A study has shown that the over-riding consensus amongst portfolio managers, analysts and finance specialists is that the UK will remain within the European Union (EU) in years to come.
Perhaps unsurprisingly, respondents are less confident about whether Greece will remain within the eurozone. While almost two thirds (61 per cent) think Greece will have the euro in three months time, only a third (32 per cent) think this will still be the case in three years. This suggests a majority expect a deal between Greece and its creditors – a view reinforced by recent developments – but that this is only a short-term solution to a longer-term problem.
The research, undertaken by Emerging Markets and G10 Independent Strategist Olivier Desbarres, asked the opinions of senior financial specialists across the world.
Nine out of 10 respondents (90 per cent) forecast the UK would still be in the EU in 18 months time. The ratio drops slightly to 82 per cent when the time horizon stretches to three years, and 68 per cent at the end of the current parliament in five years. One in five respondents (18 per cent) do not feel they can yet offer an opinion on whether the UK will still be in the EU in five years time.
Olivier Desbarres commented: “I tend to agree with the probabilities revealed through the research, which I do not think are fully priced into the sterling and euro exchange rates. Moreover, I see a risk that the time lag between the US Fed and Bank of England hiking rates is shorter than the six months currently priced in. I therefore remain bullish GBP/EUR medium-term.”
On the probability of the UK staying in the EU, Olivier said: “Prime Minister Cameron has promised a referendum on the UK’s membership to the EU before the end of 2017. Cameron’s initial discussions with key trading partners to reform the EU and ultimately give the UK a greater degree of autonomy in decision-making suggest there is some scope for negotiation. The UK economy has performed well and the government committed to further cutting the fiscal deficit. This is likely to resonate with the likes of German Chancellor Merkel at a time when the Greek debt crisis is threatening the very fabric of the eurozone. There is an argument to be made that Germany and France cannot afford to lose the UK.
“Furthermore, with UK growth robust and the labour market further improving, a reasonably content electorate is less likely to look for people or institutions to blame outside of the UK’s frontiers. In addition, the recent ‘yes’ vote in Scotland’s referendum on UK membership suggests we should not undermine the collective desire to be part of a union.”
Although the survey closed on Saturday 11th July, before Greece and its creditors announced on Monday morning that the outline of a new bailout package had been reached, Olivier thinks the results would have been broadly similar. He commented: “One could argue that the ratio of respondents expecting Greece to stay in the eurozone at least in the near-term would be a little higher now. However, things continue to change day by day. The Troika and Prime Minister Tsipras have agreed that there is a basis for an agreement on a new bailout package, and in exchange, the Syriza government has agreed to sweeping structural reform over and beyond the measures which it rejected in recent months and which the Greek electorate voted down at the 5th July referendum.
“Time is of the essence as Greece has a €3.5bn ECB loan maturing on 20 July, €2bn in late payments to the IMF and a further €5bn in maturities in August. Even if parliamentary approval is given and near-term financial hurdles are cleared, the risk of implementation slippage remains high particularly given the parlous state of the Greek economy. This would explain why only a third of survey respondents expect Greece to be part of the eurozone in three years time. The economic progress which the Greek government was making prior to the January elections, and the slow economic turnaround in Portugal, Spain and Ireland offer hope.”
