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British Prime Minister Resigns Ahead of Major Transition; Global Markets Tumble on Brexit News; World Leaders React to Historic Vote. Aired 12-12:30a ET

Aired June 25, 2016 - 00:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

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MAX FOSTER, CNN HOST: Welcome to our viewers from around the world, as we continue CNN's special coverage of Britain's landmark decision to leave the E.U. I'm Max Foster.

BECKY ANDERSON, CNN HOST: I'm Becky Anderson. We will break down what this decision means for the U.K. going forward later this hour. But the immediate fallout has come in the world markets.

FOSTER: Investors around the globe are in a frenzy. But the president of the European Council insists there's no need to panic.

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DONALD TUSK, PRESIDENT, EUROPEAN COUNCIL: It is a historic moment. But for sure not a moment for hysterical reactions. I want to reassure everyone that we are prepared also for this negative scenario.

ANDERSON (voice-over): The reaction so far has been swift and severe, both economically and politically. British prime minister David Cameron resigned on Friday, having lost his bid to keep his country in the E.U.

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ANDERSON: That will leave somebody else tasked with leading Britain through a major transition. CNN's international diplomatic editor, Nic Robertson, is live outside 10 Downing Street for you this morning.

So the revolving door behind you, as it were, David Cameron is out or certainly will be in the next couple of months.

Who will take over?

NIC ROBERTSON, CNN INTERNATIONAL DIPLOMATIC EDITOR: Yes, Becky, it only seems like a few months ago that we were standing here when David Cameron had that landslide government election victory, May 2015.

Who will replace him? Well, Boris Johnson has certainly got his name firmly and squarely high up the bookies' list of favorites at the moment. He was one of the leading architects of the Leave campaign, a significant figure.

A school chum, a university friend of David Cameron, they have long been in politics together, been friends and now that relationship seems to be stressed when Boris Johnson entered the Leave campaign. He was widely at the time rumored to be angling for a job at Number 10. So his hat is firmly, firmly in the ring.

Theresa May, the home secretary who was -- stayed very close to Cameron on this, remained working for the Remain campaign to stay in the European Union; she wasn't too outspoken. But she talked about the security concerns. She is perhaps a figure that could unite this very, very fractured party.

Whoever it is is going to be looking to pull the party back to the center as well as keep the eurosceptics, who have now been vindicated in their minds by this -- by the referendum, keep them firmly onside as well -- Becky.

ANDERSON: Nic, a divided party and a dis-United Kingdom at this point. We have certainly heard words from the first minister in Scotland that whatever the outcome so far as England is concerned, they're not interested. They want to -- or she certainly suggests -- wants Scotland to stay in the European Union.

What is the fallout from this decision?

ROBERTSON: Well, you have Nicola Sturgeon, the first minister of Scotland, who'd said going into this referendum that -- and previous to this as well -- that if there was a will of the Scottish people for another independence referendum in Scotland, to break off from Great Britain, then they would do that.

And the ground is now set for that. And she has indicated that if that's the will of the people, that's the direction she will go in. She will meet with her cabinet today to discuss that.

Part of the other fallout as well was to hear from the Republicans and Nationalists in Northern Ireland to say that as Northern Ireland also voted to remain part of the European Union and now face very tough border controls affecting business across the north of Northern Ireland with the Republic of Ireland, if you look at the map of Northern Ireland, it was really Belfast, the major city there, that was the only one to vote to leave the European Union.

All the border districts voted to remain inside the European Union. They do a lot of trade across the border with Ireland. The implications are that new border security would have to be established; otherwise, this would be a back door for immigrants coming from Europe through Ireland into Great Britain.

So there is a move there as well, which sort of brings up disturbing echoes of the 30 years of Troubles, the sectarian civil war that was in Northern Ireland for the late '60s to the -- petered out of course, early '90s into a peace deal in the late '90s.

So there is a lot afoot. It's divisive. These are problems that Britain has seen before. But absolutely, front and center, Scotland potentially preparing the way for another in-out referendum out of Britain.

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ROBERTSON: That's on the cards.

It's not clear if they can make a good economic argument as they did last time. The price of oil has fallen substantially which was the basis for their economic predictions over fiscal stability in Scotland if they broke away.

But certainly, the emotional feelings that they have been, if you will, wronged by this referendum vote, that's going to be strong -- Becky.

ANDERSON: Nic Robertson is at Number 10 for you this morning.

FOSTER: For our global investors, Brexit is not coming cheap. Stocks tumbled worldwide on Friday as traders began pressing in a new era of market uncertainty.

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FOSTER (voice-over): On Wall Street, the Dow fell more than 600 points. That's more than a 3.25 percent; in percentage terms, it's the worst day on Wall Street in 10 months.

ANDERSON: Banking stocks hit extremely hard. The S&P 500 and the Dow now back in negative territory for the year.

FOSTER: It was a similar story here in Europe. U.K. stocks finished Friday session down more than 3 percent and German and French stocks suffered heavier losses. British pounds are plunging to levels not seen since the mid-1980s.

ANDERSON: There were some green arrows. Gold, for example, rallying over 4 percent. Mining stocks also doing well. And investors once again flocking to the safe haven of U.S. Treasuries.

Despite all that, estimates say Brexit wiped out an estimated $2 trillion worth of stock market value worldwide.

FOSTER: Asian markets were the first to see wild swings after the vote. And now investors face an uncertain weekend as well.

Let's go to Mallika Kapur in Hong Kong.

It's interesting, wasn't it, because the Asian markets were the first to reflect this news overnight London time.

MALLIKA KAPUR, CNN CORRESPONDENT: That's right. And I was at the Hong Kong Stock Exchange and it was hard to believe the numbers. There was such extreme volatility in the market, Max, not just stock market, the currency market, the pound reacted so violently and it was hard to even keep track of all the fluctuations.

But going into the weekend here in Hong Kong, here in Asia, the sense very much is that the volatility we have seen in the market, whether it's the currency market or whether it's the stock market, will be limited.

This is the stock market's immediate reaction. It's the knee-jerk reaction to what's happened. And we are likely to see some volatility in the market in the days going ahead.

But the view here now is to take a step back and to look and assess the medium- to long-term impact Brexit will have on Asia. And the sense here that -- is that it will have some impact. But the impact will be moderate.

If you look at trade between Asia and the U.K., for example, frankly, it isn't that much. Overall exports account from Asia to the U.K. account for less than 1 percent of regional GDP. So that's -- the quantity, it's very limited, less than 1 percent of GDP when it comes to trade between Asia and the U.K. in particular.

Of course, some countries have a little higher trade, Hong Kong being one of them, Vietnam being another one. But overall, the impact will be muted.

What's interesting here is to look at the corporate world and to look at companies, Asian companies that have a lot of business in the U.K. And here we are really talking about Japan and India.

In Japan, you have several large automakers: Toyota, Nissan, which have factories in the U.K. Many Indian companies have factories in the U.K. as well as companies like TCS, the Tata Group have lots of exposure in the U.K.

And these companies have traditionally used the U.K. as a entryway, as a gateway to the rest of Europe. And these companies are saying now that they will have to reassess what they do with their operations in the U.K. So keeping an eye on the business world will be quite interesting going ahead.

FOSTER: Yes, so hard to assess. Mallika, thank you very much indeed.

Well, fund manager George Soros warned of a Black Friday if the U.K. voted to leave the E.U. You have sterling falling in fact worse than the infamous Black Wednesday back in 1992. That's what he was famous for.

ANDERSON: (INAUDIBLE), absolutely, spread against the pound.

FOSTER: Pound hitting its lowest level against the dollar in more than 30 years. Market chaos forcing central banks across the globe to swing contingency plans into urgent action.

ANDERSON: That's right. The Bank of England, the ECB, the Federal Reserve and G7 have all pledged to provide increased liquidity if needed to calm this volatility. The Bank of England's governor, Mark Carney, says the bank is, quote, "well prepared as Britain builds new relationships with Europe and the rest of the world."

Well, let's bring in Ben Stein for more perspective. He is a former economist with the U.S. Department of Commerce and an award- --

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ANDERSON: -- -winning financial journalist, joining us now from Los Angeles.

How do you assess the impact of what was a momentous decision by the U.K. to leave the E.U., announced early doors on Friday morning?

BEN STEIN, FINANCIAL JOURNALIST: Well, the impact on the United States is nil. We export less than 0.2 of 1 percent of our GDP to the United Kingdom. The United Kingdom isn't going to disappear because of Brexit. We will still export to them.

If the exports drop by, say, 10 percent, that's an inconsequential amount in terms of the U.S. economy. I must say, I have never seen such a gigantic amount of tumult and shouting and screaming over what seems to me to be a fairly small event except for the traders.

The traders like to move the markets. The traders make money when markets move. But there hasn't been a gigantic event here that -- we don't know what tariffs are going to be. What I'm being told and what's in the news is that the tariffs may not change at all for two years.

So where is the news -- where is the news story here except for the political story?

Where is the news that affects corporate profits?

I mean, the stock market is about discounting future profits. I don't see any effect on -- in terms of U.S. profits at all.

FOSTER: Well, that's because it's not just a U.K. problem. It's a European problem. Everyone is questioning whether or not the European project will continue. And then there are now calls within France, in particular, a major economy --

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STEIN: but sir, sir, sir, sir, the U.S.' relationship with France is trivial, too, in terms of the size of the economy --

FOSTER: But look, Europe --

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STEIN: -- with Germany. But sir, sir, those countries are not going to disappear. They will still need to import whatever they import to the United States. We will still want to buy whatever we buy from them. We don't know that we're going to have a big change in the tariffs.

We are betting -- the people today were betting that basically Europe was going to be taking off to Mars. It's not going to be taking off to Mars. There will be some changes around the margins in terms of tariffs. But it's not a gigantic economic event.

ANDERSON: So you are suggesting that this is neither here nor there when it comes to Britain's position, so far as its economy and its finances are concerned going forward, correct?

STEIN: Well, Britain is a gigantic world power economically and financially. It's going to continue to be a gigantic world power economically and financially. But it's not going to be -- it's not -- doesn't have much influence on the United States one way or the other.

And I just don't see what in leaving the European Union is going to be a big change in how the world runs its business. I mean, there's no sign that the U.K. is going to start suddenly raise its tariffs gigantically. There's no sign that Europe is going to raise its tariffs gigantically.

What's going to happen that will affect corporate profits?

I don't see anything out there. I mean, it just seems to me the traders are running wild and scaring everybody.

FOSTER: A lot of people in this country -- finance is by far the biggest industry in this country. If we lost the financial sector, the city of London, that would have a huge impact on the British economy.

Do you think it's likely --

STEIN: That would have a big impact on the British economy --

FOSTER: -- European headquarters --

STEIN: -- why would they?

I mean, why would they?

Why can't they stay just as they stay -- I mean, Hong Kong is not a part of the European Union and it's a huge financial center.

So why wouldn't Britain, even if not a part of the European Union, continue to be a huge financial player?

ANDERSON: Fascinating, sir. I'm sure those who voted to leave the E.U. will be heartened to hear that, given the tumultuous reaction of the financial markets yesterday with $2 trillion not to the value of financial assets. I'm delighted to hear that you think things are OK and nothing has changed.

STEIN: We're talking about billions of effect at the most, billions on the U.S. And yet 1.5 trillion was taken off U.S. stock market values. That makes no sense at all. It's just ridiculous. And by the way, I see this all the time. I've been following this

since I was 12 years old. I'm now 71. Traders like to move markets. They like to move markets.

ANDERSON: Right. That's how they make their money. Absolutely. Stay calm and carry on then is what our guest today out of Los Angeles is telling us.

Thank you, sir.

FOSTER: Get ready for the bounceback.

STEIN: Thank you, madam.

FOSTER: What is next?

Thank you so much for joining us.

What is next, then?

Here are a few key post-Brexit events to watch out for in the days ahead.

In just a few hours, foreign ministers from the E.U.'s six founding countries, France, Germany, Italy, Belgium and the Netherlands and Luxembourg, are expected to meet in Berlin to discuss the fallout from the vote. And on Monday, Britain's Parliament returns after its recess to begin planning its exit from the E.U.

It's also likely MPs will start organizing plans for a leadership election to choose the next prime minister.

ANDERSON: Also on Monday --

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ANDERSON: -- Angela Merkel invited the leaders of France and Italy as well as the European Council president to Berlin to discuss post- Brexit plans.

Then on Tuesday, a two-day E.U. summit is scheduled to begin in Brussels. All 28 leaders, including David Cameron, will meet to discuss the U.K.'s impending divorce from the European bloc.

FOSTER: The world is adjusting to a new reality here in Europe. You will hear from leaders around the globe on Britain's historic decision to leave the E.U. -- next.

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ANDERSON: World leaders voicing concerns about Britain's historic vote to leave the European Union. But the president of the European Commission says the people's decision --

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ANDERSON: -- must be respected.

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JEAN-CLAUDE JUNCKER, PRESIDENT, EUROPEAN COMMISSION: I really regret this decision. Personally, I'm very sad about this decision. But, of course, we have to respect it.

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FOSTER: Well, U.S. president Barack Obama is similarly unhappy with this result. He says his country's alliance with Britain will remain strong, though.

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BARACK OBAMA, PRESIDENT OF THE UNITED STATES: While the U.K.'s relationship with the E.U. will change, one thing that will not change is the special relationship that exists between our two nations. That will endure. The E.U. will remain one of our indispensable partners.

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ANDERSON: Well, Russia also getting into the mix. Moscow says the vote is already causing problems close to home and for the world at large.

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DMITRY MEDVEDEV, RUSSIAN PRIME MINISTER (through translator): The oil price already fell. The value of the pound, the euro are also coming under pressure. There's very serious volatility in the commodities, the financial markets. And of course, that does not make us happy.

It is additional risk for the world economy and for our economy, which is part of the world economy.

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FOSTER: Germany is the largest country in the E.U. Now it's trying to hold everything together after Britain's exit.

ANDERSON: CNN's Atika Shubert has the view for you this morning from Berlin.

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ATIKA SHUBERT, CNN SENIOR INTERNATIONAL CORRESPONDENT: Genuine surprise and confusion here on the streets of Berlin as Germans come to grips with the fact that the U.K. has voted to leave the E.U.

Germany's chancellor, Angela Merkel, abruptly changed her plans today in order to address the nation. Take a listen.

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ANGELA MERKEL, CHANCELLOR OF GERMANY (through translator): Today represents a watershed moment for Europe and for the process of European unity. Over the coming weeks, months and years, what exactly that watershed means will depend very much on whether we, the other 27 European Union members, are willing and able to act.

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SHUBERT: Many Germans were confident that the U.K. would actually vote to remain, so confident that the "Berliner Zeitung," one of the newspapers here, actually printed this up before the results were announced, "Great Britain stays."

But of course, we know that was wrong. And instead, Germany woke up to the nightmare of Brexit.

UNIDENTIFIED FEMALE: Excuse me, but I only find the word that they are a little bit stupid. Yes, in this kind of world, you cannot stay by yourself.

UNIDENTIFIED FEMALE: I had impression that the debate as they had the discussions, were very rational, emotional, not an irrational level.

UNIDENTIFIED MALE: Maybe in a positive way because in the last few years, we have only seldom traveled to Great Britain because the pound was so expensive. I hope now the pound is low that we can get as soon as possible to Great Britain.

SHUBERT: There was, of course, immediate financial turmoil. The German index nearly plummeted 10 percent. But that's not what worries Germany. The crisis here is political.

How does Germany, the largest member of the E.U., now hold the E.U. bloc together after a devastating blow like this?

Now it's up to Germany, France and other E.U. countries to show that there is absolutely no benefit from exiting from the E.U.

Otherwise, what's to stop other eurosceptic far right movements in France, Netherlands and of course here in Germany from spearheading their own exit from the E.U.?

And this is why Germany's chancellor, Angela Merkel, will be meeting with French president Francois Hollande and her other E.U. counterparts for an emergency meeting on Monday -- Atika Shubert, CNN, Berlin. (END VIDEOTAPE)

FOSTER: Phyllis Papadavid is a research fellow in international macroeconomics at the Overseas Development Institute.

ANDERSON: And she joins us now with more on the financial fallout of the Brexit vote.

A guest we had on just a little bit earlier on said effectively keep calm and carry on. He doesn't get all of this sort of market turmoil and suggests this is a very short-term impact and that things will be fine going forward; $2 trillion knocked off the value of financial assets around the world. And he says keep calm.

Are you calm?

PHYLLIS PAPADAVID, OVERSEAS RESEARCH INSTITUTE: We're tending to take a different view at the institute. And I think one has to appreciate that we're entering into a period of protracted uncertainty.

The global economy already had so many uncertainties to deal with: lower oil prices, the upcoming U.S. election. And now this is a spanner in the works for quite a number of countries, $2 trillion wiped off of markets, half of which was in Europe, is quite serious.

And as the dust settles at the beginning of next week, it's going to be quite important to see stability, not just in Europe but for emerging markets as well that are struggling.

FOSTER: It's almost as if the E.U. finance ministers are more important, really, in terms of rather what's happening in London --

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FOSTER: -- because the U.K. needs the E.U. to survive as an economic force in order to keep trading and so does the rest of the world. So it's almost as if those emergency leaders, between the leaders -- the meetings between the leaders of France and Germany, for example, are more important right now.

PAPADAVID: Given the drop in global trade that we have seen over the past two years, trade is well below global GDP growth. Everyone needs each other. I think it's all about coordination and dialogue at the moment between the U.K. and Europe and some of the developing countries. The South African rand reached a record low yesterday against the Swiss franc. So we need to see the market become a little bit more orderly for the sake of global growth.

ANDERSON: We also talked about institutional investors hating uncertainty. Traders, of course, thrive off it. And there was certainly some short-term buying and selling yesterday. And I'm sure that we will see that dust settle.

But you have mentioned emerging economies, emerging markets. When you see the fractured nature of what is going on in Europe, when you see the markets in France and Germany, particularly, looking very, very damaged by this idea of contagion and you consider where European growth may be going forward, just explain to us what the knock-on effect is on an economy like South Africa or India or even China at this point.

PAPADAVID: So the two key linkages are what's going on in trade. So any signs that, say, we're seeing a slowing domestic economy or even that uncertainty is picking up in the U.K. and investment decisions are being postponed, that would have a knock-on effect on the exports of the U.K.'s key trading partners.

So India, for example, was -- Indian asset prices were struggling yesterday off the back of that. South Africa, again. So trade is one linkage. Any sustained rebound in the oil price or in commodity prices, as the gold price rebounds, will also see commodity exporters struggle, just when they were gaining some hope from the stabilization in oil prices.

So I would say that trade and commodity prices are the two key barometers for the emerging markets.

FOSTER: OK, Phyllis thank you very much indeed.

It is that uncertainty, our first guest dismissing it in a way. But actually markets hate the uncertainty, no matter what's going on.

ANDERSON: The nemesis of the institutional investor.

We're going to examine the political events that led to the resignation of the British prime minister. Plus CNN speaks with Nigel Farage, the leader of the U.K. Independence Party.

There he is on the right-hand side --

FOSTER: Not a part of the establishment himself.

ANDERSON: There you go.

We're taking a very short break. Viewers back after this.

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