Brexit: Should They Stay or Should They Go?

On 23 June 2016, the United Kingdom will vote on whether to remain in the European Union (EU).

The upcoming “Brexit” referendum has dominated headlines in Europe and raised numerous questions not only about the future of the United Kingdom, but also of the whole European project. Currently, polling indicates the race is too close to call.

So what is the referendum all about?

The Leave camp’s case essentially rests on three pillars: regulation, taxation, and immigration. The EU, in the form of anonymous Brussels bureaucrats, overregulates and overtaxes the United Kingdom, taking out more than it puts in and diminishing British sovereignty, Leavers say. EU membership, they claim, has resulted in a flood of immigrants coming to the United Kingdom from elsewhere in the eurozone that has put a strain on social services and further complicated an already difficult job market. Moreover, the EU’s recent performance, whether during the financial crisis, with the exodus of refugees from the Middle East, or on Greek debt, has hardly inspired confidence.

Remainers offer a vivid counterpoint, claiming that departing the EU will result in untold economic damage and loss of influence. London will cease to be a hub of the financial services sector, British exports to the EU — its largest regional trading partner — will suffer as a result of new tariffs, and the United Kingdom will play a diminished role in world affairs. Indeed, Remainers warn, Brexit could lead to the end of the United Kingdom as it is currently composed, potentially evoking calls for another vote on independence in Scotland, where the pro-EU Scottish National Party (SNP) now dominates. In Northern Ireland, Irish nationalists have demanded a vote on unification in the event of a Brexit and a “hard border” with the Republic of Ireland, an EU member.

So which side is right? Is the country better off staying or leaving? Does it even matter? For insight on these questions, we polled readers of CFA Institute Financial NewsBrief for their perspective.

What will be the consequences for the United Kingdom if it opts to leave the European Union (Brexit)?

Of the 803 respondents, a vast majority (64%) said that the consequences would be largely negative, effectively siding with the Remainers. Another 24% said the results would be more or less neutral, and only 12% embraced the Leavers’ perspective, that the United Kingdom had more to gain from exiting the EU than from staying.

Of course, how a potential Brexit will transpire is currently unknowable. The expectation is that should the United Kingdom opt out, there will be at least two years of negotiations between the British and their eurozone counterparts to determine how the cords will be cut. Few anticipate EU negotiators would be especially accommodating, the better to deter other nations from following the United Kingdom’s lead.

Indeed, what a Brexit will mean for the United Kingdom is only one part of the equation. A more consequential question is how it will affect the EU itself. The loss of the world’s fifth largest economy has enormous implications and could potentially spur the unraveling of the whole European enterprise. Many predict that a Brexit would encourage nationalist and separatist parties throughout the eurozone and could lead other countries to head for the exits as well.

And the potential unraveling doesn’t end there. The drift toward fragmentation is not limited to the political structure of the EU, a framework that is only decades old. Whether in Scotland, Spanish Catalonia, or the Flanders region of Belgium, there are increasing calls not for more unity but less, for loosening — even dissolving — ties that have endured for centuries.

In fact, in the “Global Market Sentiment Survey 2015,” 35% of CFA Institute members cited political risks, including nationalist and secessionist movements, as the most underrated threat to world capital markets in the near future.

The Brexit vote may serve as a leading indicator of which direction the globe is heading. Will nations and economies maintain the course of the last generation toward greater connectivity and more integrated markets? Or will they opt for a new path, one that embraces harder borders and a more atomized world?

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

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