It starts: first Asian bank mulls British exit from the EU
Nomura is thinking the unthinkable (Photo: EPA)
Japan's biggest bank Nomura has issued an 11-page study evaluating the likelihood that the UK will leave the European Union entirely or partly.
Events could accelerate as soon as this autumn if eurozone woes force the Government to commit to a firm date for a BRIXIT referendum.
"The effect a looser relationship with the EU would have on the UK economy in general and on the financial services sector in the UK in particular is not clear at this time, even though British eurosceptics argue that being freed from EU regulation would be a booster. However, the prospect is, in our view, bound to raise concerns – indeed, is doing so already in the City."
The core point is that the eurozone may have to take drastic steps in integration (fiscal union, etc) to save the euro, making it nigh impossible for a fully sovereign state to remain part of the Project.
In other words, it is not so much Britain leaving the EU as the EU leaving the treaty-based club of sovereign states it was supposed to be.
The report is part of the bank's "Issues which keep me awake at night" series.
It does not take sides.
Here are a few extracts, written by Alastair Newton (an ex-British diplomat, former head to Tony Blair's G7 team, and intelligence co-ordinator in the first Gulf War). Unfortunately, we cannot post the whole report online because of Nomura's compliance rules. The bank emphasises that this is his personal opinion.
A deepening of the eurozone crisis in the immediate future remains a real possibility despite the recent efforts of the ECB in particular to calm markets. This, in turn, could spur acceleration in integration in order to try to prevent the collapse of the eurozone, thereby advancing projects which are likely to prove difficult for the British government.This is the first time that I have seen a global bank issue such a report. Though I would be interested to hear from readers if there are any others around.
One thing which is clear is that (assuming the eurozone does not collapse completely) it is only a matter of time, in our view, before crisis-related steps are agreed which necessitate treaty changes. In those circumstances, the British government will almost certainly demand ‘treaty change for treaty change’ in an effort to repatriate powers, ie be looking to win repatriation of powers to London for every concession on treaty reform sought by the eurozone on a one-for-one basis. However, in so doing the UK would likely be looking to repatriate powers which EU partners may be unwilling to concede within he context of the single market.
Third, and finally, we do not rule out the possibility of a serious schism between the EU nd the UK developing over non-crisis-related issues, with the 2014-20 EU budget an obvious potential bone of contention.
In the event of either the second or the third of these scenarios occurring, Mr Cameron could find himself in a very difficult position indeed, ie, under even more intense pressure from within the ranks of his own party to call an immediate referendum but knowing that, if he were to agree, this could be a bridge too far for the pro-EU LibDems who would try to force an early election rather than support the legislation necessary to hold a referendum. Thus, if there is to be a referendum in the UK on EU membership, it does indeed look likely to be after the next election, rather than before; but this could be at the price of the election being brought forward.
…
There is, in our view, a non-negligible probability that eurozone crisis-related events will encourage Conservative Party eurosceptics to exert still more pressure on Mr Cameron – and that, although we sense that eurozone leaders would prefer to avoid another row with the UK, such events could occur in the very near-term. Consider the following:
• A single bank supervisor: The 28/29 June European Council meeting agreed (with the support of the UK which is also supportive of a eurozone banking union) to establish a single eurozone bank supervisor, based in the ECB, by the year-end. However, some of the powers that the ECB is seeking (eg, to restructure and/or wind down stressed banks) could go beyond the eurozone and into the single market of all 27 EU members where qualified majority voting (QMV) generally applies, denying the UK a veto. Indeed, the European Commission is already actively promoting a banking union (towards which the bank supervisor is a significant first step) of all EU members rather than just the eurozone.
• Bank transaction tax: Although four countries (to date) have opted out – ie, Ireland, Netherlands, Sweden, UK – work is under way to agree and implement a pan- European bank transaction tax of some sort. What form this may ultimately take is far from clear at this stage, but we understand that some options being considered by the European Commission could affect trades based in London, despite the UK’s opting out.
• Measures which discriminate against non-eurozone countries: The British government was powerless to prevent the ECB from bringing in measures relating to clearing houses handling euro-denominated transactions which discriminate against non-eurozone countries. Further discriminatory steps cannot be ruled out on the road tobanking/fiscal union."
It has been my gut feeling for some time that the EMU debt crisis – or rather the intra-EMU currency misalignment crisis since debt as such is not the root problem (except for Greece) – has already led to de facto divorce.
Britain is no longer part of the Project. This is proving less traumatic than supposed. It is quite possible to imagine various forms of semi-detached, or mostly-detached status where we carry on trading much as before.
Britain would tilt more towards Asia, the Americas, and Africa, which is the proper strategy anyway. UK relations with Europe would settle down over time and would probably prove better.
I don't like the Swiss or Norwegian analogies since Britain is not remotely comparable. It much bigger and more diversified, much more difficult to push around. The fact that Norway feels it must go along with almost all EU law – a point invariably made by status-quo defenders – is irrelevant. It tells us nothing about Britain.
The Poles, Danes, Swedes, Czechs, et al, will all have to sort out their own complex relationships with the eurozone.
Do they really want to be locked in tightly to an EU system dominated by the Franco-German axis without any offsetting Anglo-block to soften the effects?
My time as EU correspondent taught me that Britain's role as an ideological swing power in the system is greater than meets the eye.
Remember the infamous Chocolate Summit at the outset of the Iraq War when France, Germany, Belgium, and Luxembourg called a summit to announce Europe's opposition to US policy?
It backfired horribly. The EU refused to let them use the Justus Lipsius building (they had to retire to the Hilton Hotel instead) and it ultimately turned out that 16 of the (then) 25 EU states supported the US directly or quietly behind the scenes.
Which is not to say that US policy in Iraq was either good or bad. That is not my point.
The risk for Britain post-BRIXIT is that other countries would indeed start to tuck in behind the Franco-German axis if they no longer had political cover from London. Such Chocolate Summits would succeed in the future.
Europe itself would change. It would become less free-market, more protectionist, more dirigiste, more prone to quarrel with the US.
I look forward to another report by Nomura – or perhaps a Chinese bank next time – on the investment implications for Europe without Britain in it.
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