Brexit: Article 50’s Deadline Approaches
In the 53rd episode of the World Financial Podcast, Greg Brown and Drew Thornton sit down with Turgut Kisinbay, Director of Fixed Income Research on OppenheimerFunds’ Global Debt Team, to discuss Brexit and the European Central Bank’s (ECB) latest stimulus plan.

Below are a few highlights from the episode:

[4:30] How Did We Get Here: The people of the United Kingdom voted to leave the European Union in June 2016. Since then, it has been a very long and arduous process to deliver Brexit.  Theresa May, the Prime Minister of the United Kingdom and Leader of the Conservative Party, has tried and failed to strike a deal that appeases Members of Parliament and the European Union. With the March 29 deadline fast approaching, what options are left? Britain can rework the withdrawal treaty [Rejected 3/14], consider a no-deal Brexit [Rejected 3/14], or delay the Article 50 deadline–which UK lawmakers backed this past Friday. “If the Labour party can push for a second Brexit referendum, I think remaining in the EU is also possible,” explains Turgut.

[10:00] The Brexit Sticking Points: The two issues at the center of Brexit are the free movement of labor and full political independence from the European Court of Justice. The EU, however, won’t budge on either issue. The economic union was founded on four freedoms that all member countries must abide by. Some exceptions, like Norway, make financial commitments and other concessions to participate in the single market without holding a membership. The UK won’t be afforded those opportunities, though. The other issue at hand is Ireland, which wants to stay in the Eurozone and rejects the idea of borders in the Republic of Ireland.

[14:00] Investing in Europe and the UK: “I don't think this is an issue for Europe at all,” says Turgut, “Europe is the single-largest trading union in the world, with a large domestic economy. They export to the rest of the world and generate large current account surpluses and large pools of savings.” On the other hand, many global UK companies will still sell goods around the world, including in the EU. The pressure may build when the March 29 deadline passes and everything is still in limbo. Will the open skies agreement be eliminated? Will supply chains be disrupted?

[18:00] The Euro Economy in Perspective: The European economy hit a rough patch last year after stringing together consecutive years of strong growth. Many one-off events played a role in the slowdown: bad weather, flu season, and new automobile regulations, amongst others. Fortunately, the economy put in place buffers to revive growth. “First, unemployment is very low. In the South, where there were issues, it's a little bit higher, but in the North, like Germany and the Netherlands, all these countries have historically low levels of unemployment,” explains Turgut, “If anything, the story of the last 10 years is the leveraging in Europe that created room for growth in the future.”

[26:00] How Will It End?: A lot has been said about the breakup of the Eurozone and UK leading to prolonged economic stagnation like Japan. “That is a special case,” says Turgut, “when you get into deflation, as was the case in Japan for 20 years, it’s hard to get out.” If things go sour in Europe, they can still lean on aggressive monetary policies and even fiscal stimulus to avoid deflation and support the economy.

World Financial Podcast Episode 53:
Brexit: Article 50’s Deadline

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