World First's chief economist, Jeremy Cook, talks about the history of Britain in Europe, the arguments for and against Brexit, and what impact it will have on businesses.

1. The EU Referendum
– what’s the big deal?

2. Jeremy Cook
Chief Economist and
Head of Currency Strategy

3. • The Referendum – What is it?
• The Renegotiation
• Short history of Britain in Europe
• How does EU work?
• How much does the EU cost?
• The Remain Campaign
• The Leave Campaign
• The Issues
• What happens if we leave?
• What model would be adopt?
• The Timeline
• Opinion polls
• The Fallout
• EU & Further Referenda
• Monetary Policy
• Fiscal Policy
• Sterling and additional FX
• Small Business Fallout
• Conclusions
Topics

4. “Should the United Kingdom remain a member of the European
Union, or leave the European Union?”
• It will take place on June 23rd and results should be known by about 7am on June 24th
• Simple majority vote as it was in Scotland, no FPTP
• Expected turnout around 60%, nothing like the Scots ref which was close on 85%
• High turnout seen as good for Remain, low turnout good for Leave

5. • EU migrant’s in work benefits to be phased in overt 4 years if ‘exceptional’ immigration exists
Cameron wanted 13 years and a removal of benefits
• Child benefit for the children of EU migrants to be paid at a rate based on home country cost of living
Cameron wanted a complete ban
• Treaties that reference ‘ever closer union’ to exempt the United Kingdom
• Red card for legislation on grounds of ‘subsidiarity’
Unsure how this will work in practice
Basis of the referendum comes from new terms agreed by
Government as to the UK’s membership

6. “We must build a kind of United
States of Europe. In this way
only will hundreds of millions of
toilers be able to regain the
simple joys and hopes which
make life worth living. The
structure of the United States
of Europe, if well and truly built,
will be such as to make the
material strength of a single
state less important. Small
nations will count as much as
large ones and gain their
honour by their contribution to
the common cause.”
Winston Churchill 1946

7. It’s complicated!
How does the EU work?

8. • £55m a day is a figure that you may have heard from some quarters.
• This is indeed what we SEND to the EU on a daily basis but does not account for receipts.
3rd largest contributor after Germany and France.
• We receive £4.9bn back as a rebate as well as £4.4bn back in the form of social funds,
single farm payments, development funds and R&D grants.
• Leaves a contribution of closer to £24m a day.
• Some say that is cheap for access to the single market, some say it would be better spent on
hospitals, schools and infrastructure here.

9. • A stronger economy that delivers opportunity now
and for future generations – opportunity through
growth, trade, investment jobs and lower prices.
• Stronger leadership on the world stage, enabling us
to shape the future – influence through participation.
• Stronger security in a dangerous world, keeping
Britain safe – safety through partnerships.

10. We need to be in Europe helping to
take the big decisions – not sitting
on the sidelines, powerless…
influence through participation.
‘Stronger leadership’‘Stronger economy’
We get an average of £24 billion of
investment into Britain per year from
Europe… average person in Britain
saves around £450 every year
because trading with Europe drives
down the price of goods and
services… return on investment of
almost ten to one… 3 million jobs in
Britain are linked to trade with the
rest of Europe.
‘Stronger security’
Threats to Britain's security are
global in nature - like the aggression
of Russia, terrorism and cross-
border crime…. sharing intelligence
about terrorists or arresting criminals
using the European
Arrest Warrant.

11. • More than a quarter of a million people came to the UK
from the EU in the 12 months to September 2015 – the
equivalent of a city the size of Plymouth or Newcastle in
a year. If this rate continues for a decade, there will be
more than two million extra people.
• The EU is growing. When we joined, there were just 9
member states. Now there are 28, the most recent being
Romania, Bulgaria and Croatia.
• The UK's official EU budget is about £350 million a
week. That’s about the same as the cost of building a
new NHS hospital every week.

12. • 257,000 EU migrants came to the UK in 2015 as part of the Free Movement agreements. Leaving the
EU may allow us more control over this however other countries that have free-trade agreements with
the EU (Norway and Switzerland) have had to allow migrant access to their jobs markets.
• There is also doubts over quid pro quo or Brits in living and working in the European Union – health,
pension benefits etc.
• UKIP wants a points-based system that would allow for migration of skilled workers over those from the
EU. While unpopular with those who are voting to ‘Remain’, opinion polls suggest the idea to be
popular with the general public.
EEA vs Non EEA migration

13. • Of the 5m people claiming benefits in the UK, only 114,00 are EU nationals. Figures have suggested
that immigrants do not come for benefits but instead look for higher wages. The NLL has come in for
criticism as a result.
• Pressure vs contribution – on average between 2001-11 the average EEA migrant has added £1.34 to
the economy for every £1 spent upon them while non-EEA migrants have added £1.02.
• In recent years, this trend has changed and suggest that Eastern European immigrants have
contributed £1.12 for every £1 spent, less than the £1.64 of other EU countries.
Benefit tourism

14. • The EU remains the largest trading partner of the UK, accounting for 44.6%
of exports and 53.2% of imports in 2014.
• Remain campaigners point to the time likely spent negotiating new trade
deals whilst Leavers favour talking about the EU’s declining share of global
activity since the 80s.
• Customer or shopkeeper?

15. • The UK is main beneficiary of EU FDI i.e. investment made by a company or entity based
in the EU, into a company or entity based in the UK.
• German carmakers invest around £2.6bn a year into the British car industry. Some believe
that to be in danger although there is the likelihood that the UK economy is attractive
enough to keep its status as a top investment destination.
• Businesses do crave stability but longer term flows and a beneficial regulatory
environment may be enough to surpass this in the future.

16. • The European Communities Act of 1972 ceded sovereignty to the EU when we initially
joined the EEC. We can repeal the act so the loss of sovereignty is not absolute.
• Cameron says sovereignty is ‘relative’ given the benefits of being part of the EU
however Leave campaigners will point to the lack of oversight and redress we have over
unelected officials.
• A common refrain of Leave campaigners is how many of our laws are made in Brussels
with some quoting a figure of 75%. This appears to be an exaggeration with a study of
House of Commons library records stating that the number is likely nearer 12%.

17. • Influence
• Security
• Risk
• Employment
• Education
• Environment

19. • There is no precedent. Plans and the processes to leave the EU were only drawn up in the
Lisbon Treaty of 2009.
• The most important thing to remember is that the EU would act without the involvement of
the UK and that would limit the negotiating power of a newly independent UK.
• Laws would be repealed and reinstituted as well as draft laws changed. We would still be
subject to EU rules and regulations in the meantime however.
• Indeed, should a Brexited UK wish to keep access to the Single Market then budget
contributions would still have to be paid, free movement continued and the continued
supremacy of EU law over the single market upheld.

23. The fallout
Could lead to the end of the European Union
and trigger further referenda
Monetary
policy
Fiscal
policy
reaction
Sterling and
the euro

25. • First impetus would be lower in the UK although further QE spending more probable.
• BOE may let inflation run hot should deprecation boost CPI in stagflation push
• Delays Fed rate rise by 9/12 months at least – current thoughts sit at September
• Further policy easing globally triggers ‘currency war’ like conditions
• ECB to further cut into negative territory

26. • IFS paper warns of additional austerity for the British people larger than current
fiscal consolidation.
• Brexit campaigns talk of £8bn in savings but a small slowdown in growth can
easily eat up £8bn
• Have to think that Osborne wouldn’t still be in place in the event of a Brexit. Can
Labour take advantage?

27. • GBP cracks by 15-20% vs USD and other havens
• EUR strengthens initially but relative strength of economies and monetary policies
• Commodity currencies to take a hit on a global trade
• Have to view the USD as the overall winner in this

28. • The answer depends on what kind of arrangement the UK came to with the EU.
• Germany will want to make clear that disrupting the EU does not come without costs. Even
if a deal were on offer, it is unlikely to come without a requirement for the free movement of
labour, as in the Swiss case.
• WTO tariffs: The EU protects agricultural markets strongly, for example. Exporters of dairy
products or meat might find themselves facing tariffs of 30 per cent or more - enough to
make exporting impossible for many companies. A lower sterling may help this however.
• Inward investment, both from EU countries, and from countries which see the UK as a
gateway to the EU markets and there is little incentive for a European firm to set up new
production facilities in the UK if they would then face barriers to selling back into Europe.

29. • Both Remain and Leave hold significant uncertainties for the UK in
Europe, the pound and the global economy but based on the facts
seen so far we believe that the Leave option holds more sizeable
economic risks.
• The pound is likely to rebound slightly in the event of a Remain vote
but strong turnout, vote win and economic resilience hold the key to
how long and durable any recovery may be.
• The political climate is fractured in the UK and Europe and pressures
from the migrant crisis and rising nationalism will lead to further
confrontations down the road.
Conclusions

31. • In this document World First may comment on the potential political outcome of the UK referendum on
EU membership. World First is not taking a political position and this document and the information and
opinion contained herein are not intended to promote or procure, or otherwise be in connection with
promoting or procuring, a particular outcome from the question asked within the UK referendum.
• These comments are the views and opinions of the author and should not be construed as advice. You
should act using your own information and judgment.
• Whilst information has been obtained from and is based upon multiple sources the author believes to
be reliable, we do not guarantee its accuracy and it may be incomplete or condensed.
• All opinions and estimates constitute the author’s own judgment as of the date of the briefing and are
subject to change without notice.
• Any rates given are ‘interbank’ i.e. for amounts of £5million or more thus are not indicative of the rates
offered by World First.
Disclaimers