legal process of leaving the EU. The future prosperity of Europe will depend on the quality of leadership on every side in negotiating a sustainable settlement capable of benefitting all.