Here is another one for you. Another riddle that I have been trying to solve whilst reporting the referendum. It goes like this: All sorts of reputable economic institutions – the International Monetary Fund (IMF), the World Bank, the Treasury – plus world leaders like Barack Obama and China´s Xi Jinping – have warned of severe economic shocks should there be a vote to leave. Nevertheless, the polls are fairly close.
On Monday for example, the Treasury released its latest and last study on the potential consequences of a Brexit. The government expects a recession and a decline in wealth, household incomes and economic activity as well as the loss of at least 820.000 jobs within two years. Chancellor Osborne spoke of a “DIY recession” that Britain might be getting itself into, a recession that could last up to one year, according to the Chancellor of the Exchequer. This resembles some of the comments that were made in April when the Treasury released its first Brexit study. That study found that the average British family would be 4.300 pounds worse off, per year.
The IMF is of a similar opinion when it comes to Brexit. About ten days ago, I attended a press conference at the Treasury where Christine Lagarde, the head of the IMF, said there would be lower economic output and lower consumption but higher risk in the case of a Brexit-vote. US President Barack Obama made similar comments when he visited the UK at the end of April. Obama said that there might eventually be a trade deal between the US and the UK, but at the same time stated that Britain “would be at the end of the queue”, should it vote to leave the European Union on June 23rd. As the US is currently busy negotiating the Transatlantic Trade and Investment Partnership (TTIP) with its European partners, a trade deal with the UK does not seem to fare too high on the agenda.
Interestingly enough, none of these interventions seems to have had a big impact on voters. The FT poll which recently estimated 46 percent for Remain and 43 percent for Exit, stands now at 47 percent vs. 40, with the amount of undecided voters rising. Leaving aside those modest swings, there hasn´t been much movement in the polls – a fact that I find astonishing, given that pretty much every major economic institution in the world has forecasted negative economic impacts.
The second point is even worse: So far, the Vote Leave campaign hasn’t really been able to decide what kind of economic model they are advertising to their audience. Are they for a Norwegian-type-arrangement with the EU? Or do they prefer the Swiss solution which consists of more than 180 individual trade treaties? The Turkish model? A Canadian model which unfortunately does not cover financial services? A WTO solution which incurs four percent tariffs on everything, as a base case? I find it fascinating that voters seem just not to care. Although the Vote Leave campaign cannot explain what kind of relationship it wants with Europe in the future – or support that with some numbers – the polls are fairly close.
Is that because the economy, stupid, does not count? Or is it because people don’t trust these institutions anymore? There might be some truth to that. “Nobody cares”, Jon Moulton, a prominent City figure told me on Monday. We sat in a sunlit office near Leicester Square in Central London. Moulton was in a good mood. The prospect of Brexit, uncertainty and market turbulence did not seem to bother him at all. “Not one in a thousand Britons knows who Xi Jinping is and why they should listen to him”, he said and reminded me of the advice that the IMF gave the UK when the Euro was introduced. “The IMF wanted us to join the Euro, you know”, Moulton states. “And the World Bank, you know that, is consistently wrong on many things. “So that´s that. If the IMF was wrong on the Euro, how could it be right on Brexit? I don´t buy this, to be honest. But it´s at least an explanation for why the polls have remained as close as they are.
Admittedly, as numerous economists have told me, it’s hard to forecast the implications of a Brexit, precisely because it all depends on what kind of relationship the UK would have with the EU after such an incident. Will a vote to remain be the “best thing for the UK economy”, as Ryanair-CEO Michael O’Leary puts it? He offers thousands of cheap tickets to Britons living abroad in order for them to vote at home, a move that has earned him a lot of criticism (and free PR) from the Leave campaign members who consider this an unfair advantage for the Remain-side.
Here is the problem, from a journalist’s point of view. It’s going to take five to ten years after a British exit until we will see the implications for the City of London and the overall British economy. Add to this idea the thought that we cannot exclude for external events happening in the world (e.g. a crash in China, another terrorist attack, an oil price surge) and you end up with a pretty solid feeling of uncertainty, even if you have numerous economic studies and models sitting atop your desk. This is possibly one of the reasons why my editors don’t really get excited when I pitch another Brexit-study to them. It’s just hard to forecast what the economic impact will be.