UK busi­nesses are ready to fight to stay in the EU

The Pak Banker - - OPINION - Mark Gil­bert

THE de­bate on whether Bri­tain should re­main a mem­ber of the Euro­pean Union is heat­ing up, with Bri­tish book­maker Lad­brokes pre­dict­ing June as the most likely month for Prime Min­is­ter David Cameron to hold his promised ref­er­en­dum. The good news for proEuro­peans is that busi­ness lead­ers have learned the les­son from Scot­land's near-miss in­de­pen­dence vote. The bad news for ev­ery­one is that the cam­paign­ing is likely to turn nasty, just as it did in the run-up to that 2014 Scot­tish plebiscite.

Busi­ness lead­ers were late to weigh in on the fi­nan­cial dan­gers of Scot­land vot­ing to se­cede from the U.K.; the 10 per­cent­age-point mar­gin by which the lib­er­a­tionists even­tu­ally lost fails to cap­ture the ris­ing panic in the days ahead of the vote as polls sug­gested the race was neck-and-neck. So the news that Bank of Amer­ica, Gold­man Sachs, JPMor­gan and Mor­gan Stan­ley are all do­nat­ing money to the group cam­paign­ing to keep Bri­tain in the EU is ev­i­dence that busi­ness com­mu­nity is awake to the risk of "Brexit" -- Bri­tain ex­it­ing the EU.

Econ­o­mists are al­ready say­ing that the un­pre­dictabil­ity of the ref­er­en­dum gives the Bank of Eng­land ad­di­tional rea­sons not to raise in­ter­est rates, and has con­trib­uted to the pound's 3.5 per­cent drop against the dol­lar this year. Mike Ash­ley, a fund man­ager at Pimco, es­ti­mates that the un­cer­tainty fol­low­ing a vote to quit the EU could wipe as much as 1.5 per­cent off gross do­mes­tic prod­uct in the fol­low­ing 12 months. Credit Suisse reck­ons the dam­age to GDP could rise to as much as 2 per­cent in the af­ter­math: We think that would mean a sharp fall in ster­ling and the price of U.K. as­sets, in­clud­ing eq­ui­ties, real es­tate and gilts. The fall in cur­rency would raise in­fla­tion and con­se­quently squeeze real house­hold in­comes, de­press­ing con­sumer spend­ing.

Credit-rat­ing com­pany Stan­dard & Poor's, which cur­rently grades the U.K. at the top rat- ing of AAA sees the fi­nan­cial ser­vices in­dus­try as vul­ner­a­ble to the af­ter­shocks of a de­ci­sion to go it alone, and warns that a cred­it­wor­thi­ness down­grade might be the re­sult:

Fi­nan­cial ser­vices at­tract 30 per­cent of the in­ward for­eign di­rect in­vest­ment into the U.K., equiv­a­lent to 17 per­cent of GDP. Nearly one-half of the FDI into the U.K. fi­nan­cial ser­vices sec­tor comes from EU in­vestors. While we think Lon­don would main­tain its sta­tus as a global fi­nan­cial cen­tre in the event of a Brexit, global banks could ul­ti­mately con­sider other lo­ca­tions as bases for their Euro­pean op­er­a­tions.

Part of any post-Brexit ne­go­ti­a­tions would in­volve an is­sue called pass­port­ing -- a sys­tem that al­lows firms in one EU coun­try to do bank­ing and trad­ing busi­ness across the bloc. Los­ing those rights -- and make no mis­take, Frank­furt and Paris would love to take bank­ing busi­ness away from Lon­don -- would make Bri­tain less rel­e­vant as a step­ping stone into Europe, both for for­eign for U.S and Asian in­sti­tu­tions, and per­haps for do­mes­tic banks with global as­pi­ra­tions.

What the Unilever chief ac­tu­ally con­cluded in his in­ter­view with the Guardian news­pa­per, though, was that "I per­son­ally think it would be very good if Bri­tain could stay." The anti-EU side al­ready has some prom­i­nent sup­port­ers from both busi­ness and even the rul­ing Con­ser­va­tive party, in­clud­ing Crispin Odey, one of the coun­try's best-known fund man­agers, and Daniel Han­nan, a mem­ber of the Euro­pean Par­lia­ment. And at least one world fa­mous celebrity -- the ac­tor Michael Caine -- is scathing about be­ing "dic­tated to by thou­sands of face­less civil ser­vants" in the EU (which ig­nores the dirty lit­tle se­cret of do­mes­tic U.K. pol­icy, which is ba­si­cally run by the bu­reau­crats at the civil ser­vice whose life­spans vastly outdo the ca­reers of the min­is­ters they os­ten­si­bly serve).

More­over, re­search by YouGov sug­gests that smaller busi­nesses are less keen on stay­ing in the bloc than their larger coun­ter­parts. Among small- and medium-sized en­ter­prises, 42 per­cent want to leave the EU while 47 per­cent favour stay­ing. That in turn could sway the out­come of the ref­er­en­dum, YouGov Chief Ex­ec­u­tive Of­fi­cer Stephan Shake­speare said this week: With SMEs ac­count­ing for 60 per­cent of all pri­vate sec­tor em­ploy­ment in the U.K. and 47 per­cent of pri­vate sec­tor turnover, if SME em­ploy­ees are in­flu­enced at all by their com­pa­nies' or em­ploy­ers' in­ter­ests re­gard­ing the EU, then this is the co­hort cam­paign­ers will want on their side when ad­dress­ing the busi­ness aspects of the ref­er­en­dum.

The truth is that es­ti­mat­ing the eco­nomic im­pact of Bri­tain leav­ing the EU is guess­work at best. No-one re­ally knows what kind of trade deal would en­sue. Pes­simists claim Bri­tain's part­ners on the con­ti­nent would want to in­flict as much pun­ish­ment as pos­si­ble on a de­part­ing mem­ber "pour en­cour­ager les autres," as Voltaire put it; and they may well be cor­rect. Op­ti­mists ar­gue that other coun­tries have healthy trad­ing ties with the EU with­out the obli­ga­tions of mem­ber­ship, and that ar­gu­ment also has merit. Cameron took an enor­mous political gam­ble in promis­ing a ref­er­en­dum on EU mem­ber­ship.

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