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Brexit: The great guessing game
March 14, 2016

Brexit: The great guessing game

The discussion in the UK surrounding a possible exit from the EU has taken on dimensions reminiscent of a philosophical war. In Switzerland, which has more than its share of experience with referendums, the business world is aware that one thing in particular is venom for any further uncertainty.

Some politicians warn that the UK will devolve into Little England, others are imploring their voters to finally shake off the yoke of expensive EU rules. When the Bank of England listed the areas the UK has benefitted from its EU membership, the economic difficulties that Brexit would entail were heavily implied. At the same time, the City of London Corporation and TheCityUK are both publicly advocating for remaining in the EU. Additionally some banks are donating to pro-EU campaigns, others see short-term negative consequences as the worst case scenario if the British decide to leave the EU on 23 June and thus induce the “Brexit”.

What about the consequences for banks?

The follow-up question that needs to be asked from a banking perspective is: What are the concrete, palpable, material consequences an exit from the EU would have for one of the most important international financial centres? This question is not, however, being answered conclusively by anyone. At best, only snippets, approaches and possible scenarios are being provided. During discussions, interviews and reports, glances are frequently being cast towards Switzerland in the hopes that there is an example to be found there of how to be successful despite not being an EU member (according to the Eurosceptics), or rather, what kind of difficulties would unfold for the United Kingdom in the event that this becomes the reality (according to the pro-Europe faction). But Switzerland is not a suitable basis for conclusions by analogy; starting with the fact that the difference in the points of departure between a non-member and one that is potentially willing to withdraw is too great.

A crystal ball please!

What remains, and what is blatantly obvious in all of the discussions that the SBA is conducting with its British partners, is a high level of uncertainty. Even if Great Britain decides to remain in the EU on June 23, the issue will not suddenly be resolved. In the case of a “Remain” vote, there is therefore a risk of a never-ending questioning of the status quo. The consequences in the event of a “Leave” vote are still completely unknown. Will Frankfurt and Paris be happy to have a bigger slice of the cake if London removes itself from the single market? Will post-Brexit London come into its own and become truly strong? Will HSBC move to Dublin? Swiss banks to Luxembourg? Investment banking entirely to New York? Nobody knows.

A difficult decision

In any case, uncertainty throws a spanner in the works for any type of strategic planning. Swiss companies probably have more experience than any other country with referendums that have far-reaching consequences for business activities. For example: a decree governing the limiting of salaries for executives and shareholder voting rights; the implementation of the initiative against mass immigration, which is still unclear; and the upcoming referendums on sovereign money or unconditional basic income. In this respect, Switzerland could actually serve as an example. The UK will perhaps opt to give up a status that did not meet all the expectations, but that was certainly also not to the detriment of the Kingdom. Voters in the UK have a difficult choice to make, because no matter how they vote, it is almost impossible to determine what the future will look like for the economy. Looking from Switzerland towards the UK, we can for once observe from the outside how difficult successful free enterprise is in the face of a plebiscite.