What impact would a Brexit have on European markets other than the UK?

Julian Chillingsworth, Guy Stephens and John Husselbee discuss the impact of Brexit on Europe

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Jun 14, 2016

Julian Chillingworth, chief investment officer, Rathbones

This is a really important question, given that the UK economy and market would ultimately find a level if we were to Brexit. However, we cannot anticipate with any certainty what will fill the vacuum left behind. The macro picture for Europe could deteriorate sharply if the UK voted to leave.

Broadly speaking, we are likely to see a continuation of the extremist push in Europe and a greater emphasis on protectionist policies. More specifically, though, we would anticipate referenda in both the Netherlands and Sweden, meaning a “Nexit” and a “Swexit” may well be on the cards.

The outlook for the euro in the aftermath of the UK referendum remains very unclear. It is difficult to call the immediate impact of a Brexit on the euro but, if we do see other nations wanting out, gilts and sterling may well benefit later down the line, as investors looks for safe havens away from what is likely to be a volatile currency.

Guy Stephens, managing director, Rowan Dartington Signature

It has been surprising to see so many global economic leaders quoting Brexit as a significant global event. For example, Federal Reserve chair Janet Yellen said in a speech earlier this month that it would cause a delay to interest rate rises in the US, while International Monetary Fund chief Christine Lagarde has also expressed concerns.

The issue is not so much one of worrying about the UK but of the impact on Europe. A Brexit will galvanise the anti-Europe, anti-austerity radical political movement that is building in Spain and France. It could spell the end of the whole euro project and cause the finances of the EU to get into serious difficulty. The UK is a significant net contributor. Without us, will the books still balance? Germany and France will have to commit yet more money and this could be a step too far for voters.

So, although the implications for our little island are quite uncertain, the future stability of the EU could come into sharp focus. What if the Spanish people demand a referendum? Or the Dutch, who we know are watching very closely with a skeptical eye. These are dangerous times. There is a lot more at stake than just Brexit.

John Husselbee, head of multi-asset, Liontrust

The impact on the UK should the leave campaign prevail is pretty much an unknown quantity, despite scaremongering claims from both sides of the debate. We just do not know whether it will pave the path to paradise or hell. And the same can be said for other European markets.

What is for sure is that such a result would not only have an impact on financial markets but will have political implications too. In the event of a Brexit we could well see calls from other EU nations to hold their own “in-or-out” referendum, either by those currently in power or by the opposition seeking a vote winning strategy. If this happens, it will further endanger the EU and increase the speculation of a wider break up. Now we all joining in on the scaremongering.

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