23 March 2016

Markets and bookmakers see increased chance of Brexit following Brussels attacks

Markets and bookmakers have responded to the tragic attacks in Brussels. Yesterday, the Pound fell by 1% against the US Dollar and broadly weakened against most currencies with reports attributing this to the attacks increasing the probability of a Leave vote in the June referendum. Similarly, a number of bookmakers slashed their odds on a Leave vote.

Open Europe’s Raoul Ruparel appeared on Bloomberg TV’s ‘What Did You Miss?’ show discussing the political ramifications of the attacks, noting that the impact is unclear and could cut both ways. Raoul argued that on the one hand many voters will want to simply put as much distance between the EU and UK as possible. However, the Remain side could credibly argue that these are issues which need to be dealt with across borders and that leaving does not necessarily provide the UK with further tools to tackle these challenges given it is already outside the passport-free Schengen zone and has control of its borders. Open Europe’s Stephen Booth was also interviewed by Bloomberg Radio discussing the issue.

In a speech to the Politeia think tank yesterday, former Conservative leader Lord Howard said, “The EU, in its current form, is a flawed and failing project which is making many of its inhabitants poorer than they should or need be and is failing to keep its people safe.” UK Fisheries Minister George Eustice told The Daily Telegraph, “If we were to leave the EU, we could have more control of our borders and we would also be able to deport terrorists we want to get rid of. It is also very important that we stand shoulder to shoulder with other European countries in the fight against terrorism.”

In a statement released immediately after the explosions at the Brussels Zaventem Airport, UKIP defence spokesman Mike Hookem MEP said, “This horrific act of terrorism shows that Schengen free movement and lax border controls are a threat to our security.” UK Prime Minister David Cameron criticised the statement as “not appropriate.” Meanwhile, Home Secretary Theresa May told The Times in an interview she gave before the Brussels attacks, “I think this is an issue people should look at more broadly, but on the security front there are good reasons for us to be members of the EU…There are things we can do as members of the EU in terms of the exchange of information and data, but also working together within the EU that is of benefit in terms of catching criminals.”

Source: Bloomberg Reuters CNBC The Times The Independent The Daily Telegraph

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Renzi: Europe needs “single security and defence structure”

Responding to the terrorist attacks in Brussels, Italian Prime Minister Matteo Renzi said yesterday, “The EU has to do more. This is not the time for jackals, but nor is it the time for doves…I hope Europe goes all the way this time. We need a single security and defence structure. [Europe] has been arguing over a common security policy since 1954.” The 28 EU heads of state and government said in a joint statement, “This latest attack only strengthens our resolve to defend the European values and tolerance from the attacks of the intolerant.”

French President François Hollande said, “Terrorism has struck Belgium, but it was Europe that was targeted and everyone is affected.” French Prime Minister Manuel Valls said, “We are at war.” Front National leader Marine Le Pen said, “It is imperative to proceed with the immediate closure of the Franco-Belgian border…and with the reinstatement of checks at all the national borders of our country.” German Chancellor Angela Merkel said in a televised statement that the attackers were “enemies of all values that Europe stands for today, and for which we as members of the EU stand for, especially on this day, and with great pride.”

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OBR head suggests impact of Brexit may take some time to materialise

The Daily Mail reports that Robert Chote, Head of the Office for Budget Responsibility, said yesterday that, “We made the point that lots of other people have done analysis of these things [Brexit], and some are positive and some are negative…in both cases people don’t expect those effects to show up overnight. They would take quite a long time to show up – probably well beyond the five-year horizon we would be looking at…If we did assume we were leaving, it might not have as much effect, positive or negative, as people think.” He went on to add that there seemed to be a consensus that there would be a period of uncertainty following Brexit.

Writing in the Evening Standard, Hamish McRae cites Open Europe’s Brexit report noting, “The most calm and moderate assessment of the economics that I have found comes from Open Europe, a think-tank that is itself neutral on the issue but is broadly in favour of market solutions to economic issues, rather than regulated ones. The study was done a year ago and its conclusion was that at worst, were the UK to leave the EU, its GDP would be 2.2% lower in 2030 than it would have been were we to stay in. And at best it would be 1.6% higher. Those are extreme results, and a more realistic range would be minus 0.8% to plus 0.6%…There are many other assessments, some more negative as to the costs of Brexit, but the Open Europe proposition that the impact either way would not be huge seems to me a decent place to start.”

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Former Canadian Trade Minister: “The Canada-EU trade deal is not a model for the UK”

Writing in The Times, Canada’s former International Trade Minister Pierre Pettigrew argues that recent claims that the EU-Canada trade deal could be used as a model for the UK post Brexit “worried me greatly”. He said, “It is factious to think there is a real comparison between Canada’s relationship with the EU and the UK’s with the bloc. Indeed, were Canada to trade as much with the EU as we do with the US, we would want a much deeper relationship than CETA [the EU-Canada free trade deal].” He also argued, “Those who claim that the UK can pick and choose what it wants in any future agreement have clearly never negotiated a trade deal.”

Open Europe argued in a recent blog post, “Not least for geographical and historical reasons, the UK’s economy is a lot more integrated than Canada’s with the rest of the EU…This means that any UK-EU agreement after Brexit could not be just about trade – it would inevitably need to cover other aspects. Therefore, the EU-Canada deal could only ever serve as a template the UK could build upon – certainly not as the ‘Holy Grail’ of models for post-Brexit UK-EU relations.”

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Greek Finance Minister confident of wrapping up bailout review and debt relief deal in April

Speaking in the Greek parliament yesterday, Greek Finance Minister Euclid Tsakalotos suggested he was confident a deal on debt relief would be reached with Greece’s creditors by April 22. This would mean the current bailout review would be concluded in the first week or two of April.

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French central bank governor criticises Hollande over labour market reforms

The Governor of France’s central bank, Francois Villeroy de Galhau, has criticised the French government for backtracking on proposed labour market reforms. Speaking to the Financial Times, he said “The key [for growth] is investment, especially corporate investment, and the key for corporate investment is confidence. The method used for this labour market law didn’t help confidence.”

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Provisions against bad loans in the Eurozone ‘reasonable’, says ECB Supervisor chief

The head of the European Central Bank’s Supervisory Council, Danièle Nouy, has attempted to allay fears over non-performing loans in the Eurozone. Speaking to the European Parliament’s economic committee on Tuesday, Ms Nouy said, “We have provisioned to a reasonable level these non-performing exposures and this is giving us a very solid ground to … address the issues.” She also expressed her concerns that the ECB’s negative interest rate policy may be damaging the profitability of some banks, saying, “Low profitability is a concern for supervisors because it may impact the medium-term sustainability of some business models.”

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