Winners and losers of the Brexit
Dear Traders,
While most people recover from the surprise UK referendum result, Europe is getting ready to make changes in the financial sector.
Bank giant HSBC is already thinking about moving a thousand traders from London to Paris:
...but they need to see the final decision of the UK parliament and the opening of Article 50 first.
There were additional reports suggesting Dublin could be the new European finance sector hub, as it remains the only remaining mother-tongue English speaking capital city within the EU.
So the battle for claim to being Europe's new finance hub, is firmly underway - but who are the real winners and losers of the Brexit?
Losers
United Kingdom
A number of major businesses are expected to exit operations in the UK as a result of trade arrangement changes between the UK and its largest export market, the EU.
After Brexit, the trade terms (e.g. tariffs and access to markets) may change too, making the UK less competitive against its EU peers within the EU market.
On the flipside, the weaker GBP makes the UK more competitive to export goods and services:
...but at what cost?
However, imports will become more expensive and this will create inflation.
The Confederation of British Industry estimates the UK's GDP to drop EUR 128Bn by 2020 and it could cost the country up to a million jobs.
Some studies also predict the UK's GDP to fall by up to 3%.
Labour and immigration were sticking points when the UK was part of the EU, as locals had to compete against other EU labour talent.
The result of the Brexit gives the UK more immigration control through VISA's, but will this mean they can maintain the specific labour resources they need?
Some UK journalists have also suggested that UK real estate prices may fall, as those EU citizens no longer eligible to live in the UK are invariably forced to move.
However, real estate price drops are difficult to analyse because the reduction in GBP, makes real estate cheaper to foreigners - so the net effect is probably neutral.
Another key aspect is that the UK is somewhat divided about the Brexit vote, so those on the vote's losing side may also choose to leave the country for an EU member state.
Scotland and Northern Ireland
Both these countries voted to remain in the EU, in the UK referendum.
Expect independence referendums from both, as they seek to remain in the EU.
Germany
Studies suggest that a Brexit may lead to negligible change to GDP, for stronger EU member states such as Germany.
Germany has stepped up as the leader of Europe united and as such:
...Berlin worries particularly about anti-EU sentiment in the union's western heartland…
...including the relatively economically-stable countries of France and the Netherlands.
If Germany continues to act as the leader, it will become vulnerable to strong opposition.
But if it stops acting as the leader, the political void may be filled by other EU members.
Winners
Frankfurt, Paris, Dublin and maybe Edinburgh
The most important sector of trade in London, is the Financial services sector.
It is essentially the hub for financing the EU zone, with English as its main language and a pool of international talent living there.
A Brexit changes this and places more onus on international banks to move their headquarters to within the EU zone, so they can keep:
- their clients
- favourable tax and trade terms.
Goldman Sachs has already hinted at moving its headquarters accordingly, so watch this space.
Marketing campaigns have started to sprout in Paris and Frankfurt, to obtain further presence from the major banks.
And watch for Dublin and possibly Edinburgh to ramp up similar campaigns.
France and other EU countries don't believe British financial companies should maintain access to EU markets:
...unless Britain accepts the free movement of people.
Will it happen?
Time will tell.
Paris is also planning to encourage firms and their foreign workers, to settle in France via implementing an improved tax regime.
The latter will include a service to help companies with questions about real estate, residency permits and schools.
Luxembourg
Luxembourg made it clear that it would dispatch two ministers to Britain, to ramp up business.
The country's Economic Minister Etienne Schneider and Finance Minister Pierre Gramegna, will visit London plus Bristol between July 25 to 27.
The Ministers are expected to promote Luxembourg as a good alternative to the UK, post-Brexit.
Sounds good, but when the dust settles I expect the European project will struggle to keep unity.
There are many possible outcomes for Europe, but we can clearly see that the most prominent EU countries are already making moves to claim the wounded Europe's financial hub status.
What do you think should or will happen?
Let us know your comments below.
Cheers and safe trading,
Nenad
