Finance insiders fear Brexit ‘leap in the dark’
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.
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.”
For the full list of Caucus participants click here.
Arnau Busquets Guàrdia and Hanne Cokelaere contributed to this report.