The United Kingdom's day of reckoning has arrived -- and possibly the European Union's, as well.
British voters are heading to the polls Thursday to cast their ballots in a historic referendum on whether to keep the U.K. in the EU. Although polls on the eve of the vote showed people leaning toward staying in the international organization, the race is expected to go down to the wire.
Much is riding on the outcome. The U.K. is the second-largest economy in the EU, and experts fear its withdrawal from the 28-country block would hit financial markets. Over the longer term, a so-called Brexit also could destabilize the EU, causing global political and economic turmoil. Here's what the vote is about:
What are people in Britain voting on?
The referendum asks voters a simple, but enormously weighty, question. "Should the United Kingdom remain a member of the European Union or leave the European Union?"
People can choose one of two possible responses: "Remain a member of the European Union" or "Leave the European Union." In practice, however, the issue is historically complex and highly charged.
The U.K. joined the European Economic Community in 1973, 16 years after the so-called Common Market was born. The EU was formally created in 1993 after the Maastricht Treaty was signed. (Six years later, Brits voted to keep the pound and stay out of the eurozone, the currency union that today includes 19 of the 28 nations in the EU.)
Since then, it has become clear that while the idea of a more closely integrated Europe may be a conceptually sound way to emerge from the ashes of World War II and deter the bloody conflicts that had afflicted the continent for centuries, reality is trickier. Bringing the laudable animating vision behind the EU to life has proved difficult, especially in balancing national politics and policies with transnational goals.
Why is the U.K. considering a Brexit?
To varying degrees, Brits have been debating their membership in the EU ever since the U.K. joined the union in the early 1970s. But the more immediate reason for the vote is that Prime Minister David Cameron, bowing to pressure from his own Conservative party and the right-wing U.K. Independence Party, promised to hold a Brexit referendum in the run-up to his 2015 reelection campaign.
The issue acquired more urgency following the 2008 financial crisis, which slammed most EU economies, and the recent surge of mostly African and Middle Eastern immigrants to the U.K. and other European countries.
Brexit supporters say EU membership results in excessive, costly regulations for U.K. businesses. Britain contributes a total of roughly $22 billion a year to the EU (excluding a rebate that brings the total to $16 billion), or just under 13 percent of the union's budget (Germany contributes the biggest chunk at 21 percent.) In return, the U.K. gets some $10 billion a year, which goes to support things like farming and the private sector.
Opponents of immigration also object to the EU's emphasis on allowing people within the bloc to move freely, meaning without a visa, among member states.
In Britain, advocates of staying in the EU say membership eases trade with Europe and expands the U.K.'s labor pool, which boosts economic growth. Belonging to the EU also amplifies Britain's political and economic clout, they say.
What effect is the Brexit vote having on the U.S. and global economy?
Brexit fears are roiling U.S. and global financial markets, weighing on stocks around the world and driving investors to pile into "safe haven" assets such as Treasury bills, German bonds, gold and cold, hard cash.
The reason for that is two-fold. First, no country has ever left the EU, so the potential impact of a Brexit is murky. In the short-term, the damage to the British economy could be severe. The Institute of International Finance, a trade group representing large financial firms, predicts that a vote in favor of leaving would push the U.K. into recession as early as this year.
Although the direct economic links between the U.S. and the U.K. are modest, any damage to Britain's economy could in time spread to the EU. Such financial contagion could trigger even more panic about the European economy than the Greek debt crisis did in 2010-11. That would likely weigh on U.S. stock prices and strengthen the dollar, hurting U.S. exports and slowing economic growth.
What do investors need to know?
For some investors, of course, such market volatility represents an opportunity. That could mean betting that stocks will rebound if U.K. voters decide to stay in the EU or, in the case of famed hedge fund manager George Soros, buying gold on grounds that the cracks in the political union are irreparable.
But for the typical investor, the question is less how either to avoid losses or make a quick buck -- the type of bet that investment pros generally advise against -- than what impact a Brexit would have on the U.S. and global economy.
On that score, a U.K. vote to leave the EU would almost certainly cause global financial markets to slump, although for how long is unclear. While the prospects of a Brexit are rising, investors still aren't currently "pricing in" that outcome, according to analysts. That could augur a sharper downturn in stocks.
Would a Brexit destabilize the EU?
It's hard to say, but possibly. The growing political power of nationalist and extremist parties across Europe following the 2008 meltdown has fueled mounting skepticism in some quarters about the merits of European integration. Surging immigration and a rash of terrorist attacks in places like France and Belgium have galvanized this opposition, while also empowering separatist movements across the Continent.
A withdrawal by the U.K., the EU's second-largest economy, would energize such Euro-skeptics. A Brexit could also potentially provide a blueprint for other countries to beat their own retreat from the union in the years to come.
As a forum for mediating disputes and coordinating a response to common problems, the EU requires members to relinquish a measure of autonomy. Emboldened by Britain's departure, however, and frustrated by the EU's inability to cope with festering social and economic issues, more Europeans may decide that the costs of membership outweigh the gains.
Alternatively, a Brexit could spur remaining EU members to iron out key issues. Rid of a country that was never fully committed to the European project, those countries could push for tighter integration.
How would the U.K. fare outside the EU?
Opinion is divided on that question. Prime Minister David Cameron has warned that exiting the EU would devastate the British economy, characterizing such a move as a "leap in the dark." His government predicts the U.K. would plunge into a year-long recession and lose 500,000 jobs.
Numerous experts say leaving the union would do everything from undermine the competitiveness of British products in Europe, the U.K.'s biggest trading partner, to force million of farmers off the land as they lose access to EU subsidies. London, home to roughly half of the world's biggest financial services companies, could also lose its status as Europe's most important banking hub.
But pro-Brexit forces, such as former London Mayor Boris Johnson, say the long-term impact would be much more modest, pointing to wealthy countries such as Norway and Switzerland that function well outside the EU. More broadly, such critics argue that leaving the EU would unshackle Britain from what they see as a sinking ship, while relieving consumers and business of the regulatory and other costs of belonging to the union.
Underlying those concerns is longstanding resentment about giving up British sovereignty to participate in what critics disparage as a failed political and economic experiment.
If British voters decide to leave the EU, how long would it take?
If the "leave" camp triumphs, Cameron has said he would immediately notify the EU of Britain's intent to exit the union. Under EU rules, that would start a two-year countdown until the U.K.'s final withdrawal.
When will we know the result of the vote?
Polls in the U.K. will be open Thursday from 7 a.m. to 10 p.m. BST. The process of tallying the votes will start as soon as polls close, and analysts expect results to start trickling out within a few hours. The final tally should be apparent by early the next day, with U.K. officials expected to make a formal announcement on Friday.