Sterling has just had its worst week since the financial crisis of 2009, “scuttled” as one City banker described it, by growing fears that the UK could vote to leave the European Union in its referendum on June 23.
The chances that it actually will, dismissed even a month ago by most observers as unlikely, grew over the weekend as the ruling Conservative and Unionist Party tore itself apart in some of the most extraordinary scenes in its history.
In five days the pound fell 3.8 per cent against the US dollar, and continued its fall on Monday, dropping to $1.3849, reacting to a swelling tide of Euroscepticism which has divided the business community, as well as the government, in a manner not seen before.
Within minutes of the prime minister David Cameron calling the referendum, five cabinet ministers – including one of his closest friends, Michael Gove – broke ranks and posed for photographers in front of a Britain Out banner. To Mr Cameron’s dismay the “Outers” were soon joined by the London mayor Boris Johnson, a potential candidate to succeed him in a leadership election, which could come as early as this year.
The City and the business world are equally divided. Within hours of the referendum announcement, 36 of the FTSE100 countries had rushed out a statement saying that leaving the EU would be a disaster. “But what about the other 64?” one journalist asked. We don’t know how many of them are Inner or Outers, but we do know there is no lack of Outers among them.
The debate is getting more vociferous by the day with the most learned, intelligent and experienced bankers and businessmen propounding passionate views which are diametrically opposed to each other. Iain Duncan Smith, one of the Outers inside the cabinet, says Britain is on the verge of a “new renaissance” if it comes out, while the prime minister insists that a vote to leave would put the economy at risk and destabilise the whole of the EU with dire consequences.
Nigel Lawson, one of Britain’s best post-war Tory chancellors and a successor, Norman Lamont, have come out fiercely (there is no other word to describe it) in favour of Brexit, but Ken Clarke and John Major, both also former chancellors, are equally passionate about staying in Europe.
The current chancellor, George Osborne, managed to persuade the finance ministers of the Group of 20 leading economics, meeting in Shanghai over the weekend, to warn solemnly of the “shock of a potential UK exit from the EU” on the entire global financial system. His friend Jacob Lew, the US Treasury secretary, backed him up: “We see a stronger UK, a stronger EU, a stronger global economy and a more secure world with the UK in the EU,” he said. It’s just rhetoric of course. There are plenty of Americans who don’t see that at all and believe that a Britain freed from the EU would become an even stronger trading and military partner of the US.
But it was enough for Mr Osborne, who announces his budget this week, to add that: “A British exit would hurt people’s jobs, livelihoods and living standards – it’s deadly serious. If that’s their assessment of the effect on the world economy, imagine what it would do for the UK”.
In other words, little old Britain leaving will plunge first of all the EU and then the rest of the world into Armageddon. This is the kind of absurd rhetoric we’re getting used to from both sides – and we still have another four months to go.
In truth no one knows what the economic and financial implications would be, and the Outers use exactly the same statistics as the Inners to make their case to the bewilderment of a population which is wondering why we are having the debate in the first place. There was no need for it: Britain was doing nicely, better than any of its European neighbours who have been through six years of euro crisis, which is far from over.
Thankfully, Britain was never in the euro so avoided most of the euro crisis, which has highlighted the structural deficiencies of a monetary system which simply cannot work in the long term. Simple logic tells you that you cannot contain Greece (or Italy, Portugal or Spain) in the same financial corset as Germany without something giving. There is no possibility of Britain joining now, not ever – one can say that with some certainty, basically because within a few years I doubt there will be a euro to join, at least in its current form.
Addressing a group of 200 people in the City last week, I asked for a show of hands in favour of staying or leaving. It was overwhelmingly in favour of staying, with a sprinkling of “don’t knows”. The City has done well inside the EU and has emerged in the past 10 years as the No 1 financial centre in the world. Frankfurt and Paris, challenging for the role in the 1970s and ‘80s, are nowhere and never will be now the power has passed to the Far Eastern markets.
So I would expect a bias towards staying within the financial community. But what about the rest of the population? Most people have not yet made up their minds. And are not being helped by the current level of debate. There is all to play for.
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