Forex Institutional Research: Goldman Sachs ‘Brexit’
Key quotes from the report:
Goldman Sachs ‘Brexit’ – Campaigning Begins
Goldman Sachs ‘Brexit’: Following the conclusion of the renegotiation of the UK’s position within the EU at the European summit over the weekend, UK Prime Minister David Cameron announced that the UK’s in/out referendum on EU membership will take place on Thursday, 23 June. As expected, the renegotiation resulted in only small changes from the draft settlement published earlier this month, involving further compromise on issues that had yet to be resolved in the draft settlement. The agreement reached in Brussels has not proved sufficient to avoid several senior figures in the ruling Conservative Party from now campaigning for the UK to leave the EU, including the Mayor of London Boris Johnson. Overall, and as widely expected, Mr. Cameron has managed to conclude the renegotiation in a way that allows his preferred, and relatively early, date for the referendum to take place. The outcome of the referendum will depend rather more on the case made by the Remain campaign for a continuation of something close to the status quo – and the risks involved in leaving the EU, particularly in the uncertain transition phase – than it will on the specific measures agreed in Brussels at the end of last week
EU Summit Concludes; additional details, but the conclusion unchanged
we anticipated that the summit would result in a compromise around the four areas of reform identified for renegotiation by PM Cameron. These four areas have consisted of: n Governance – catering for non-Euro members in the EU, including safeguards for the City of London; Managing immigration to contain pressure on public services; Reaffirming national sovereignty; Increasing competitiveness to generate growth and jobs; The draft settlement published by EU Council President on February 2 had given quite a clear indication of those forms of compromise, which we reviewed previously. Yet, there remained some elements unresolved from the first three of these four areas.
At the conclusion of the Summit, the following additional details were agreed:
- The “emergency brake” that can be applied to EU migrants’ access to in-work benefits can remain in place for up to 7 years. (As in the draft settlement, individual EU migrants will face a period of up to four years during which greater entitlement to in-work benefits is phased-in.)
- For existing EU migrants changes to child benefit entitlements will begin in 2020. (As with the draft settlement, for newly arriving migrants, access to child benefit on account of dependent children abroad will be indexed to the cost of living in the child’s country of residence.)
- The UK will be able to refer contentious regulation affecting the City of London (and access to the Single Market) to the European Council. But there will be no UK veto over such issues.
- The UK has a unique and permanent opt-out from the commitment to “ever closer union among the peoples of Europe”.
The additional details are small clarifications relative to the draft settlement we reviewed previously. Perhaps most importantly, they allow Mr. Cameron to be able to argue that the UK has a “unique legal status” within the EU, owing to the permanent opt-out from the commitment to “ever closer union”.
After the completion of the renegotiation, the UK continues to face the same basic choice: whether it wants to belong to a 28-member union or not. The renegotiation offers the prospect of some improved terms of membership as far as the UK is concerned, but not a substantial change in the relationship between the UK and the rest of the EU. That said, by facilitating Mr. Cameron’s active campaigning for that outcome, we do expect the renegotiation to have contributed towards the UK retaining its EU membership.
Campaigning begins for the in/out referendum on June 23
Campaigning begins for the in/out referendum on June 23 Mr. Cameron announced on Saturday that the referendum will take place on June 23. This has been Mr. Cameron’s preferred date for the referendum owing to the belief that a relatively short campaign favours a vote for the status quo.
Yet, given the relatively modest renegotiation of the UK’s links with Europe, several senior members of his ruling Conservative Party have declared their support for the campaign to leave the EU. In a setback to the Remain campaign, this includes the Mayor of London, Boris Johnson and Justice Secretary, Michael Gove. In our preview, we had suggested that that Mr. Cameron’s proposed ‘sovereignty law’ would ensure Mr. Johnson’s support for the Remain campaign. But this has proved not to be the case.
Overall, the outcome of the referendum will depend rather more on the case made by the Remain campaign for a continuation of something close to the status quo – and the risks involved in leaving the EU – than it will on the reforms that have been negotiated
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