A Brexit would bring even tougher negotiations with EU

If the UK leaves the EU, it would lead to some tough decisions and negotiations on trade, says Stephen Lewis of ADM Investor Services.

British Prime Minister David Cameron is locked in tough negotiations about changing some of the terms of the UK membership with the EU, but a so-called Brexit would kick off a whole new round of potentially more difficult talks with bloc.

The key economic decisions to be taken if the UK electorate does vote to leave the EU in a referendum centre around trade, although there is much more at stake than just this issue, writes Stephen Lewis, chief economist at ADM Investor Services.

If Britain decides to leave the EU, it then has to decide whether or not to stay in the European Economic Area or leave that as well. “This is not a question that will be presented to voters in the referendum but it might very well be crucial to how Brexit would work out in practice,” writes Lewis.

READ: Major bank warns of serious impact in UK votes for Brexit

If the UK stays in the EEA with non-EU members Norway, Iceland and Liechtenstein, it would still have access to the EU’s internal market, but wouldn’t be able to vote on internal market rules. Under the EEA agreement, the EU would still have to negotiate with the non-EU members if it wanted to change those rules, according to Lewis.

“A government that expected usually to be in a small minority in EU decision-making, under the ‘qualified majority voting’ regime, might see no practical difference, as far as trading relations with the EU were concerned, between participating in the EU and shifting to EEA status,” he writes.

The advantage of staying in the EEA would be taking control of its own policies on a huge range of thinks, including agriculture, fisheries, international trade, foreign relations, security, police and judicial matters. However, there are drawbacks, including having to make substantial payments to help reduce social and economic disparities within Europe.

Leaving both the EU and EEA would throw up more fundamental problems for UK negotiators, according to Lewis, as it would void trade agreements with other countries. This could be solved by negotiating an inter-governmental deal with the EU that allows existing EU trade treaties with other countries to apply to the UK too. But this would depend on the goodwill of the EU.

The UK might need to negotiate a new set of treaties with the EU itself, although it could continue current arrangements within a new treaty, the economist writes. It would be protected from any discrimination by World Trade Organisation rules that prevent trade restrictions.

The key sector for the UK is its dominant services sector, and it is going to have to work hard to secure its interests from outside the EU, negotiating when new proposals emerge in Brussels or in Germany.

Lewis’ analysis of the trade implications of a Brexit come as government ministers stepped up their own rhetoric surrounding the debate.

READ: UK Brexit uncertainty will sink the pound

Chancellor of the Exchequer George Osborne predicted that the EU referendum would end the UK debate about its relationship with the EU for “at least a generation”.

Meanwhile, Commons Leader and Conservative euro skeptic Chris Grayling described the EU as “disastrous” for Britain.

“The crisis in the eurozone and the migration challenge have led to calls for still more integration and a move towards much greater political union. It is a path that the UK will not and should not follow,” Grayling wrote in an article for The Daily Telegraph.

This post was originally published here: https://news.markets/forex/a-brexit-would-mean-even-tougher-negotiations-with-the-eu-8692/

Brexit will set UK back £11bn in EU trade costs, research finds

Businesses and consumers will pay heavy price if UK forced to trade by WTO rules and not free trade agreement, says Lord Rose

Britain would be landed with £11bn in new tariffs if it left the EU and did not get a free trade agreement, according to the leader of the group campaigning to stay in. Lord Rose, who heads Britain Stronger in Europe, published research suggesting that the UK would have to begin trading with the EU using World Trade Organisation rules, which would cost businesses and consumers more.

Speaking as David Cameron heads to Brussels for two days of talks on Britain’s future in the EU, the businessman said that the campaigns arguing that Britain should leave the EU are proposing a specific deal: ending all budget contributions, ending free movement and repatriating economic regulations while retaining full access to the single market.

“The [Leave Europe] campaigns’ proposals are a pipedream. They do not have a credible or achievable alternative which can replicate, let alone improve upon, the benefits the single market brings, and if they were to pursue their terms as currently proposed there would be a real risk of Britain leaving Europe with no trade deal at all,” Rose said.

“The cost of failure to secure a trade deal would be huge: family finances and Britain’s economy would be under threat. Britain would move to trading with the EU according to World Trade Organisation rules.”

The Britain Stronger in Europe campaign said this would be equivalent of £176 for every person and £426 for every household in Britain. The figure is based on UK imports from the EU at a value of £220bn, facing a tariff set at at a level of “most favoured nations”.

The research was designed to back up claims by Sir John Major, the former prime minister, that the UK is on a dangerous course by flirting with leaving the EU while the rest of the world is coming together. 

The full article appears here: http://www.theguardian.com/politics/2015/dec/16/brexit-uk-11bn-extra-costs-eu-trade-research

Major bank warns of ‘very serious’ impact if UK votes to ‘Brexit’

 

The UK’s economic growth will be hurt if the country votes to exit the EU in a referendum, and growth could even suffer in the run up to a vote, Bank of America Merrill Lynch is warning.

As the bank notes, British Prime Minister David Cameron’s attempts to negotiate changes to the UK’s relationship with the EU aren’t going smoothly. Efforts to negotiate a deal to make migrants wait for four years before they’re eligible for in-work benefits such as tax credits are being met with fierce resistance. Compromise is in the offing.

That could make it much tougher for the stay-in campaign ahead of an in-out referendum on the UK’s EU membership that’s scheduled to run before the end of 2017, but which could come as early as 2016.

There’s obviously a long way to go before the referendum, but the polls have recently been narrowing. There are a large number of ‘don’t knows’ at the moment, but the split between those who want to leave and those who want to stay at this stage is very close. A lot depends on how Cameron’s re-negotiations go, with the polls indicating many more in favour of staying if there are “major changes” to the UK’s relationship with the EU.

Major changes include greater UK control over immigration and borders, with welfare benefit restrictions coming a close second.

That’s making the City nervous.

“Uncertainty about the referendum outcome could hurt UK growth next year even ahead of the actual vote. We have assumed a 20 basis point drag but have no way of reliably quantifying the potential effect,” write BAML UK Economist Robert Wood and FX Strategist Kamal Sharma.

They think the uncertainty could also influence the Bank of England, which is expected to start raising interest rates at some point next year. While many consumers will be hoping rates stay low, the Bank of England starting to ‘normalise’ rates would actually be a sign that policymakers feel the UK economy no longer needs the crisis economic measures put in place back in 2008-09.

“The (Bank of England) will need to take account of any actual or potential drag, while the timing of the referendum could affect the BoE’s decisions: it is hard to imagine policy makers hiking rates a few weeks before a Brexit referendum, for instance,” the BAML strategists add.

The bank has been surveying investors, and almost a third are already looking at options to hedge against the risks of a UK exit, known as a ‘Brexit’.

‘Brexit’ is on most investors’ radars, with nearly a third looking to actively hedge against the risk

Source: Bank of America Merrill Lynch

The lack of a clear date for the referendum means a Brexit is well down the list of major concerns among investors for 2016. That list is topped by worries about a potential fast economic slowdown in China, followed by concerns about a slowdown in the US.

So how should investors take account of all this uncertainty and risk.

BAML is sticking with a recommendation that foreign exchange investors should own one-year GBP/USD volatility, even though the volatility has increased since the end of November.

“There is no guarantee that the EU Referendum will be held by the end of next year, but a premium is starting to be priced in,” the BAML analysts write. “Nonetheless, we reiterate that in the absence of a firm date for the EU Referendum, the FX market still lacks a firm anchor for its Brexit trading view. Whilst cognizant of the risks of a mid- to late-2016 referendum investors seem, for now, content to buy some longer dated protection on the chance that it is held then.”

This article originally appeared here: http://news.markets/forex/major-bank-warns-of-very-serious-impact-if-the-uk-votes-to-exit-eu-6693/