Special Coverage: U.K. Decides To Leave European Union. Aired 5-6a ET - Part 1

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[05:00:30] MAX FOSTER, CNN ANCHOR: Welcome to our viewers in the United States and around the world. We continue our special coverage of the United Kingdom's decision to leave the E.U. I'm Max Foster.

BECKY ANDERSON, CNN ANCHOR: And I'm Becky Anderson. Now, the Brexit decision is off to a bit of a rough start here in London, at least stocks were in free fall. The pound historically weak and country's in the market for a new prime minister.

FOSTER: London Mayor Sadiq Khan urging Tom (ph) tweeting, #LondonisOpen. He says "London won't suffer from the decision noting that I want to send a clear message to Londoners, businesses and investors around the world."

ANDERSON: Well, earlier French President Francois Hollande and the U.N. Secretary General Ban Ki-moon each talked about Europe maintaining strong ties with the U.K. despite the U.K. decision.

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FRANCOIS HOLLANDE, FRENCH PRESIDENT (translator): I was very concerned about the British vote, but it is democracy. But at the same time, we need to draw all the conclusions and consequences within the framework of the European Union and the participation of the United Kingdom. We now have to organize the separation, but we have to do this the right order and following the rules which must be implemented. But we also going to maintain our relations with United Kingdom particularly concerning economics, France's relations concerning questions of migrants and refugees.

BAN KI-MOON, U.N. SECRETARY-GENERAL: United Kingdom and the European Union now will have to undertake intense discussions about the steps to follow. I trust the fact that these talks will take place in a positive and pragmatic way.

(END VIDEO CLIP)

ANDERSON: Elsewhere in Europe, foreign ministers from the six founding E.U. nations are meeting in Berlin reeling from what was a major blow to their union. There is scarcely a place that isn't feeling this decision. And CNN has report the station around the world ready to bring you the very latest as you would expect. FOSTER: Absolutely. International Diplomatic Editor, no less, with Nic Robertson is standing by for us at 10 Downing Street.

ANDERSON: That's right. But first let's bring in Atika Shubert live in Berlin as we look ahead to what is an E. U summit on Monday. And beginning to get some sense certainly in reports in German media of what Germany is suggesting is the right way to get through these, quote, "difficult divorce proceedings." What do you know at this point?

ATIKA SHUBERT, CNN SENIOR INTERNATIONAL CORRESPONDENT: Exactly. Well the Handelsblatt newspaper is a very well respected financial newspaper here has put out a report saying that the German Finance Ministry has drawn up an eight-page emergency plan for what to do when the U.K. leaves. And the key part is that Germany believes there should be a sort of associative status, that's the words in the report, for the U.K. once it leaves the E.U.

But the key is that -- that the U.K. would not be able to immediately access the E.U. single market. So it's needs to be some sort of negotiated trade agreement. The question is how is this all going to be negotiated out, especially since the U.K. has not formally put forward its request to actually leave the U.E not legally speaking.

And so what they're going to be talking about today at the foreign ministers meeting in which Germany is hosting is all of these emergency plans. How can we put a plan together agreed to by all the E.U. member nations and then pressure the U.K. into immediately applying for this leave for the E.U. because the E.U. has made it very clear they want Britain to leave the E.U. as quickly and painlessly as possible as a result of this referendum vote.

FOSTER: Nic, this document Atika is talking about is very telling, isn't it, because the one assumption with the Brexit was that Britain would still have access with that common market and they're saying it's not going to be automatic and they're saying, if it was automatic, there's a clear risk for other members stakes would be encouraged to follow Britain's example. So they will make an example of the U.K. and that's very bad news for the British business and British government.

NIC ROBERTSON, CNN INTERNATIONAL DIPLOMATIC EDITOR: It is. And the view from the British side is that the longer it takes to sort of these negotiations to go through or perhaps not jump into them immediately, Britain can perhaps get more favorable terms.

[05:05:10] But the initiative really seems to be on the side of the Europeans and certainly they can dictate the terms and certainly that was the warning at the outset, is the question already being raised there in Berlin among the for ministers according to that same newspaper, that would Britain be able to take on it's presidency of the rotating European council presidency that would -- what's going to be the Britain's role next year.

The concerns in Germany as well about the debt burden across Europe that it would have to shoulder with Britain pulling out. There are real concerns for all the nations. We he don't know yet how its would play out. It's a long way to go and I think it's important to continue to stress that.

There is an awful lot that we don't know. But the beginning contours that we're seeing here echo the warnings that we heard in the campaign leading up to the referendum itself that potentially there would be a price and Europeans would extract that price from Britain and that being controlled at a price access to those markets not immediately granted, that will be a concern.

ANDERSON: Briefly, Nic, if there is a risk the Europeans are going to play hard ball with the U.K., the U.K. is going to need a very good negotiator or negotiating team. Now, the power it seems that present no longer sits in that house behind you. Who is in charge at this point and who will lead those negotiations for Britain going forward?

ROBERTSON: Well, David Cameron is still charge. The power has ebbed away from him and flooded away in many ways with that speech standing here just yesterday. So the power would then be in the hands of the new leader of the conservative party. We don't know who that will be.

But David Cameron initially said that he would stay on to negotiate the exit from the European Union. He's conceded that position it appears with his resignation even though he was implying the resignation wouldn't come into effect until October. We've heard from Boris Johnson who is a leading contender to take over as leader of the conservative party. That there is no rush for David Cameron to leave.

We've heard it from other leading conservative figures, as well. But he's really sort of taken the position himself that that is the right course for him. He said, you know, he is not the right person to captain the country at the time. And that really seems to be that he's gone back to his earlier position that he would be the man to negotiate the exit. That is going to fall who whoever the new conservative leader appoints Theresa May also the current home secretary was in the "Remain" camp also potentially a person who could emerge as the leader of the conservative party. So much we don't know. We do have to keep stressing that.

FOSTER: What's really interesting as well, Atika, I want to ask you about this. So, Britain next year I think is must be taken up the E.U. presidency which is the an extraordinary ironic element of this. I man can they possibly take that position. If they can't, how do you unwind that?

SHUBERT: Well i guess theoretically its still possible, certainly would be very awkward. I think one thing they will be discussing today is what are the legal provisions for a situation like this because this has never happened before. This is just one of many instances of where they just don't know the answers to this. This is not something that was really anticipated.

And what Nic was saying before was absolutely right. I mean, ultimately, the E.U. here has the upper hand in negotiations. Because once that legal process is started, once that article 50 is submitted by the U.K., all the other 27 nations get together and they put together some sort of a deal. And then it's take it or leave it option. They gave it to U.K. and say "Here it is. This is what we're offering. If you don't like it, walk out."

So it's going to be really tough negotiating in the times to come and figuring out whether or not the U.K. could hold the presidency next year, is just going to be one of many awkward moments coming up.

ANDERSON: All right, Atika, thank you, and to Nic as well. The Brexit is already having an impact far beyond U.K.'s borders. The rest of Europe is wondering where the pieces will fall as this decision ripples across the continent. Eric Albert is the journalist for the French paper "Le Monde" and he joins us now.

Is the French president on Thursday, while people were voting I seem to remember who said were Britain to vote to leave the E.U. that would put the entire project in play. They did and it is, isn't it?

[05:10:03] ERIC ALBERT, JOURNALIST, LE MONDE: Yes, I mean ideally the British have just shot themselves in the foot. Fine. Yes, sovereign to do so. But the man alone (inaudible) run. So be it. Fine. But of course the consequences for Europe are extremely bad.

The first reaction in France was from Marine La Pen, the far right leader who had the poster printed saying Brexit and now France. And that's what she's dreaming with about, the presidential election in France next year. We're expecting her to do 20, 25, 30 percent possibly and she's running on this idea of leaving the E.U. It's a founding member of the E.U. with a party that is big chunk of the electorate saying we have to leave. Which is why it's very likely that Francois Hollande and Angela Merkel, all the big leader of the European Union will (inaudible) because there's no other choice otherwise opening te door to Marine Le Pen and to all the other far- right parties in Europe.

FOSTER: The counter argument to that is that Germany in particular has a big trade surface with the U.K. They're going to close off that market. France isn't close off that market.

ALBERT: On goods, you're right. I would be surprised was there not some kind of agreement on goods, on car, on wine. And there is one thing that Britain is exporting, it's services. Financial services. No countries outside of the E.U. are able to export freely into the E.U., the financial services. Not even Switzerland. Switzerland doesn't have it's -- it's called a passport to sell different (ph) products. There's no way the E.U. will give this passport to Britain. It will be for the E.U. shooting itself in the foot. And really, I can't imagine for political reasons as I just explained and for this specifically financial services reason, I can't imagine why the E.U. would be nice and kind.

ANDERSON: Yeah. Which is one of the reasons we're hearing lots of rumors falling around the city that some of the biggest banks in the city of London's financial districts are possibly looking to move as many as 25 percent of their stuff if not the entire. No, there's an agreement, its conjecture (ph) speculation and that is because, of course, there is no clarity at present nor will there be any for days, weeks, months, even years to come. And that is the problem, isn't it?

ALBERT: I tell you what. I spent the evening yesterday with a group of French managers, most of them have been in London 20, 25 years, and yet, there are lot of French leaving here and working the city. A lot of them have question marks, they don't have answers, so yes, but they might not be leaving at the end, it all sorts itself out, but they are wondering what do we do, are we moving our headquarters that (inaudible) which is from before the European Union somewhere to Dublin, to France, to Frankfurt. It's a lot of question marks.

What about all the European workers they have. Most of the big banks got 25 percent, 30 percent, 50 percent (inaudible) from the rest of the E.U. Will those people need visa? I mean it's a lot of question marks.

Of course a lot of that will be sorted, but it's going to be incredibly complicated and during that time, why would you invest. During that time why would you do any plan. And so, it's going to put everything on hold. You know, IPO and all -- anything on the markets will be on hold. That's -- they think they're going to be pretty bad for the U.K. in the short term at least.

FOSTER: This is going to leave France, Germany have the axis of power in the European Union and they have had their tensions over recent years. Do you think this is enough to bring them together or are you concerned that those tensions could boil over and actually lead to the break up of the E.U?

ALBERT: That's the challenge. And you can already see that Merkel and Hollande didn't quite react in the same way. Hollande saying we want it quick.

FOSTER: Yeah.

ALBERT: And that's really what he emphasizes it on which is, you know, speed, let's go quickly. Merkel was already ...

FOSTER: (Inaudible) anyway, does she?

ALBERT: Exactly. And the European Union doesn't operate like that.

FOSTER: Yeah.

ALBERT: So it's going to be difficult and U.K is already playing time, saying, we don't have a prime minister, we'll have to wait. And legally it's going to be really difficult to accelerate all that. So, will France and Germany really stick together? On the big principles, I would think so. But it's going to be difficult. It's not going to be easy.

ANDERSON: Last question very briefly. This was a project, the European project was put together to ensure peace and security, which we have had to all intents and purposes in Europe over the past 60 years or so of this project. It was more about peace and security than it was about prosperity. It becomes this economic project, but it was always, it was a political project. ALBERT: I think the other way around. It was the idea was to make it economy in order to bring ...

ANDERSON: Right. OK.

ALBERT: ... peace and prosperity.

ANDERSON: Fair enough. Fair enough. But in the end, the economic integration never really worked, did it. My question to you is, is this a project limping towards disaster?

[05:15:07] ALBERT: I think we are confusing two things. The European Union which more or less actually kind of worked and the Eurozone which has been a pretty bad result in the last 10 years, 15 years now. And that's really hard to see how it is going to tackle that. Because, I mean, we saw Germany not giving away at all to Greece in the last few years and I can't imagine Germany changing.

So the eurozone is a real key problem and of course the two (inaudible) confused because that is the core of the eurozone -- of the E.U., sorry. You see I confuse it as well. But that's true. What the British answered was something about immigration and sovereignty, but is there a problem with the E.U.? Of course a real big problem. Is that (inaudible) with that problem, no one has it.

ANDERSON: Fascinating. Eric, thank you very much indeed.

FOSTER: So many unknowns. I mean as we're saying it will keep us in work, isn't it, for the next few years if we're going to allowed.

ALBERT: We thrive on bad news and plenty of bad news now.

FOSTER: Yes. Anyway, thank you very much indeed.

ANDERSON: Good morning, everyone. Sun shiny out there.

FOSTER: You want to talk about the weather.

ANDERSON: Right. Also major economic fallout from this historic vote. Up next, the stock market may have following the "leave" vote. More investors could see in the new trading ...

FOSTER: It's got to be something positive there.

ANDERSON: Let's hope so.

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(BEGIN VIDEO CLIP)

DMITRY MEDVEDEV, RUSSIAN PRIME MINISTER (translator): The result of the referendum has consequences not only for the English and the European Union, but for the whole world economy because the oil price already fell, the value of the pound, Euro are also coming under pressure.

(END VIDEO CLIP)

FOSTER: Indeed global investors are looking towards Monday trading really after Friday's vote plunged the markets in to chaos.

ANDERSON: Yeah, it's absolutely mayhem. Alison Kosik breaks down the numbers for us and suggests what might happen next.

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ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Britain has decided no more E.U. And the fallout is staggering. Global markets reacted with a selling frenzy. Asian markets tanked on the news. Japan's benchmark index hit especially hard down 8 percent. Stocks in London fell about 3 percent. Surprisingly, stocks there still up for the week.

[05:20:04] The damage was much worse elsewhere in Europe. The German DAX plunging 7 percent, its worst day since 2008. Here in the U.S., the DOW and S&P 500 dropped about 3.5 percent. The NASDAQ fell more than 4 percent. It was the worst day since last august.

But this may be the most stunning chart of the day. The British pound versus the U.S. dollar, the pound plummeting to the lowest level, a level we haven't seen since 1985. Here is the problem. Markets hate uncertainty. This yes vote caught markets off guard. Investors are running scared dumping money into gold and bonds and now there are a lot of questions about what this means for businesses, the U.K. and the global economy. Now the investors have the weekend to think it over. Was this frenzied selling an overreaction or just the beginning? Alison Kosik, CNN, New York.

(END VIDEO CLIP)

ANDERSON: The question then, is this just the beginning. Vicky Pryce, the Chief Economic Adviser at the Center for Economics and Business Research joining us now. Do you have an answer? Because nobody else does.

FOSTER: Go on. Give us an answer.

VICKY PRYCE, CHIEF ECONOMIC ADVISER, CENTER FOR ECONOMICS AND BUSINESS RESEARCH: Well, it's not going to be very good. Certainly not in the short term and probably not in the long term either. Of course much will depend on what type of trade negotiation we enter into and finally agree on.

In other words, if there is freedom of movement for goods and services which of course comes with freedom of movement of people, then more or less where we were before with a bit of luck and the prospects will be reasonably rosy. Or not as good as, would have been, but reasonably rosy.

If not, then I think we'll be seeing some serious impact on U.K. economy lasting for quite some time. And certainly foreign direct investment not in the short term, of course, we got these little problems still to come. The fact sterling of course is falling or has fallen. This will lead immediately to inflation being slightly higher. Of course that's not a very bad thing in the long term, but actually will mean more costs for consumer, more costs for importers. We rely hugely on importing manufacturing. It goes and then going to the supply chain.

So, it's not going to good for production and at the moment because everyone is worried about the type of relationship we'll have with E.U. and whether indeed they're going to be quite tough on, even exporting of goods. People are now talking about moving production processes elsewhere. That's beginning to happen.

FOSTER: Well biggest vulnerability is the city of London which is our biggest earner in this country. We've just been hearing from a French correspondent saying no way the French will allow freedom of movement of financial services. They might allow the goods, but not the financial services. And that will be a disaster for the British government.

PRYCE: Well it will be. And of course this is possible thing because under E.U. rules, if you are a member, you can set up headquarters anywhere and then you can sell your services across Europe without any problems. Of course that won't happen if we're not members. So at least we don't get some bilateral agreements with each country, we're allowed to do that like Switzerland is doing, quite hard work to get to that point and of course we're already hearing about people, you know, there's banks possibly moving headquarters somewhere else like Dublin or Frankfurt and also moving people in large numbers elsewhere.

FOSTER: Could they not do a deal with Dublin, so there is a sort of proxy headquarters there?

PRYCE: Yeah. So people have been talking to you just sort of (inaudible) somewhere.

FOSTER: Yes.

(CROSSTALK)

PRYCE: Well, apparently it's quite hard. And also of course he's not fantastically useful in terms of making sure that you have the ability to sell across to cut your costs. So if you have lots o things done in different places, you still going to have some accounting somewhere and you could have your other people somewhere else. There will be a certain element of that without any doubt, but I think when we're talking about the financial services, that can be done that way. I think you've got a point. Although, people have already raised objections to the -- because of the difficulties in some way of achieving that.

It is really the rest is -- what -- the indirect impact of the city of Londoners and all the operations of the financial sector. So we're talking about the lawyers, the accountants, all around it, especially services, from that I.T.

And in addition to the financial sector, of course, the whole digital market. I mean people here depend crucially for the city to really flourish on free movement of people, all the skills that are coming in from everywhere. So the impact of the financial sector and particularly what it does to London and it enhances it, you start across the U.K. and that will be lost.

ANDERSON: Maybe people were considering why they were voting, that may be one reason why London has voted to remain, but a small pocket of remain inside this huge wave of out which is what most of England voted for. What does this decision mean for Europe going forward? Because Angela Merkel has a huge job on her hands now, doesn't she. Effectively she's calling the shots. She's going to have to get over there and she's going to have to make sure that the French buy what she wants to do next.

[05:25:02] PRYCE: Absolutely. But first thing to note of course is that the European markets did much worse than the U.K. markets.

ANDERSON: Yeah, of course.

PRYCE: The U.K. markets got help from the Bank of England which came out and said we have this 250 billion pounds and we just can spend out. Of course that's a costs society of doing that. We must not forget this isn't free money. This is money that we could have somehow rather do account for.

But it's really impact on the E.U. itself and what it will mean in terms of the domino effect. And it's just whether there might be refer in another country -- other countries which may want to leave or if they have very good arrangements with the U.K. which others may want to also emulate and therefore the break up of the E.U. as we know it and the eurozone in particular.

But I think it is the impact of any financial fallout as we just talking about the financial sector in the U.K., to other countries in Europe because what you've start looking at is, are there some weak links, there are, Italy, of course Greece, Spain, the financial sector in trouble. Is there going to be some sort of contagion taking place where markets will start focusing again on those weak currencies and those -- sorry these weak countries, and say actually it's unsustainable on what we got them and we need to rethink the entire makeup if you like of the E.U. And Merkel will have some difficulty controlling that if the markets remain huge as they are now.

ANDERSON: Thank you.

FOSTER: Thank you. It's absolutely great analysis.

Will this historic vote inspire other countries to leave the European Union?

ANDERSON: That's what -- just been discussing. Up next, the possible Brexit trickle down effect for you. More to come.

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[05:30:14] FOSTER: Welcome back to you, our viewers in the United States and around the world. We continue our coverage to the U.K's vote to leave the European Union. I'm Max Foster. ANDERSON: And I'm Becky Anderson, here in London. The people had certainly have spoken, but their message hasn't been well received so far.

Germany's finance ministry has drawn up plans to negotiate Britain's exit from the E.U. And they say access to the E.U's single market will be a major point of contention going forward. World markets already stumbled badly in the immediate reaction to the decision.

FOSTER: Foreign ministers from the E.U's six founding nations are all meeting in Berlin as we speak. They're expected to hold a press conference in the next hour. We'll bring that to you. It's one of the E.U's first major statements since the Brexit became official.

ANDERSON: But of course nobody knows exactly just how things will go from here with what's known as Brexit, Britain's exit from the E.U. But here's what we do know at this point.

FOSTER: Outgoing Prime Minister David Cameron says his successor will need to trigger what's known as Article 50 of the Lisbon Treaty.

ANDERSON: That gives the 27 other E.U. countries two years to come up with an exit deal. The U.K. will not take part in those talks.

FOSTER: All right, if there is no agreement after two years, the E.U. countries can vote to go into overtime or not. And if there is no unanimous decision, the U.K is out of the E.U. with no deal at all.

ANDERSON: So it's already clear.

FOSTER: We'll try to help.

ANDERSON: How difficult things are in Britain. And therein lies the issue. There is no clarity.

Right now the U.K's biggest challenge may be finding a way to come back together. But that may not be so easy with nearly half of the voters on Thursday casting ballots to remain in the E.U.

FOSTER: CNN's Nick Glass has a look at the journey that led to the Brexit and how the U.K. might heal its internal divide.

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NICK GLASS, CNN CORRESPONDENT: So, after 43 long years, the restlessness has found a voice. Britain has turned its back on Europe. A seismic decision, but a vote that could hardly have been more divisive.

The "Remain" campaign at blue took Scotland, Northern Ireland and London. But the rest of the country went red and voted to "Leave", a map then of stark division.

We call it the United Kingdom, but after this, how you united is it. Britain split, those who see themselves as British, those who see themselves as Europeans. Britain joined the European Union in 1973 when over just eight other members.

The conservative Prime Minister Edward Heath signed the document. Within two years, the new Labour government was asking voters to think again, should Britain be in or out.

Throughout the 43 years, the relationship has been intermittently fractious. Britain gained economically, but quarreled over money and subsidies not at least under the leadership of another conservative Prime Minister Margaret Thatcher.

In 1992, Britain stayed in the club but declined to join the common currency, the Euro.

DAVID CAMERON, BRITISH PRIME MINISTER: It is time for the British people to have their say. It is time for us to settle this question about Britain and Euro.

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