David Cameron, Britain’s Prime Minister, has negotiated terms with the other EU member states, which he feels justified to put to voters in an in/out referendum called for 23 June.
At this early stage in the campaign, the terms are not sufficient to give a clear lead in favour a vote to stay, contributing to a slide in sterling on the foreign exchanges. However, if voters do vote to leave the EU, it won’t be just sterling which suffers, but the euro will face considerable challenges as well.
It is thought that arranging for the referendum to be held at the earliest possible date will limit disaffection with the EU. Within this time-scale, the strategy is to emphasise the dangers of Brexit, highlight the advantages of being able to influence EU policies from within, and to emphasise the security benefits of being in as opposed to out. It is essentially a weak and negative campaign strategy designed to scare the electorate against change. Negative campaigns are a weak strategy, which tend to wane through repetition.
There is an elephant in the room that might also trip up the planned outcome, and that is a material and growing risk of financial instability in the Eurozone. While it is probable that no major problems will surface before June, there is a significant possibility they will. The Eurozone’s banking system is somewhere between insolvency and bankruptcy with the Italian, Greek and Portuguese banks in intensive care. Eurozone government bond prices, many so over-priced they have negative yields, are certain to fall significantly at some stage, leading to an inevitable Eurozone debt crisis.
Add to this the refugee problem, and we have the makings of an all too obvious Eurozone bust-up. Furthermore, it is reported that the Czech Republic’s prime minister, Bohuslav Sobotka, has warned that if Britain decides to leave the EU, the Czech Republic may follow. Furthermore, there is pressure for a similar referendum in the Netherlands. Disaffection with Brussels is widespread, and it will not be just a British rat abandoning the sinking EU ship.
This post was published at GoldMoney on MARCH 03, 2016.