Steen Jakobsen Explains What Brexit Really Means: "No Good Outcomes To This"

Authored by Saxobank CIO Steen Jakobsen, via,

  • Cameron's EU deal is far short of what he promised
  • This represents formal acceptance of a two-tier Europe
  • Populists elsewhere already calling for their own referendums
  • By October, Cameron and Merkel could be history and Le Pen's star shining


 No wonder David Cameron looks worried.

This weekend saw British prime minister David Cameron get a deal from Europe, but a deal which is far from the ambition he launched in his so called ”Bloomberg speech” in 2013:  “repatriation of power”  and “fundamental” reform.

What he did get, in the words of Simon Nixon of The Wall Street Journal was: "The PM found himself in the small hours of Friday morning staking 70 years of British foreign policy on securing rights to discriminate against Polish expatriate workers." Furthermore, the deal was seen by Brussels as giving him too much and of course by Eurosceptics and most of the media as being too little.

The bigger political risk, though, is what Wolfgang Münchau of the Financial Times states right in his headline: “Concession creates a two tier Europe”. "This is a formal exemption from the goal of ever closer union," he writes, and underlines what this is not: an opt-out, an exemption or a derogation, as many such processes in the past has been called by the EU – it’s the acceptance of a two-tier Europe, which was never the goal or the intention.

There is unilateral agreement that in two weeks times no one will remember or understand the deal, as it's too complicated and without any really fundamental changes, but also that the campaign will be fought on “In or Out” and that Cameron is a strong enough campaigner to make a difference underlying the uncertain future, the potential loss of jobs etc.

If he does lose he will be out of office (although he is claiming that he will remain…..): 50% of the MPs are already aligned with a No and it will be impossible for him to lead the Tories after a No, especially as the ever ambitious Boris Johnson at the last minute joined the Out camp (strategic move or conviction?)

Cameron also has the support of major companies and 50 out of FTSE 100 CEOs have either privately or as company chief executives signed up with Cameron and the Stay campaign. June 23 will be a big challenge not only for Britain but also for Europe.

I doubt the markets will find any consolation in opinion polls or even rhetoric from Cameron or the EU. The fact that Cameron delivered close to no reforms will not matter on June 23 – what will matter is how the EU tries to “convince” and how the Out camp is able to present their populist agenda. We already hear experienced hands in populism such as Marine Le Pen and Geert Wilders in the Netherlands talking about a “need for them also to vote on EU”.

If Britain does vote No the case for a European Union will collapse – the move away from common law and equal treatment has been for everyone to see. In Greece, in year in and year out violations of the Maastricht criteria, bank union, ECB action etc. Now the timing, June, is really bad for Europe as the European Central Bank will be in total panic about kick-starting inflation, refugees will be flowing over borders and Germany's Angela Merkel is currently the weakest she has been during her reign as chancellor.

In the worst case, come October 2016, Merkel and Cameron will be out of power, Marine Le Pen will be leading French election polls and Europe will be closing in on itself.

This is not my favorite goal or hope, but the tectonic plates of European politics are picking up speed and decades of non-reform and non-compliance is coming back with interest on top.

Overall, though, I doubt that the UK will end up quitting. History tends to favour no change in these kind of votes, but clearly as the refugee situation become a bigger and bigger issue the focus could be somewhere entirely different by June and hence create a “natural” exit for the UK.

Main Street and Wall Street both dislike change, we are about to see some of the biggest changes in my lifetime – even I am a bit concerned. I don’t really see many good outcomes to this.