Olive Press – April 2016
Ian Le Breton.

The Eurozone economy is not out of the woods yet

“Well”, said my Dutch colleague (for I remain ensconced in Sovereign’s Amsterdam office for just a little while longer) “what do you reckon to the upcoming EU referendum then?” I thought to myself how very direct these Netherlanders can be. But then why should I be surprised? After all I’ve seen the way Amsterdammers ride their bicycles like they own the place. Well, they do I guess but still, those bikes seem to be everywhere and you have to keep your eyes open – even in the bathtub!

“I mean it’s not like the government will take any notice. I’m not sure I will even bother to vote”, he went on. What was my Dutch friend talking about? What right had he to vote in our referendum? It was only then that he explained. The Dutch are about to have their own plebiscite on the EU’s recent Association Agreement with Ukraine, which is the first step to their applying for full EU membership. As my colleague pointed out, this referendum is not binding on the Dutch government – and besides, the EU’s agreement with Ukraine has already come into force (on 1 January this year for those that are interested).

This conversation led us swiftly to the UK’s referendum in which, of course, Gibraltar will participate. Unlike the Dutch vote, this referendum really does matter to all Britons – including those of us based on the Rock. I have always stayed away from politics in these articles and that is not going to change now. But the financial implications are of great interest and they are something I can talk about.

If we don’t like the incumbent government in Gibraltar or UK, there is an opportunity to change it every four or five years at our parliamentary elections. But the decision as to whether we remain in the EU is not one that can be reversed in a few years’ time; it will be final.

From a financial perspective, no one can be absolutely sure of the implications of a “Brexit”. Both sides will of course paint dramatically opposing scenarios of life in or out of the EU, but the only certainty is that the uncertainly will grow over the coming weeks until “R” Day – Thursday, 23 June – when we go to the polls. And markets hate uncertainty.

I imagine the foreign exchange market will be one to watch – and, of course, the euro to sterling exchange rate is always a hot topic on and around the Rock. The euro zone economy is certainly not out of the woods yet, so we can expect considerable volatility in the euro for some time. For UK pensioners living in Spain, this represents a tangible difference each month. Imagine the effect multiplied hugely in 2016 before and after “R” Day. Similarly we can expect the stock market to wobble as the date approaches and the pollsters issue their predictions. And there is always the danger that interest rates, which have been frozen at 0.5% for seven years now in the UK, will be drawn into the fray.

There will be more from me as spring rolls into summer and the big day itself draws near. I may not be allowed to tell you how to vote but, with the decision apparently finely balanced, I can say that every vote will count; our freedom to exercise our democratic rights has never been more important. For unlike my friends in the Netherlands on 6 April, our referendum definitely matters and the government will take note of the result. And we will all have to live with the consequences for years to come.

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