4 May 2016

The world view on the EU referendum

It is one of the most divisive, passionately fought issues in UK politics right now. And whatever the result of the EU referendum, it will have significant geopolitical consequences. So with its neutral hat on, economia asked Nick Martindale to seek dispassionate views from the overseas business community about Britain’s membership of the EU. Their response was almost unanimous: a vote to remain would be the best outcome for the UK

Olivier Boutellis-Taft, CEO, Federation of European Accountants

It would be a loss-loss for both sides if the UK leaves, and I don’t think that everybody on the continent realises how much they would lose. A lot of people will be affected too, including British people working for the institutions in Brussels.

Economically, in the short term I see the pound and markets going down. I wouldn’t be surprised though if things slightly recover and we then enter a long period of uncertainty and protracted negotiations on the political and economic terms of the exit deal.

We’re probably looking at something like a minimum of two years’ discussion and a lot can happen in that time. Nobody wants to talk about this right now but, even without this issue, the economy on the continent or globally is not that strong, so if the situation continues to decline you could imagine that some people would call for a second vote.

Whatever the outcome, strong links will remain

Zsolt Darvas

Politically, one thing that has already happened is the destruction of a lot of political goodwill and trust among leaders and government officials. I’m always amazed when I hear some of my UK colleagues explaining that this whole issue is to bridge an internal issue for the Tories, but this is also how it has been seen by a number of leaders here. This is something that is likely to stick with us for quite some time.

Zsolt Darvas, senior fellow at Brussels-based think tank Bruegel

Whatever the outcome, strong links will remain, even if Brexit would lead to some reduction in economic interconnectedness. If the UK leaves, an exit deal will have to be negotiated. It would be in the interests of both the UK and the EU to have a deal which largely preserves the free flow of goods, services and capital. To get access to the EU single market, the UK will have to comply with EU regulations.

Exit deal negotiations, as well as the UK’s negotiations with non-EU countries to replace existing EU-signed treaties, would be likely to take several years and cause uncertainty. Yet while both the UK and EU economies would suffer in the short term, there would be no big trauma.

The political consequences of Brexit would be more important than its economic one. If the “leave” vote wins overall but “remain” wins in Scotland or Northern Ireland, then this could stoke separatist tensions in these regions. On the continent, anti-EU political forces could gain ground, making it more difficult for the EU to find answers to common problems.

Douglas Webber, professor of political science, INSEAD

If you push me for a forecast I would say, based on having undertaken a brief comparison of the referendum in 1975 and the current one, that the Brexiteers will win narrowly.

The Conservative Party in 1975 was almost united in favour of staying in; this time it is split. The business community was also almost unanimous in supporting staying in in 1975 but now is less so. And the mass circulation tabloid newspapers were overwhelmingly in favour of EU membership in 1975; today for the most part they are hostile.

The implications of a Brexit are overwhelmingly negative. It would likely lead to the break-up of the UK, because one would anticipate that the majority in Scotland would vote to stay in the EU and this will certainly increase the pressure for a new referendum in Scotland. It also raises questions about the status of Northern Ireland.

On the economic front, it’s naïve of the Brexiteers to argue that Britain will have the same sort of access to the rest of the European market as it does currently. Whatever new access terms will be negotiated are never going to be better.

A Brexit would give a huge boost to all the anti-European or populist parties around Europe who will push for referenda in their own countries. There is a lot at stake.

Fabian Zuleeg, CEO and chief economist, European Policy Centre

Leaving would be very damaging for the UK. What some people have stipulated regarding trade – that a trade deficit is a sign of strength – seems to be, from an economic perspective, a very strange one.

The reality is that the UK would face a huge task in redefining its trading relationship with a large number of countries around the world, and that would take an enormous amount of political capital. The idea that the EU would offer the UK preferential access to the single market is fanciful.

Turnout on the “leave” side is likely to be higher

Fabian Zuleeg

Economically the impact would be felt in two areas. One is in trade and services, on which the UK is becoming more dependent, and the second is on long-term investments, because companies based in the UK by and large produce for the European market, not the UK alone.

For the EU it would certainly be a negative signal, both internally and externally, but it would not break it.

It is too early to call which way it will go. Referenda always have a momentum and that can take hold in the last days or so of the campaign. The other issue is how far external events impact on it, particularly the refugee and the eurozone issue. In the end the key variable is participation. Turnout on the “leave” side is likely to be higher.

Olivier Desbarres, independent emerging markets and G10 economist and strategist

The level of uncertainty that is surrounding this referendum is a major factor. What will “out” look like? We can’t exactly be sure because there is no precedent, but it’s rather unlikely that Britain would exit the EU overnight.

Key British trading partners in Asia and the Middle East are unlikely to see the Brexit concept as a major concern but for countries like China, which invests heavily in the UK and London property market, staying in the EU equates to more certainty.

The risk is that this level of uncertainty could lead economies across the world to put off investing heavily in Britain for a few months to see what the state of affairs is after the vote. From a US perspective, Brexit would be likely to weaken the perception of the UK’s authority within Europe.

Closer to home, Brexit may lead to other countries questioning whether joining the EU (or the euro for countries such as Poland and Hungary) or even staying in the EU is their best choice.

Aftab Malhotra, chair of TLA India and founder of GrowthEnabler

India is the top investor in the UK among emerging markets, with over $14bn invested since 2003, and the third-largest source of foreign direct investment into the UK after France and the US. India’s recent start-up revolution has also become a huge economic growth catalyst for its 600 million young Millennials to start businesses; many of which will look to the UK as their route into Europe.

The uncertainty created in the aftermath of a vote for Brexit, along with the prospect of India’s companies losing a gateway to Europe, will cause them to look elsewhere. We hear concerns about a Brexit all of the time on the ground and our prime minister, Narendra Modi, alluded to these when he visited in November 2015.

The UK has an unrivalled position at the heart of the EU, as well as historical relationships with advanced economies such as Canada and the US and emerging markets such as India and South Africa. It would be a mistake to risk all of this with a Brexit vote, which even the most vocal advocates will admit is a leap into the unknown.

Nick Wilson, chairman of the Qatar Investment Fund

If the UK votes to leave the EU I would expect several things. The City’s dominance as a financial centre would be questioned and other centres such as Hong Kong and Singapore would become relatively more attractive.

In addition, emerging financial hubs such as Dubai, Abu Dhabi and Doha in the Middle East would be given an opportunity to establish themselves.

In the longer term, regulatory differences between the EU and UK will be more pronounced

Nick Wilson

The inevitable instability that would arise in the EU, not to mention a potential domino effect of other countries leaving or renegotiating their terms, might lead to investors looking further afield for their returns. To many international investors, the EU already seems in perpetual crisis.
In the short term, investment decisions will be delayed and confidence in Europe will reduce.

In the longer term, regulatory differences between the EU and UK will be more pronounced. We could see a slow erosion of London as a pre-eminent financial centre and investment destination. Investors will want to mitigate risk of a severe rupture with the EU by placing assets elsewhere, something we certainly heard about during the Greek debt crisis last year.

Professor Dr Maurits van Rooijen, CEO, London School of Business and Finance

Leaving the EU will weaken the UK as a trading nation and an inevitable consequence is that at least Scotland, and possibly later Wales too, will see this as a ticket for independence. In practice the exit could potentially only end up applying to England.

An economically weakened England means significant job losses. Most UK corporations operate internationally and in the case of a Brexit quite naturally will want to shift at least some of their business back into EU territory. Paris, Amsterdam, Dublin and possibly even Edinburgh stand to gain.

The size and speed of the social impact of a Brexit depends on whether the impact can be restricted to England alone. If it can, perhaps unemployment will rise in the order of single digit percent points.

The biggest worry of business or governments is what impact Brexit might have on the EU. In the worst case scenario, a Brexit could trigger an economic avalanche and affect the prosperity of a huge part of the world population.

Karel Lannoo, CEO, Centre for European Policy Studies

Whatever the clauses of the deal reached in Brussels in February, it has propelled David Cameron and many others with him to start a strong campaign in favour of the EU; something we have not heard any British prime minister do for the last 25 years.

The advantage of the referendum, if positive, is that the case will settle the issue within the British political system for the next generation, and that policymakers in other EU member states can expect clearer British positions in favour, on all forms of EU action.

In the longer run, it will strengthen again the interconnectedness between Britain and the European continent, something which has been a fact for the last 1,000 years, for the benefit of both.

A Brexit will unleash a totally different reaction, still very difficult to predict, but it will most likely not stop with Britain. The UK leaving would change the EU’s balance of power, and could change the terms of reference for other member states.

Glenn Vaughan, chief executive, The British Chamber of Commerce in Belgium

As far as we are concerned, the agreement secured by the prime minister works for the UK and the rest of the EU. A British vote to leave would create a prolonged period of uncertainty and fewer opportunities in the medium term, which would be bad for the UK, bad for Europe and bad for business.

A British exit could be a harbinger of worse to come for the Union.

Glenn Vaughan

We’re also on the inside track in Brussels. Our members tell us that the EU is making good progress on the issues that matter to British business, such as the single market, trade, reducing red tape and the enforcement of existing EU law. Overwhelmingly, our members believe that the impact of a Brexit would be negative.

But the outcome of the referendum is not just important for the UK; it is also critically important for the future of the EU. The UK makes a major contribution to the EU, helping shape it into a more competitive Europe and a truly global player. A British exit could be a harbinger of worse to come for the Union.

Luca Visentini, general secretary, European Trade Union Confederation

In common with our British affiliate the TUC, we believe EU membership is beneficial for working people in the UK and that millions could find themselves worse off if Britain votes to leave, although we also want to ensure that the British deal does not create a rash of legal exceptions and restrictions across Europe.

Legislation enforcing basic rights such as paid annual leave, limits on working time, equal pay, parental leave, workplace safety and fair treatment for part-time and agency workers comes from Europe. There is no guarantee that these rights will be maintained in national law by the current British government.

Brexit would not only threaten rights at work. A growing number of research studies warn it would also put hundreds of thousands of jobs in the UK at risk, and provoke a drop in GDP, consumer spending and the value of sterling.

At the same time, it would weaken the EU economically and politically, undermining the interests of workers across Europe.

Nick Martindale


Related links

UK better off out of Europe, economists say

EU referendum causing uncertainty on AIM market

EU referendum uncertainty drags business confidence down to four year low

OECD warns British exit will put a tax on UK households