It has always been our view (and I’m guessing that of the Cameron team as well) that the process would play out in a similar vein to the Scottish Independence vote
The current bookmaking odds on a UK exit vote suggest only a slim chance of a Yes.
There is still time of course for something like a terrorist outrage to shift sentiment but barring that, the consensus appears to be hardening towards the “better the devil you know” view.
George Osborne has recently played the trump card for the “Euro Remainers”, the tried and tested classic “if this happens then everyone’s house price will go down a lot”.
It’s a truth that for all the esoteric talk of economic and social consequence pro or anti, the most powerful single argument to sway voters is always that which most effects their self-interest and for the British it’s the value of their homes.
It has always been our view (and I’m guessing that of the Cameron team as well) that the process would play out in a similar vein to the Scottish Independence vote.
There would initially be lots of nationalistic rhetoric about the potential glories of self-determination but those fires would gradually cool as the implications of giving up the status quo, however unsatisfactory, for an uncertain and unquantifiable future would became less a giddy aspiration and more a scary reality so leading to a No win.
Our view for what it’s worth is that the European construct is flawed in a number of ways.
A few examples being:
- Germany exerts too much influence although it must be said, less than it wants
- The financial arrangement of having a single currency and yet allowing individual countries to issue sovereign debt not backed by a European Central Bank is a nonsense and will be a fault line that keeps opening
- The expansion of the EU state to include more Eastern states will create significant migration issues. This is especially onerous on the richer countries offering state healthcare, schooling and unemployment benefits
- There is undoubtedly a sovereignty issue with unelected bodies creating regulations that member countries are then bound to implement without rights for their parliaments to vote
- The cultures, work practices, priorities and personalities of the European countries are profoundly different; Germany and Greece or the UK and France as examples
This being said, perversely the only way that the EU actually works properly is, like the US, if it centralises more powers to the Federal.
In the US (which many site as the EU model) there are Federal laws, policing, banking, foreign policy and domestic policy. If the US was structured like Europe is currently then it would be unworkable with the likes of California and New England trying to reason directly with North Carolina, Mississippi and Texas which is a recipe for a second civil war!
However, with all the above and even with our suspicion that ultimately the EU construct could well fail we’re swayed to the “No” camp. Europe for all its imperfections does provide many benefits; we simply don’t know what happens if we leave and obviously most importantly because we don’t want the value of our houses to go down!
Investment ramifications of the vote
- The value of the pound has fallen this year generally due to the uncertainty of the vote result. We would expect it to strengthen against the dollar and Euro if it’s a remain victory
- The UK stock markets have lagged this year even though the miners and oil majors have staged a strong price recovery after February’s rout, and the FTSE100 is top heavy with commodities companies
We would expect the FTSE 100 to bounce higher with a remain vote.
Note: This is written in a personal capacity and reflects the view of the author. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog and the reader should accept that by its very nature many of the points are subjective and opinions of the author. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.