Business uncertainty over E.U.

Is Britain In or Out?

britishbusiness_reuters_effect
David Cameron has failed to reassure businesses with his promise to hold a referendum on E.U. membership if he wins the election.
  • Why it matters

    Why it matters

    Uncertainty over a referendum on E.U. membership is causing instability in Britain’s business sector and making long-term planning difficult.

  • Facts

    Facts

    • Britian goes to the polls on Thursday in the closest fought election in a century.
    • The ruling Conservatives are neck-and-neck with the social democratic Labour party in polls.
    • The Conservatives have promised a referendum on E.U. membership, Labout has ruled one out.
  • Audio

    Audio

  • Pdf

There is anything but joyful anticipation. “Great Britain will lose no matter who wins the elections,” warned Sir Martin Sorrell, the influential boss of the London-based advertising giant WPP, recently. He shares his unease with many British businessmen, because no matter what the outcome of the general election on May 7, they already see themselves as the loser.

Businesses in Britain, Germany’s second most important trading partner in the European Union, would seem to have every reason to be hugely optimistic, as the island’s long-term crisis is over at last. The country’s economy is likely to grow by 2.5 percent this year. That is around twice as much as is predicted for the whole of the euro zone.

And yet the business world is deeply concerned. It worries that despite the growth, there is great uncertainty about the economic direction politicians will take.

The election is reminiscent of the worldly wisdom spouted by the movie character Forrest Gump when he likens life to dipping into a box of chocolates: “You never know what you’re gonna get.” Analysts speak of the least predictable election outcome in almost a century.

David Cameron’s Conservatives and the opposition Labour Party, a social democratic party led by Ed Miliband, are neck-and-neck in opinion polls. Despite its first-past-the-post voting system, the country will probably have to get used to an unfamiliar, uncertain power structure, coalitions or a minority government. Many chief executives would therefore prefer it if there was no vote.

The E.U. referendum genie is out of the bottle and won’t simply disappear after the election.

From a business perspective, the political programs of both parties are unsettling. If the Conservatives win, Britain might possibly back out of the European Union within a couple of years and could suffer tremendous economic damage by doing so.

But Mr. Miliband’s agenda is also causing many business leaders headaches. “Red Ed,” as the newspapers have dubbed him, has shifted the party considerably to the left and wants, among other things, to raise income and corporate taxes, introduce a new levy on expensive real estate and put a statutory cap on energy prices.

Labour has ruled out an E.U. referendum, but independent observers agree that the party can’t avoid addressing the issue as its members are as split over the bloc as the public.

These are alarming prospects for companies that appreciate a stable environment. A possible British exit from the European Union is what is causing most concern. How are large corporations and small medium-sized companies supposed to plan for the medium term when they don’t even know whether in four years’ time they will still be able to export to the rest of Europe without trade barriers?

British politicians are playing with fire over the E.U. question.

The booming British auto industry has already warned that investments and jobs would suffer if customs duties were imposed on exports. Membership of the European domestic market is also extremely important to the financial sector. Three-quarters of the €75 trillion ($84.2 trillion) of annual European financial activities pass through London.

Actually, Mr. Cameron doesn’t want the so-called “Brexit,” but he is being pushed by the anti-E.U. hardliners in his party and by the emerging right-wing populist UK Independence Party. The E.U. referendum genie is out of the bottle and won’t simply disappear after the election.

Up until now, Mr. Cameron has clung to the plan of negotiating lasting reforms with the European Union in the coming years just before a vote on a possible exit. The approach is basically laudable, but there are doubts that it is realistic. Anyone who knows a little about the power structure in the bloc knows how difficult it is to reopen old agreements and come to an accord on new compromises.

So it’s highly likely that British politicians will have to revise their referendum plans after the election. British companies need clarification fast and can’t be left waiting two years in doubt and uncertainty.

 

To contact the author: herz@handelsblatt.com

We hope you enjoyed this article

Make sure to sign up for our free newsletters too!