Opinion

Hugo Dixon

Brexit risks have shot up

Hugo Dixon
Sep 9, 2014 09:31 UTC

Brexit risks have shot up in the past few weeks. The chance of Britain exiting the European Union by the end of the decade is now probably around 50 percent.

The main factor driving Brexit is the knife-edge referendum on Scottish independence. If the Scots vote next week to quit the United Kingdom, it is highly likely that the rump UK will leave the EU. If the UK doesn’t break up, it is much less likely that it will then part from the EU, but this is still a risk.

Financial markets are finally waking up to the risk of a “Scoxit” for the pound, gilts and the UK economy. They are also worrying about the knock-on effect in Spain, where the Catalan regional government wants to hold its own referendum on independence.

But investors don’t yet seem concerned about two other knock-on effects. One is Brexit. This will be even worse for the British economy than Scoxit. The other is that Brexit would be bad for the rest of the EU, just like Scoxit would be bad for the rest of Britain. On top of the economic hit as trade was disrupted, the EU would risk becoming less market-orientated.

As if that was not enough, both Britain and the EU would lose influence in the event of a combined Scoxit and Brexit. It is hard to put a price on clout. But a diminution of it would be damaging given that Europe’s neighbourhood looks increasingly dangerous and the United States is tiring of its role as global policeman.

Scoxit could lead to Brexit

Hugo Dixon
May 12, 2014 08:55 UTC

By Hugo Dixon

Hugo Dixon is Editor-at-Large, Reuters News. The opinions expressed are his own.

If the Scots vote to leave the UK in September, that could trigger a chain reaction which leads to the rest of the UK quitting the European Union. This is a threat British pro-Europeans need to take seriously given that a Scottish independence vote is quite possible, though the chances are still less than 50 percent.

Were it not for the Scotland factor, the risk of a so-called Brexit – Britain’s exit from the EU – would be receding. A string of business leaders have in recent months come out and argued that the economy would be damaged if the UK lost full access to the EU’s single market.

Independent Scotland won’t keep the pound

Hugo Dixon
Feb 3, 2014 09:44 UTC

An independent Scotland will not keep the pound. That’s despite this being the express wish of the Scottish government, which is campaigning for independence in September’s referendum. The reason is that it’s hard to see the rest of the UK agreeing to such a deal – except on terms that would affront Scotland’s amour propre.

One can understand why Edinburgh is keen not to change its monetary arrangements. If Scotland had its own free-floating currency, it would be less economically integrated with the rest of the UK. Given that 60 percent of its exports and 70 percent of its imports are with the rest of the UK, such a separation would hit hard.

A separate currency would also cause trouble for the outsized Scottish banking sector. Banking assets are more than 12 times GDP – nearly double the ratio for Iceland, Ireland and Cyprus before their banking industries blew up. The Scottish people might also worry that a Scottish currency could fall in value, devaluing their savings.