The Bank of England’s reaction towards the vote for Brexit

The “unreliable boyfriend”: That´s the nickname that the City of London has given Mark Carney, the Canadian who has been running the Bank of England since 2013. How did he earn that honour? Several times last year – with the EU-referendum still months and months away, the British economy presented itself in rude health – Carney hinted towards a potential rate rise, only to disappoint investors and analysts by leaving rates at the level they have been since 2009, 0.5 percent. Since then, the City never really trusted the comments that came out of Threadneedle Street.

About six weeks after the historic vote for Brexit, things have changed quite dramatically. As he proved on Thursday, Mark Carney no longer deserves his nickname. Contrary to the past, the head of the BoE met the expectations of the financial community: On Wednesday, the Monetary Policy Committee (MPC), the core decision-making organ of the Central Bank, decided to cut rates to 0.25 percent and to restart Quantitative Easing (QE). In addition to that, the MPC decided to create a new credit facility for banks and house-building societies.

With these measures in place, Governor Carney and the Chancellor of the Exchequer,  Philip Hammond, hope to moderate the negative impact of the EU-referendum on the British economy. Important indicators such as the most recent Purchasing Managers Index (PMI) point towards a drastic slowdown since the end of June. Because of this situation, the BoE has adjusted its forecast for next year: Instead of 2.3 percent as previously forecasted, the central bank only expects meagre growth of around 0.8 percent, the biggest amendment since 1983. After the expected rate cut, it remains to be seen whether the Central Bank will be able to prevent a hard landing. Ultimately, the core problem of the British economy is caused by the uncertainty about the future relationship between the UK and the EU – a problem that monetary policy cannot solve.

According to the report published on Thursday, the BoE expects an increase in inflation, more unemployment and less consumer demand after the vote for Brexit. At 4.9 percent, unemployment is currently at a historic low. However, it is supposed to rise again, to 5.4 percent in 2017 and 5.6 percent in 2018. Because of the expected slump in consumer demand, the MPC has decided to restart QE, a policy measure that hasn´t been used since 2013. Now, the BoE is allowed to buy British government bonds (gilts) of up to 60 billion pounds and, in addition to this, corporate bonds of up to 10 billion pounds. By including corporate bonds, the BoE follows the example of the European Central Bank (ECB) which started buying corporate bonds in early June as part of its QE-program.

The cut in interest rates will most likely reduce the profitability of British banks. Simon-Kucher & Partners, a strategy consultancy, expects operating profits of the 21 largest banks and house-building societies to decline by up to 1.4 billion pounds, now that rates have been reduced to their lowest level for 322 years. In order to prevent a new banking crisis, the MPC introduced a credit program for banks and house-building societies, the so called “Term Funding Scheme” which provides financial institutions with the opportunity to borrow money at rates close to the bank rate. Previous QE-programs included, the balance sheet of the BoE could swell to levels of up to 545 billion pounds thanks to the measures announced on Thursday.

Initially, analysts and markets reacted positively. However, it remains to be seen whether the measures of the BoE deliver the desired results. The underlying problem of the British economy is not access to capital and a lack of funding, but the heightened levels of uncertainty since the British voted for Brexit on the 23rd of June. As long as there is no clarity over the future relationship between the UK and the EU, monetary policy can only do so much to support confidence and investment.

It depends on the outcome of the negotiations between London and Brussels whether the British economy enters a long and severe crisis or whether it recovers relatively quickly and, maybe even more important, only with minor bruises. According to what Theresa May has said, it will take a while until the official start of the negotiations. The Prime Minister intends to wait until early 2017 before she triggers Article 50 of the Lisbon Treaty which will commence the divorce process between the UK and the EU.

Mark Carney is aware of this, as his letter to Chancellor Hammond indicates. “Many of the adjustments needed to move to that new equilibrium (the new relationship between the UK and the EU) are real in nature, and are not the gift of monetary policy makers. Nonetheless, monetary policy can still play a role in smoothing part of this adjustment by appropriately balancing the forces acting to push inflation above the target with those expected to push activity below the economy’s new path for potential output.” Analysts as well as business associations, such as the British Chambers of Commerce (BCC), remain sceptical as to whether the BoE’s actions will produce the desired results. “Lower interest rates may give a helpful boost to market confidence, but have little-long term effect on businesses when rates are already so low”, comments Adam Marshall, acting Director General of the BCC.

Independent of this, Chancellor Hammond seems to be confident regarding the future prospects for the British economy. “The UK economy is fundamentally strong – employment is at a record high, there are almost a million new businesses since 2010 and the budget deficit has been reduced by almost two-thirds as a share of GDP. This is a new chapter for Britain, but we are well-placed to deal with the volatility caused by the vote to leave the EU”, Hammond writes in a letter to the Governor of the Central Bank.

He continues by stating: “I am prepared to take any necessary steps to support the economy and promote confidence. The UK starts from a position of economic strength as we address the challenges and take advantage of the opportunities that will arise as we forge a new relationship with the EU.” Regardless of the slowdown that indicators such as the most recent version of the PMI point out, the BoE has left its growth forecast for 2016 unchanged. In the year of the EU-referendum, the British economy is supposed to grow by 2 percent, the BoE thinks.

After their decision on Wednesday, the members of the MPC will only reconvene in early November. By then, the impact of the vote for Brexit on the state of the economy should be more obvious than it is today. Should there be a further deterioration of sentiment, the MPC might reduce rates further, but not to zero. According to the statement put out by the BoE, the bank rate is supposed to remain a little above zero, potentially avoiding some of the problems that the European counterpart of the BoE, the ECB, finds itself in after the introduction of negative interest rates.

Not only the BoE, but also the Chancellor could be taking further measures soon. He will deliver his first Autumn Statement in November and is expected to announce fiscal stimulus for the ailing economy.

But will Hammond be able to take away some of the uncertainty British firms suffer from? We’ll see.

 

 

 

Some thoughts on Boris Johnson

It was a shock. German politicians, their French counterparts, EU-representatives – they all shook their heads in disbelief when it was announced that the former mayor of London, Boris Johnson, would become the UK’s new foreign secretary. German TV commentators reportedly could not stop laughing about the appointment. Others, such as the French foreign minister, Jean-Marc Ayrault, described the Prime Minister’s choice as a sign of the political crisis in the UK. According to Ayrault, Johnson lied a lot during the referendum campaign and is now, what an irony, being rewarded with the post of foreign secretary.

Others tuned in, commenting on Johnson’s rather undiplomatic comments about for example President Obama’s African ancestry, and the fact that he, Johnson, lent his voice to a campaign that was made up of a lot of half-truths, to put it mildly (most of which have already been deleted from the internet). Frank-Walter Steinmeier, the German foreign minister, stated: “To be honest, I find this outrageous. It’s not just bitter for Great Britain. It’s also bitter for the EU.”

Angela Merkel, the German chancellor, however, did not comment on Prime Minister May’s choice. She instead called 10 Downing Street and invited her to Berlin. “I think it is our duty to work quite closely with governments of allied countries“, Merkel said. “The world has enough problems so we need to make progress in foreign policy collaboration, the way we have done it in the past with Great Britain.“

Again, Merkel behaved differently than her – mostly male – colleagues. Instead of exclaiming what an ill-fated choice the selection of Boris Johnson, a prominent Brexit-supporter, was, Merkel waits and sees, a tactic that she mastered very early on in her political career.

From a German point of view, Boris Johnson’s appointment is an interesting choice. Yes, admittedly, he is a populist. He is someone who seems to lack strong political beliefs and who jumped at the chance to join the Brexit-camp just because it fit his long term ambitions. Seldom has this been so obvious as in the case of Boris Johnson, a man who seemed to have little in common with hardcore Brexit supporters such as David Davis, Theresa May’s new Brexit-minister, or Nigel Farage, the former head of UKIP who decided to withdraw from the public eye quickly after the referendum in order to make sure that he will not be associated with the mess that is likely to follow.

However, with the appointment of a Brexit-minister and the creation of an international trade ministry, May has made sure that Johnson’s remit will be quite limited. The real driver in Britain`s Brexit-negotiations will not be the Foreign Office, but 10 and 11 Downing Street as well as the Brexit ministry and the ministry for international trade. Consequently, foreign secretary Johnson will not be involved too much in negotiating Britain´s future relationship with Europe. At the same time, May has made sure that Johnson is inside the government, not outside where he could have easily attacked her decision-making without having to carry any responsibility himself.

He will be fairly busy in the months to come, travelling the world, trying to get the message across that although the UK has voted to leave the EU, it is not turning its back against the world. In addition to that, he will have to make sure that he does not make too many gaffes, something that he is quite known for.

It remains to be seen whether Johnson will be able to curb his tongue. If he does not, he might be the first minister of this new government to be sacked. At least, that´s what the bookies think.

 

 

 

 

Some thoughts on Boris Johnson

It was a shock. German politicians, their French counterparts, EU-representatives – they all shook their heads in disbelief when it was announced that the former mayor of London, Boris Johnson, would become the UK’s new foreign secretary. German TV commentators reportedly could not stop laughing about the appointment. Others, such as the French foreign minister, Jean-Marc Ayrault, described the Prime Minister’s choice as a sign of the political crisis in the UK. According to Ayrault, Johnson lied a lot during the referendum campaign and is now, what an irony, being rewarded with the post of foreign secretary.

Others tuned in, commenting on Johnson’s rather undiplomatic comments about for example President Obama’s African ancestry, and the fact that he, Johnson, lent his voice to a campaign that was made up of a lot of half-truths, to put it mildly (most of which have already been deleted from the internet). Frank-Walter Steinmeier, the German foreign minister, stated: “To be honest, I find this outrageous. It’s not just bitter for Great Britain. It’s also bitter for the EU.”

Angela Merkel, the German chancellor, however, did not comment on Prime Minister May’s choice. She instead called 10 Downing Street and invited her to Berlin. “I think it is our duty to work quite closely with governments of allied countries“, Merkel said. “The world has enough problems so we need to make progress in foreign policy collaboration, the way we have done it in the past with Great Britain.“

Again, Merkel behaved differently than her – mostly male – colleagues. Instead of exclaiming what an ill-fated choice the selection of Boris Johnson, a prominent Brexit-supporter, was, Merkel waits and sees, a tactic that she mastered very early on in her political career.

From a German point of view, Boris Johnson’s appointment is an interesting choice. Yes, admittedly, he is a populist. He is someone who seems to lack strong political beliefs and who jumped at the chance to join the Brexit-camp just because it fit his long term ambitions. Seldom has this been so obvious as in the case of Boris Johnson, a man who seemed to have little in common with hardcore Brexit supporters such as David Davis, Theresa May’s new Brexit-minister, or Nigel Farage, the former head of UKIP who decided to withdraw from the public eye quickly after the referendum in order to make sure that he will not be associated with the mess that is likely to follow.

However, with the appointment of a Brexit-minister and the creation of an international trade ministry, May has made sure that Johnson’s remit will be quite limited. The real driver in Britain`s Brexit-negotiations will not be the Foreign Office, but 10 and 11 Downing Street as well as the Brexit ministry and the ministry for international trade. Consequently, foreign secretary Johnson will not be involved too much in negotiating Britain´s future relationship with Europe. At the same time, May has made sure that Johnson is inside the government, not outside where he could have easily attacked her decision-making without having to carry any responsibility himself.

He will be fairly busy in the months to come, travelling the world, trying to get the message across that although the UK has voted to leave the EU, it is not turning its back against the world. In addition to that, he will have to make sure that he does not make too many gaffes, something that he is quite known for.

It remains to be seen whether Johnson will be able to curb his tongue. If he does not, he might be the first minister of this new government to be sacked. At least, that´s what the bookies think.

The saviour of the British economy?

A safe pair of hands. Over and over again, British media outlets have used these words to describe Theresa May, the new Prime Minister. She is said to be stable and reliable, and yes, a bit boring. But maybe that’s exactly what the country needs now, after all the excitement that her predecessor David Cameron provided the UK with.

Similar things are being said about Theresa May’s new chancellor, Philip Hammond. The 60-year old has already held several ministerial posts – he was Foreign and Defence Secretary, among others – and has, contrary to many of his colleagues in the House of Commons, had a “real” job before becoming a Member of Parliament 19 years ago. After his studies at Oxford University, Hammond worked for a company that sells medical appliances, spent some time in South America as a consultant for the World Bank and became a partner at a consultancy firm.

Prior to the British EU-referendum on the 23rd of June, Hammond was part of the Remain-camp. It is expected that he will try to negotiate a deal under which the City of London can maintain its passporting rights into Europe, a crucial factor for London to keep its status as Europe’s leading financial center. At the same time, the Conservative will have to stabilise the British economy and regain trust from international investors. Thanks to its high budget and current account deficit, Britain will continue to rely on foreign funding – even more so, should there be a sharp recession looming.

Philip Hammond has had an eye out for the prestigious role for a while. Already in 2010, when the Conservatives formed a government with the Liberal Democrats, the man with the grey mane uttered his interest for the role as a Chief Secretary in Her Majesty’s Treasury, the second most important job after that of the Minister. However, at that point in time, a Liberal got the chance.

Thus, Hammond started in the Department of Transport before becoming Defence Secretary in 2011 and Foreign Secretary in 2014. A Member of Parliament, Hammond has represented Runnymede and Weybridge since 1997 – a constituency that voted Leave although their MEP supported Britain to remain in the EU.

Philip Hammond will now have to make use of his vast experience in order to reassure international investors that the UK is still a good destination for their money. “We don`t turn our back against the world”, he said after his appointment. Hammond pledged to take “whatever measures” needed to help stabilise the economy and retain Britain as an attractive destination for firms to invest.

It remains to be seen what this means for his tax policies. On Thursday, Hammond declined to comment on the announcements made by his predecessor George Osborne to slash corporation tax to 15 percent. Hammond is known for his support for low taxes. Nevertheless, it is still too early to tell whether Hammond will engage in, as some critics such as Pascal Lamy, the former head of the WTO, have claimed, extensive tax dumping in order to keep companies from leaving the UK after the divorce from the EU.

There is more to watch out for. There are two areas where Hammond could clash with his new boss fairly soon. First, there is fiscal politics. Hammond has a reputation of being a “fiscal hawk”. Nevertheless, he cannot just continue what George Osborne started in 2010 when he embarked on a massive austerity program that still is not finished. Prime Minister May has been very clear in the past days that the government’s first goal should not be – as planned before – to generate a budget surplus by 2020 but to make sure that more people benefit from economic growth and prosperity (assuming, of course, there is still something left to share after Brexit).

We might get a first glance of his fiscal plans when he presents the Autumn Statement in November. Different to what then chancellor George Osborne announced before the referendum, there won’t be an emergency budget. Experts like Kallum Pickering, the UK economist at Berenberg Bank, thus expect some more fiscal loosening in the short run whilst more cuts are being postponed towards the end of the Parliament.

Besides fiscal policy, there is a second topic that holds vast potential for conflict, the so called passport for the City of London. This framework allows banks headquartered in London to sell their products on the continent. Should the City of London lose these rights, several thousand jobs could be moved to Frankfurt, Paris or Dublin. London would subsequently lose some of its attractiveness for international banks. Hammond seems to be all too aware of this. On Tuesday, he stated at the British Bankers Association that the financial industry will be possibly hit the hardest by Brexit. “I know and understand the importance of passporting”, Hammond said.

Theresa May though not only needs to satisfy the banks, but also those 17 million Brexit-voters of which many requested the European Freedom of Labour Movement to be scrapped or at least reduced. Leading EU-politicians such as Jean-Claude Juncker, the President of the European Commission, or Angela Merkel, the German chancellor, have already made clear that there is not too much room for negotiation here. Access to the Single Market and passporting can only be sustained if the four freedoms remain in place. So where will that leave the two safe pairs of hands?

 

 

 

 

May and Merkel – will they get along?

The parallels are all too obvious. They are both females, in their late fifties or early sixties. They are both pastors’ daughters. They both studied untypical subjects (geography and physics). They are both known for being practical, having a strong endurance and, paying attention to details. In addition to all of this, they have fought their way to the top by beating the competition (mostly men) and by making sure that there is actually not too much competition left to challenge them in the future (Merkel has killed off all critics in her party while May was the last Tory-woman standing after a bruising Referendum campaign).

Both are known to be hard workers. Both have the reputation of wanting to get things done and, of just getting on with it, as people say here in Britain. Both Merkel, the German chancellor, as well as May, Britain’s new Prime Minister, have been around for a while (Merkel since 2005, May since 2010). Both are said to be a “safe pair of hands”, a safe bet. Neither of the two has the reputation of being too emotional, chatty, charming, or anything but business.

So, the question goes, will they get along, the German chancellor and her British counterpart? For sure, the relationship between Merkel and May will be crucial when negotiating Britain’s exit from the EU. Both will be studying each others previous negotiating quite closely, and they will be trying to predict the future by investigating the other’s past behaviour in negotiations where a lot was at stake.

From a German point of view, out of the two choices at hand – Theresa May and Andrea Leadsom – May is definitely the preferred option. This is not so much because she was a soft Remainer, but rather because she is expected to behave fairly rationally, pragmatically and reasonably. That’s not to say that Merkel and others should not expect some tough negotiating. Theresa May will, and I am sure that people in Berlin and Brussels will be aware of this, fight as hard as she can to get “the best deal for Britain”.

A lot will depend on the careful calibration of this relationship. Merkel might help May where other European partners don’t want to. But, as the leading representative of one of the most important trading partners of the UK, she can also play a huge role in massaging May into the desired direction.

As to the end result, I am not sure whether it makes a huge difference whether the two get along well, given the gigantic task that lies ahead of them. There is a fundamental issue here that needs to be resolved but that at the same time seems totally unresolveable. How do you keep full access to the Single Market if you plan to reduce the European Freedom of (Labour) Movement? Any negotiator will have to be very witty to achieve anything that comes close to this.

Depending on how the coming months unfold, Merkel could become May’s interconnector into Brussels and other European capitals. However, it could also be the contrary. Merkel might well become a strong adversary to May, should the British Prime Minister try to use the Europeans currently living in the UK as bargaining chips for the negotiations in Brussels.

However, we should not overplay the importance of the relationship between the two. Germany and the UK no longer have closely aligned interests (at least not as aligned as before June 23rd) and so each side will fight with might for what they want to get out of this situation.

Where have they all gone?

On Saturday, I spoke to a good friend on the phone. She is German, like me, and works for a British firm in London. Some weeks ago, she was sent to the Middle East to supervise a local project which unfortunately lead to her missing the full, on the ground Brexit-experience that we enjoyed here. She is still there, in the sweltering heat, and is trying to follow the post-Brexit fall out as closely as possible.

One of the things that my friend is particularly angry about is the fact that Johnson, Gove and Farage, the triumvirate that engineered the victory of the Leave-side, have now all but vanished from the political stage. Well, you might say, that’s an old hat, isn’t it? It might feel as if, given that within the last two and a half weeks, most of what people like me and my friend thought we had known about this country is no longer true. Thus, with headlines chasing each other, people seem to get used to this new reality fairly quickly.

My friend though is still struggling. “This is just not correct”, she, a strong supporter of Britain’s EU-membership, said. “How can it be that these people are not held accountable for what they have done?” Fair point. Of course, the media reported widely on Johnson’s withdrawal, Gove’s betrayal and Farage’s resignation as chair of Ukip. As we found out, he wants to remain a British MEP even though he was one of the core driving forces that made the UK vote for Leave.

Calls for him to step down fell on deaf ears, even though MPs like Tom Brake have critised him heavily. Last week, when I interviewed Brake, he said: “You can’t call for the EU to be dismantled and at the same time benefit from a generous salary and expense allowances. Nigel needs to do the honourable thing – he cannot spend years complaining about the Brussels gravy train and stay on it.” Unfortunately, that’s exactly what Farage intends to do.

Besides Nigel, let’s not forget people like Boris Johnson and Michael Gove. Their failure to accept responsibility is as disappointing as that of Nigel Farage. None of this is of course a surprise. I knew from the beginning onwards that neither of the three were willing to carry the burden of implementing the vote of the British people.

What I am surprised about though is that we don’t hear anything from Leave-voters, those that thought that the NHS would get 350 million pounds more per week if the UK left the EU, those that believed that the UK could just end European migration with a snap of a finger. Why are we not hearing from them?

It’s obvious that they have been misled and lied to by people like Nigel Farage, Boris Johnson and Michael Gove. Most of the claims made during the campaign were taken back quickly, within days, and quickly afterwards, the main protagonists are leaving the stage and nobody stops them from doing so.

If I was a Leave-voter, I would be really angry these days. I would feel fooled and used by people who obviously were not interested in the fate of the British people but only in their own careers. But Leave-voters seem to not bother. I googled around a bit and found an interesting entry on Quora. On the question whether Brexit voters felt betrayed now that Farage and Johnson have resigned, user Alex Higgins had an easy answer: “No. Farage is a national hero who has restored Britain’s freedom. Johnson was stabbed in the back by his ex-friend Gove and left with no option but to withdraw. Very simple really.”

If this is what Leave-voters think (I still haven’t met a single one of them, elitist me), then there is only one conclusion one can draw: A large part of the population in this country does not mind if they are being lied to.

In a democracy, we get the politicians and the government we deserve. This seems to be especially true for today’s Britain.

 

British universities after Brexit

It’s her favourite topic: Europe. Helen Drake is a professor for French and European Studies at Loughborough University. For years, she has researched European politics, European integration and European history. This, the Brit fears, could become much more difficult, should the UK go ahead with its plan to exit the European Union. “European studies will lose a lot of their attraction”, the professor said when I interviewed her earlier this week. “My students are already less interested in Europe than in other topics.”

She believes that this is down to the ambivalence that has characterised the relationship between the UK and the EU for decades. For her, the vote for Brexit could also have personal consequences – Drake holds a chair for European Integration that is financed by the European Commission. “I have no idea whether I will be able to keep it beyond the initial funding period”, she stated.

These days, academic staff and students think along similar lines. They all worry about the future of the British university system, should the UK leave the EU, as requested by its people. Students and staff with European passports are equally worried. They fear that the cost of studying in the UK will go up and that European funding will no longer be available to British researchers.

Up until now, the vote for Brexit hasn’t had too many practical implications, neither for Europeans nor for Brits (except the pound/stock market crash). “There is no immediate change to the UK’s participation in the Erasmus+ programme following the EU referendum result”, the website of the British Erasmus office states. “All participants and beneficiaries should continue with their Erasmus+ funded activities and preparation for the published application deadlines in 2016 and 2017.” Every year, there are tens of thousands Europeans that come to the UK with the help of this program.

Many now fear that this could change within a couple of years. “It is understandable that there are fears among the 125.000 EU-students and the 43.000 staff from EU-countries”, Julia Goodfellow, the president of Universities UK, the association of British universities, commented recently.

It all depends on the negotiations between Brussels and London, once Article 50 is officially triggered. In the run up to this, the universities are only one of many parties that lobby the government. “The universities have to work hard to influence the government in order for them to keep the status quo”, said Charlie Beckett, one of my former professors at the London School of Economics and Political Science (LSE). For him, it is very difficult to forecast the impacts of a British divorce from the EU, at least at this point in time. “It does not change the fundamentals but many of the details”, he said.

One core area of concern is the freedom of movement. This could hit the universities hard: Europeans make up five percent of the student body, among the University staff, it’s 15 percent. “The end of the European freedom of movement could lead to many European students no longer coming here”, explained Julie Smith, a lecturer at the University of Cambridge and a Member of the House of Lords.

This is also what Ulrike Franke believes, a PhD student at the University of Oxford. “Not only with regard to the legal status, but also with regard to tuition fees, there is a lot of uncertainty”, the 28-year old German said when I phoned her. So far, Europeans pay the same amount of fee as British students, up to 9000 pounds per year. It is quite possible that they would have to come up with substantially more than that, should the UK treat them like overseas students.

With fees of around 35.000 pounds per year, a degree in the UK would become much more expensive. “In this case, many Europeans will consider going to the US instead”, Franke stated, “the UK would lose the cost competitiveness that has drawn a lot of Europeans here.” Two weeks after the historic vote for Brexit, she is still desperate. “I am heartbroken”, she said.

After the British exit from the EU, life for scientists and researchers could also become harder. “Because about the uncertainty around tuition costs, future job opportunities and the legal status, many professors and students will give it a second thought”, said Marc Szepan, another PhD candidate in Oxford.

Deans have started thinking about how to compensate for the loss of European funding after Brexit. Given that the UK is running a substantial budget deficit, they don’t assume that the government will be able to foot the bill. “The government simply cannot afford this”, Julie Smith from the University of Cambridge believes.

According to data from Universities UK, British universities received 836 million pounds during the 2014/2015 academic year, a similar amount came from the central government in Westminster and the NHS. Thus, the public sector would have to double its spending once the UK turns its back on the EU. The majority of income though, around 33.2 billion pounds, is provided by tuition fees.

Already now, a short time since the referendum on June 23rd, British scientists are receiving unofficial warnings to not apply for European funding after 2018. “Even if we were theoretically still eligible for European funding, we should not underestimate the subjectivity factor”, Helen Drake said. By that, she means that even in case the UK continued to qualify for European grants and funding, researchers or students might not be selected, because of anti-British feelings. So far, more than 60 percent of the research partners of British Universities come from other EU-countries, Universities UK has found out.

Interestingly enough, some German scientists are more optimistic than that. Theoretically, it could be the case that the UK is cut off from European projects such as Horizon 2020 (budget: 80 billion Euro), should it press on with its exit from the EU. However, “I don’t believe the EU will really do this”, said Markus Rudolf, dean of the German business school WHU. “It would reduce its own attractiveness if British universities were no longer part of the European network.” Contrary to this, LSE-professor Beckett believes that British universities will increasingly have to search for funding outside of the EU. “We are already seeing that funding agreements are being postponed or even cancelled”, he said.

Britain’s move to exit the EU will not only impact European students in the UK. “Also for British students, this will be dramatic”, said Ulrike Franke, the German PhD student in Oxford. “Even before the referendum, they spent less time abroad compared to other EU nationals.” Helen Drake has made similar observations. “The number of British pupils and students learning a foreign language has gone down continuously”, the professor stated. “This trend will be amplified in this current climate of euro-scepticism.”

Soulsearching

It was an easy question, at least from the perspective of the radio presenter who asked it. “So would you apply for a British passport if this would allow you to stay in the country?” The scene took place Monday early afternoon, at Western House in Central London, right next to Oxford Circus. I had been invited to share some of my experiences as a European in a post-referendum Britain, on the Jeremy Vine Show on BBC Radio 2, and there we were. Right at the heart of the question.

Imagining that the European Freedom of Movement could be restricted or even revoked after a British EU-exit, would I still want to live in this country and, secondly, would I apply for British citizenship in order for me to be able to stay? It´s an interesting thing to think about, especially for me. So far, I have merely seen the outcome of the referendum as an unexpected turn in British history. I have watched the pound crash, Cameron resign, EU-Commissioner Hill step down. Within days, Boris Johnson was knifed, George Osborne dumped his austerity goal and Nigel Farage quit.

As a journalist, I watched it with fascination – seldomly, we get the chance to witness decades happening in a couple of days – but I haven`t really contemplated on what all this means for me personally. I have been in the UK for three years now (four if you count the year that I did at the London School of Economics in 2011) and I always liked it here.

I find it disappointing that a country with so much potential is now slowly dismantling its reputation in the world, its relevance as Europe’s leading financial center, its relationship to Europe. Of course, from a journalist point of view, this is as exciting as it gets. But from a personal perspective, do I still want to be here?

The huge amount of racist incidents since the referendum has clearly not helped. These days, you watch videos in which Brits are telling Europeans to leave their country. You read about insulting behaviour on trains and trams, in streets and restaurants.

The more worrying to me though is the debate about Europeans living in the UK and the question of whether they will be allowed to stay, should the UK really trigger Article 50 and sever its ties with the EU. For a long time, we were told (and happily believed) that nothing would change for those who are already in the country, that there would possibly be grandfathering of those arriving between now and the formal exit.

However, over the course of the past days, the debate has changed a little. Theresa May, currently Interior Minister and one of the favorites for the job of Prime Minister Cameron, alluded that she might be using the Europeans currently living in the UK as a bargaining chip in the negotiations in Brussels.

On the Peston Show, May stated: “What’s important is there will be a negotiation here as to how we deal with that issue of people who are already here and who have established a life here and Brits who’ve established a life in other countries within the European Union. (…) There’s no change at the moment, but of course we have to factor that into the negotiations.” Foreign Secretary Philip Hammond made similar comments on Monday.

Although May and Hammond were criticised heavily for what they said – not only by Remain-supporters but also by Leave-campaigners – I guess these comments give us a bit of a foretaste how the negotiations between the UK and the EU turn out once the UK officially starts the divorce proceedings. May and Hammond have made clear that they might want to use the approximately three million Europeans currently living in the UK as bargaining counters. (According to the FT, May’s team rowed back on Tuesday, stating that “Her position is that we will guarantee the legal status of EU nationals in Britain as long as British nationals living in EU countries have their status guaranteed too.”)

Given that the negotiations will not start for a while, I find this development deeply worrying. With comments like these, and the amount of racist incidents that have been reported since the Brexit vote, the UK has already changed dramatically. To me, it seems to be a less friendly, less open place to live in. I know that it all depends on the outcome of the negotiations so I think there is no need for premature panic. But – many of my European friends share my worries and some of us fear that the climate will become more heated once the divorce talks are under way.

A long answer to a short question. Would I apply for a British passport, in some years from now, and give away my German passport that allows me to travel to a record 177 countries, visa-free, according to most recent edition of the Visa Restrictions Index? I don`t know. Maybe not. Hopefully, there will be an alternative solution to this.

“Investors are worried”

For DIE WELT, I interviewed Neil Woodford, one of the most successful fund managers in the UK. Woodford worked for over 25 years at Invesco Perpetual before founding his own investment management company in 2014, Woodford Investment Management. I went to Oxford to pose some questions to him. The slightly longer version of the interview, in German, will be published in DIE WELT later this week.

How did you initially react to the Brexit vote? Did you see it coming?

In the lead up to the referendum I had thought that the vote would be close but I was surprised by the outcome. It was a surprise largely because the bookies were confidently predicting a Remain win as was the market – the polls were much closer but their credibility had been undermined by their failure to accurately predict the outcome of last year’s General Election.

What is your assessment of the initial market reaction and what do you expect for the weeks to come?

Investors are worried – they don’t know what Brexit means politically and economically. At times like this, it pays to keep calm. I’ve said before on several occasions, that this result isn’t going to change the fundamental trajectory of the UK economy over the next three to five years. We’ve been cautious about the outlook for the UK economy and the global economy for some time – there are many other challenges that we need to face up to.

In how far will there be a long term impact for financial markets in the UK, Europe and also globally?

It’s very difficult to say. It is likely that political uncertainty will continue both here in the UK and in the rest of the EU – not least because the new Prime Minister will not be known until after the summer and only then is it likely that the process of triggering Article 50 will start. How the negotiations then unfold is not clear. Having said that, I believe that the vote’s economic implications have been exaggerated significantly and that the fall in equity markets overdone. Within a few weeks I expect calm to return and a more balanced perspective to replace the fear of the last few days.

Do you think this could trigger another financial crisis or not? If not, why not?

I do not expect the UK economy to fall into a recession. Growth will slow but not by as much as people think. Inflation in the UK will also end up being a little higher as a result of the fall in sterling. Financial markets in other parts of the world should also recover some poise in the next few weeks. However, macro challenges will continue to build and global growth will continue to slow.

What does this mean for investor sentiment towards the UK? Will the UK become less attractive for international investors and do you think this period will last long?

Sterling’s fall makes the UK more attractive as a destination for foreign investment although how the discussions go with the EU after October will have an important bearing on the near-term level of business confidence. In the medium and long term other factors will be much more important in defining international investors perception of the UK as a destination for investment – for example, productivity, legal framework, tax, labour market flexibility, regulation, education and skill levels, and political stability.

Which stocks do you see benefitting from this, both short- and long-term?

We construct our portfolio in the light of those challenges that we’re going to have to navigate through over the next three to five years and beyond. I don’t think the prospects for the businesses that we’ve invested in have deteriorated at all as a result of the referendum. The course of those businesses is broadly as we thought it was before we voted to leave. So if you accept that the prospects are unaltered, and yet prices are lower, then by definition this means that the investment opportunity is more attractive.

Should we stay or should we go?

It has only been a week since we learned the results of the British EU-Referendum. Voters, politicians and business people are slowly coming to terms with the decision to leave the European Union. Although we can’t foresee all of the implications yet, it is quite obvious that the amount of change will be tremendous.

That’s especially true for firms that rely on accessing the European Single Market (e.g. Vodafone, the telecommunications company, or EasyJet, the low budget airline). Both Vodafone and Easyjet are headquartered in the UK, for now. Given that the UK might lose its access to the single market, these firms have, among others, announced that they could be forced to relocate their headquarters, should it be necessary for their businesses.

This news also got my editors interested. Ideally, they want me to find a company that will not wait whether and when Article 50 – the official start of the British divorce from Europe – is triggered, but that will be moving to Continental Europe any time soon. So far, I haven’t managed to find such a company.

According to what a German lawyer told me on Thursday, the reason for this is simple. Relocating your headquarters is a complex, time consuming and expensive business, not something you would do just in case, as a precautionary measure. “The starting shot will only be fired once we have clarity over the progress of the negotiations”, Marcel Hagemann, a partner at CMS Legal, told me.

Assuming that Article 50 will be triggered towards the end of the year, the UK has two years, until the end of 2018, to come to an agreement with the EU. His expectation is that by the end of 2017, we should see companies starting to relocate to the EU.

“You need some notice for this”, Hagemann said. From the legal side of things, it takes about a year to move a company from the UK to Europe, depending on what kind of legal process you want to undergo. According to the lawyer, there are two core solutions to this issue.

Firstly, there is the merger between the UK entity and a Continental European entity. For this, you can either establish a new company in Europe or buy an existing one. The only important thing is to merge this one with your British entity, making sure that the headquarter of the new entity is based outside of Britain. This is, Hagemann said, a relatively simple process, assuming that your company is not listed in Britain. If it is, it will lose its listing here in the UK (as it is not longer headquartered here).

The second solution to the problem is the creation of a European public company, a Societas Europaea (abbreviated SE). So far, the UK only has 34 of these whereas Germany has 350 SE-style companies. According to the lawyer, an SE is functioning similarly to a PLC. Whereas the founding of an SE is a bit complicated, moving the headquarters from the UK to Continental Europe should be relatively straight forward – as long as you finish the process before the UK officially leaves the EU.

When asked how expensive the whole process might be, Hagemann shrugged. Obviously, he did not want to be nailed down to a specific number. “It varies a lot, depending on the size of the company and the amount of people that will have to move”, he stated. Whereas he does not think that anyone will officially move their headquarters before the end of 2017, many firms have started searching for alternative locations.

Duesseldorf, where Hagemann is based, has already rolled out the red carpet to British telecommunication firms such as Vodafone. “They already have their German office there, so maybe this would be a good choice for the group headquarters as well”, Hagemann said.

Although the outcome of the referendum did surprise him, the German is still hopeful. “In the past, the British have been very good at negotiating in their favour”, he said. Plus: “Don’t forget that Germany has an interest in keeping them in the Single Market. We do have a strong voice here.”

Firms however will have to prepare for the worst. If they only learned one thing since the British referendum, it is that politicians don’t tend to stick to what they said before. Thus, they’d better be prepared if Britain’s EU negotiations break down in late 2018, leaving them with the prospect of a hard Brexit.

Some firms have already reacted. Siemens for example, the German industrials company, will not make further investments here in the UK before they have clarity over where the country might be heading. Two days ago, Virgin cancelled a deal that would have seen them take over 3000 staff. UOB, the Singaporean bank, stopped providing financing for British real estate projects.

According to Hagemann, we will see much more of this – but only once it is clear whether Britain remains part of the Single Market or not. “German companies will not start closing their factories straight away”, the lawyer said.

What a great relief. So watch out for 2017.