Wonkbook: Why Brexit is worse for Europe than Britain -- by Larry Summers

By Lawrence H. Summers Brexit is in progress. So far, given the shock value of what has happened, the market response has been on the calm side. The British pound is only a bit weaker than it was 10 days ago when the outcome looked highly uncertain. I would not have been surprised to see …   The latest economic and domestic policy from Wonkblog   A Union flag flies beside the London Eye on Friday ROB STOTHARD/AFP/Getty Images By Lawrence H. Summers Brexit is in progress. So far, given the shock value of what has happened, the market response has been on the calm side. The British pound is only a bit weaker than it was 10 days ago when the outcome looked highly uncertain. I would not have been surprised to see the pound below $1.30, the yen below 100 and more dramatic moves in credit spreads in the European periphery. Notably the pound, which is a kind of bellwether, and many other asset prices have rallied considerably from their lows during the night. [Read updates on Brexit] Relatively resilient markets so far probably reflect a combination of confidence that central banks will do whatever is necessary to maintain order, as well as some opportunistic buying in response to opportunities created by the falling asset prices. Notably cool heads seem to be in control for now in London and Brussels. Fortunately authorities do not seem overly fussed with moral hazard at a time when the preoccupation needs to be maintaining liquidity and orderly markets. Critically, the market has expressed confidence that the Federal Reserve understands the gravity of the situation by taking the probability of a Fed hike by the end of the year down to the 10 percent range. ADVERTISEMENT   All of this could easily change when U.S. markets open, when investors ponder the new and more volatile environment they live in, when traders decide they do not want to bear risk over the weekend, or when a weekend of pondering leads to a wave of liquidations on Monday morning. In 1987 volatile markets with international uncertainties at the end of the preceding week presaged the Monday crash. It is far too early for any kind of complacency. Read the rest on Wonkblog.   Chart of the day The price of sterling plummeted against the U.S. dollar following the United Kingdom's vote to exit the European Union. Ana Swanson has more. Top policy tweets "Markets think Brexit has bigger implications for the US economy than any election over the past 60 years. https://t.co/B8IuusPMA7" -- @JustinWolfers "Here's what top economists think Brexit will mean for Britain — and the world https://t.co/FoXDp7MiQO" -- @ezraklein "How to leave the E.U. https://t.co/2BagLlMp62" -- @mradamtaylor Most Recent Posts from Wonkblog One British industry could suffer a particularly harsh impact from Brexit It's one of Britain's largest businesses -- and EU countries are its biggest customers. By Jacob Bogage  •  Read more »   Rich gamblers lost a lot of money when the U.K. voted to leave the European Union This one number shows just how big a surprise Brexit is. By Max Ehrenfreund  •  Read more »   No, Brexit isn't a good sign for Trump It's just not the case that Brexit means Donald Trump is more likely to win. 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By Kim Soffen  •  Read more »   Bayer bans ad that seemingly recommends aspirin to people who’ve been secretly recorded "The ad trivializes abuse." By Danielle Paquette  •  Read more »           Share Wonkbook:       Twitter      Facebook Trouble reading? Click here to view in your browser. You received this email because you signed up for a Wonkblog newsletter. For additional free newsletters or to manage your newsletters, click here. We respect your privacy. If you believe that this email has been sent to you in error or you no longer wish to receive email from The Washington Post, click here. Contact us for help. ©2016 The Washington Post, 1301 K St NW, Washington DC 20071