Britain’s future in the European Union is up in the air, and investors aren’t quite sure what to make of it.
After all, it isn’t just Britain’s place in the EU that’s on the line, but the very essence of the pan-European project.
While the direct consequences of Brexit have been spelled out repeatedly by economists, analysts and now even politicians in UK parliament, the indirect impact could be far greater if countries throughout the region eventually decide to hold referendums of their own (this is seen as almost a guarantee should Britain quit the EU).
So, will Britain leave the EU? According to The Telegraph’s poll of polls, it’s too close to call. As of March 3, there was a 51-49 split in favour of remaining in the EU, based on voters who had made up their minds. However, there’s a huge swathe of the British population that is still undecided.
According to the last six YouGov polls, around 20% of the population is either undecided or isn’t planning on voting in June.
It’s important to keep in mind that the Remain vote has slowly gained traction over the past two weeks as Prime Minister David Cameron has campaigned for Britain’s continued membership of the EU.
Cameron reached a compromise with EU lawmakers last month that gives the UK “special status.” However, eurosceptics – even within Cameron’s own Conservative party – argue that the agreement represented only “puny gains” for the UK, and that Cameron’s drawn-out negotiations were nothing more than “ill-disguised theatrics.”
Cameron makes his case
Cameron’s battle to convince members of his own cabinet and the country at large to vote for Britain to remain in the EU has been described as an uphill battle.
There’s one thing we know for sure – Cameron won’t be sitting on the fence.
“I will be campaigning with all my heart and soul to persuade the British people to remain in the reformed European Union that we have secured today,” Cameron told a press conference reaching an agreement with 27 fellow EU leaders.
The British prime minister will have just over three months to present his case. Voters head to the polls on June 23. It will be Britain’s second referendum on EU membership in just over 30 years.
How will they vote? A closer look at the numbers
There have been 22 referendum polls since Christmas, according to The Telegraph. While the results have been mixed, 13 of the 22 polls indicate that the public will vote to remain in the EU.
While the polls of polls indicate a very narrow race, the overall evidence suggests that voters are prepared to take Cameron’s “special status” compromise and remain part of the 28-member bloc.
If gambling odds are your thing, then you’d be interested to reflect on recent data collected by Oddschecker, the self-described “foremost online betting odds comparison service.”
Based on data collected from the main bookies, Oddschecker gives the Remain camp a nearly 70% chance of winning the referendum in June.
According to Stephan Shakespeare, chief executive of the YouGov organization that has been conducting the polls, “It is the fear of the unknown that is dominating the minds” of UK voters.
The role of fear in swaying popular opinion cannot be overstated. While the case for Brexit has been clearly articulated for decades, undecided voters – which make up roughly 1 in 5 Britons – could see the risk of leaving the EU greater than the benefits.
The economic impact of Brexit
Contrary to what the eurosceptics say, Britain will face tough hurdles should it disengage from the rest of Europe – at least in the short term.
The impact on the financial markets will be quick and devastating (after all, there’s nothing the market hates more than uncertainty).
As an early indication of what might happen, look at the pound’s reaction just to the announcement of the referendum.
On the Friday before the announcement the cable was trading at 1.44048 and by the end of the following week it had dropped to 1.38635 – a worrying 3.75% drop. However, the broader consequences could be much bigger.
According to the Centre for Economic Performance (CEP) at the London School of Economics, the UK economy could contract by up to 3.1% as a result of Brexit.
In a best case scenario, Britain’s economy would contract by only 1.1%.
“Staying in the EU may cause political trouble for the major parties; but if the UK leaves the EU, the economic trouble will double,” the CEP said in a March 2015 publication.
According to a poll of more than 100 economists conducted for the Financial Times at the start of 2016, more than three-quarters thought Brexit would have a negative impact on the UK’s economic prospects over the medium term. Only 8% thought Brexit would benefit the UK.
For the EU, the biggest impact would likely be political. Losing one of its biggest and most influential members could embolden nationalist movements throughout the region to consider exiting the bloc, something that was feared during last year’s Grexit crisis.
The political backlash can also harm Britain, as the country would have “a lot of fences to mend,” according to Nicholas Dungan of the Washington-based think-tank Atlantic Council.
Voters are cognizant of these facts. Without a clear mandate, Brexit could be a difficult pill to swallow for most voters.
That’s why the majority of analysts expect Britain to remain part of the EU after June 23. Unfortunately, Britain’s continued membership is unlikely to solve any of the longstanding frustrations Britons continue to feel about the EU.
Regardless of the outcome, the relationship between Britain and the EU is likely to remain murky o
