Finance
insiders fear Brexit ‘leap in the dark’
POLITICO’s
inaugural Financial Caucus is clear the City of London would be
damaged by Brexit.
By VINCE CHADWICK
5/3/16, 5:20 PM CET
This story is part
of a POLITICO special report on Brexit and the City: What a U.K. exit
from the European Union would mean for the Continent’s financial
hub.
The Brexit
referendum is too close to call and there is a real possibility a
rogue event in the next seven weeks could tip Britain out of the
European Union.
That’s according
to POLITICO’s Financial Caucus — a pulse-taking of an elite group
of 55 leading industry figures, policymakers, economists and advisers
— more than half of whom said the June 23 vote is too close to
call.
Participants in the
Caucus include former Director-General of the World Trade
Organization Pascal Lamy, economist and former Italian Prime Minister
Mario Monti, CEO of UBS Sergio Ermotti, as well as senior European
Commission and Council staff and ambassadors, all of whom contributed
on condition that their views would remain anonymous.
The vast majority of
participants thought Brexit would be negative, with 91 percent saying
it would weaken the City of London and 85 percent concluding that
growth would slow across the Continent as a whole, including in the
U.K.
“It’s on a knife
edge. External events — economic, political — between now and
June 23 could be a decisive factor,” said one.
However, 41 percent
of participants thought British voters would elect to stay in. “They
will do their numbers,” said one, while another thought “just
like in the Scottish referendum, Project Fear will in the end win the
day.”
Short-term
uncertainty is the biggest concern for the group, nearly 40 percent
of whom ranked this as the biggest challenge facing the finance
industry across Europe in the event of a Brexit. Thirty percent
placed concerns about losing access to “passporting” — the
mechanism that allows firms to access the single market — as the
biggest challenge.
And they say
continental Europe is ready to pounce.
“Euro area
countries will try to repatriate some euro business,” one warned,
while another said that “incentives would be offered by Frankfurt
and Paris to draw part of the financial community out of London.”
Sixty-four percent
nominated Frankfurt as the financial center most likely to benefit
from Brexit, followed by 11 percent who chose Luxembourg, 9 percent
Paris, and 7 percentDublin. The European Central Bank headquarters,
“a financial services culture, including human resources,” and
more widespread use of English than in Paris could give the German
city the edge, one participant said, but another warned it is “wrong
to assume that U.K. financial services would necessarily go elsewhere
in Europe.”
“We might see a
move towards Singapore, Hong Kong or New York,” one Caucus member
said, as another cautioned that “Frankfurt and Paris might not have
the capacity to absorb the delocalization of financial services.”
London’s financial
district has become a key battleground in the referendum campaign as
both sides try to position the British economy in general and
financial services in particular as central to their case.
The Remain campaign
points to an open letter in February from 200 business leaders
opposing Brexit and an April 18 report from the U.K. Treasury, which
found every family in Britain would be worse off by up to £5,200 a
year outside the EU.
Leave advocates cite
a rival, pro-Brexit letter from small businesses, and dismiss
concerns about the economic uncertainty Britain would face outside
the EU as “Project Fear.”
The Caucus showed
Remain’s rhetoric could be winning. “Voting [to leave] would be a
jump in the dark,” one participant said, echoing Prime Minister
David Cameron’s warning in late February when he returned from
Brussels to tell the House of Commons a vote to Leave the EU amounted
to “risk, uncertainty and a leap in the dark that could hurt
working people in our country for years to come.”
With the latest
polls showing the referendum outcome in the balance, the U.S.
President Barack Obama’s intervention in London last month — he
warned Britain outside the EU would go to the “back of the queue”
in trade negotiations with the U.S. — appears to have assuaged more
than just Cameron’s aides. Seventy-two percent of participants
ranked Obama’s handling of the U.K. referendum debate either good
or very good.
Forty-four percent
were also positive about Bank of England Governor Mark Carney’s
intervention — he warned the City’s place as Europe’s leading
financial services hub could be hurt by Brexit — while 42 percent
said his intervention was “average.”
Participants took a
dim view of Boris Johnson, the pro-Brexit mayor of London, with more
than three-quarters labeling his contribution poor or very poor.
“In the week
before the [June 23] vote, I believe the majority of U.K. citizens
will take a very sober, thoughtful approach in analyzing the negative
repercussions of leaving the EU and conclude it would be folly to
vote for Brexit,” one participant said.
“The British
people will realize the dominance of all the negative effects,”
another summed up. “And — more important — the British don’t
like to play the tail risk.”
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