Unless you’ve been living off the coast on a remote Island, you’ve probably heard all about the EU referendum and the ‘Brexit’, and we can almost guarantee you’ve also read the horror stories associated with the potentiality of such an event. If that wasn’t bad enough, you’re now receiving leaflets through your door from the Government, and just about every bank and Finance institute in the country wants you to vote in the ‘remain’ camp, after all, isn’t it better to be safe than sorry?
The truth is, not a single individual on this planet whether they have a crystal ball or not, can tell you with 100% certainty what a ‘Brexit’ will do for the UK. The situation is far more complex than filing for divorce. We are dealing with over 4 decades of Social, political and economic agreements that are so embedded into our society that waving goodbye to the EU isn’t only impossible, it’s downright naïve.
So what will a post ‘Brexit’ look like? Let’s take a look at what we do know so far and exam each factor with as little fear mongering tactics as possible, I think we can all agree there’s plenty of that elsewhere.
Will we survive without the EU?
Yes – and no, there are other countries who are not part of the EU but have bilateral agreements with the EU. But this does not mean countries like Switzerland pick and choose how they conduct business with the EU. Switzerland are not part of the EU but have bilateral trade agreements with the EU and must therefore comply with the free movement of EU migrants.
In February 2014, the Swiss voted for a referendum to introduce quotas on migrants living in Switzerland which if implemented, would violate bilateral agreements between Switzerland and the EU.
The belief that we could escape EU law if we voted to leave the EU is incredibly naïve, 40% of UK trade is with the EU and in the event we left the EU, we would have to make up that 40% trade elsewhere or continue to trade with the EU and most likely accept free movement of persons from other EU nations (bilateral agreements).
The UK must therefore continue to trade with the EU in order to maintain a stable economy or make up the 40% trade elsewhere, the likelihood – similarly to Switzerland, is that the UK must accept agreements for free movement of EU migrants. It’s worth noting that article 50 states that a minimum of a 2 year cooling off period will take affect after a member leaves the EU before new agreements are finalised between the two parties. This would allow the UK time to build trade relations elsewhere or restructure its current agreements with the EU.
Never in history has article 50 been utilised and the odds of the UK reformatting its agreements with the EU within a 2-year period are incredibly unlikely and will most likely take much longer to renegotiate. That being said, the concern that the UK will be left in turmoil overnight is incredibly over-exaggerated.
What will happen to the Pound?
There are a number of Economic and Political factors that influence the Pound strength and it’s safe to say political uncertainty in relation to the EU referendum will impact it. Investors are looking to invest in a stable currency and what could be more uncertain than the first country ever to leave the EU? We have seen since December 2015 GBP/EUR exchange rates drop from 1.40 to 1.25 and floating around these levels consistently in recent weeks.
UBS made the comment that GBP would fall to parity with the Euro following a ‘Brexit’, fantastic news for exporters but bad news for the holiday maker travelling to the continent. But really, is this likely to happen given that the UK is currently the second biggest contributor to the EU? It’s pretty safe to say that the Eurozone will be equally stung by the UK’s exit with the likes of Greece and Spain crippled at the knees.
All of these arguments regardless - only deal with the short term and do not look at the long term implications of the UK leaving, which currently no one knows.
Given that we are the second biggest contributor to the EU, given that over 3 million EU migrants are living in the UK and given that the UK has a minimum 2-year period to negotiate new deals with the EU, it’s difficult to envisage the UK being that much worse off assuming new agreements can be made, it certainly is in the EU’s Interest as well to renegotiate deals with the UK and keep a thriving relationship going.
This does raise a number of questions over the future stability of the EU and could open the door to other EU countries calling for a referendum. With the likes of Greece, Spain and Italy struggling to reach its financial promises could this be the start of an EU collapse?
This article was provided by currencies.co.uk – Home of Foreign Currency Direct.