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From Grexit To Brexit?

Submitted by Frank Suess via,

The British Referendum Looms

For the last couple of months (and years, for that matter) Greece has become synonymous with trouble in the euro zone and the European Union. As we’ve previously mentioned, in the absence of an extraordinary event, the risks in connection with Greece are limited.

The country contributes less than 2% to the European Union’s GDP and state institutions or institutions backed by the state now hold over 80% of the Greek debt. A debt restructuring or even a Grexit would pose neither a risk to the financial system, nor to the European economy.


David Cameron and Nigel Farage, as seen by Steve Bell



On the other hand, a British exit from the European Union, a so-called Brexit, could have a considerably stronger impact on Europe. A referendum on the subject is expected to take place before the end of 2017.

The referendum is not comparable to that of Greece, as Britain is not part of the euro zone. But the question in Britain is whether they want to remain a member of the political and economic union called the European Union or not. The link between member states and the EU is weaker than the link between the federal government and the states in the US. Nevertheless, a Brexit would be comparable

to Texas deciding to secede from the US.


Very recently UK citizens have become more pro EU again – this will probably change again as soon as the ECB’s recent monetary pumping exercise ends and the economic bust resumes – chart by BFI, click to enlarge.


Mainstream Party Lobbying

Britain is the second largest economy of the European Union and contributes around 16% to the EU’s total GDP. Losing such a large member would be a setback for the European Union and the “European political dream”. A potential Brexit would impact Britain massively, especially its financial sector.

Several banks such as HSBC, J.P. Morgan and Goldman Sachs have already indicated that a Brexit scenario would induce them to move business or even their head offices to other locations within the EU, locations such as Frankfurt or Luxembourg.

Currently, all major political parties are lobbying against a Brexit and recent polls, (see chart above), indicate that a majority in Britain would prefer to stay within the EU. On the other side, we have EU skeptics such as Nigel Farage, the leader of the UKIP party, who was quoted saying:

“It is absolutely ludicrous that when only 10% of the entire UK GDP is exports to the EU that the other 90% of our businesses are tied up with European rules – and I think people are starting to understand that.”


Mainstream parties lobbying for the UK to remain in the EU – what was the question?

Cartoon by Steve Bell


We think the quote sums up the sentiment of the anti-EU side well. They are aware of the benefits the EU membership provides, however, in their view the bureaucracy and over-regulation has gotten out of hand. Therefore even some pro-EU politicians are asking for reforms to the EU treaties to – among other things – increase the sovereignty of member states.


Mystic Dave, the amazing renegotiator …

Cartoon by Steve Bell


It is definitely too early to make assumptions about how things will unfold in Britain. But we will certainly monitor the situation and keep you updated accordingly.