The UK’s historic referendum vote to leave the EU continued to dominate our coverage this week as it became increasingly clear that the outcome had taken politicians, financial markets and even a large portion of the public in Britain and Europe completely off guard.
During a meeting in Brussels with EU leaders on Tuesday, Dutch prime minister Mark Rutte summed up the resultant turmoil very succinctly: ‘Britain has collapsed politically, monetarily, constitutionally and economically.’
Rutte made no bones about the fact that the havoc wreaked by the Brexit vote sends a strong and sobering message to populist leaders at home and elsewhere in Europe. ‘Anyone who thinks it is a good idea to leave the single market – this is what happens,’ he warned after an EU summit on Tuesday evening.
UK property stocks were dragged down in the immediate aftermath of the Brexit vote as trillions of euros were wiped off financial markets worldwide and the value of sterling plunged. Britain’s decision to leave the European Union has unleashed a crisis in financial markets similar to the global financial crisis of 2007 and 2008, George Soros told the European Parliament in Brussels, according to a report by newswire Bloomberg.
While some market commentators have said that the Brexit vote was not a Lehman moment, others would argue it is still too soon to call the market. Appeals for a soft Brexit have so far met with a hardened stance from EU leaders. After the initial shock of being jettisoned, the remaining 27 EU leaders have regrouped and appear now to be determined to turn this historic event to their advantage.
A very uncertain outcome
On Thursday, Boris Johnson bowed out of the Shakespearian tragedy that he helped create after a political assassination dashed his chances of pursuing the post of prime minister. Whoever does get the job faces a long period of tough negotiating ahead with a very uncertain outcome for the UK's self-inflicted crisis. Even London’s longstanding dominance as the financial centre of Europe, if not the world, is no longer a given. French prime minister Francois Hollande has already seized upon the new situation that has arisen to call for the repatriation of the clearing of euro-denominated trading from the City of London to the Continent.
In Friday's Financial Times, Lithuanian president Dalia Grybauskaite summed up the stoical mood on this side of the Channel. ‘Today it is about us. Of course we will move on. Who will stop us?’ she said.
London brokers have already lost some of their swagger. A high-profile advisor at one of the leading firms that PropertyEU contacted this week was unwilling to go on the record as saying that the London story was never in doubt and retracted the statement. Meanwhile, the real estate team at AXA Investment Managers tried to put on a brave face for the property press during a seminar in London on Tuesday.
Brexit is causing havoc on the markets but, like all crises, it can reveal opportunities to bold investors, Isabelle Scemama, head of funds group and management board member at AXA IM-Real Assets, told the assembled journalists. ‘This is a phase that may offer opportunities. We predict spreads widening earlier than previously anticipated.’
Anne Kavanagh, global head of asset management and transactions at the investment manager, was somewhat more circumspect. The reality is that the vote has made a difficult situation worse, she said. ‘The investment market was already tough before Brexit and now we are seeing heightened uncertainty in the UK and on the Continent. With instability and volatility ahead, investors are moving into a risk-off, defensive mode.’
Contours of post-Brexit European landscape become visible
Beyond London, the contours of a post-Brexit European landscape may slowly be taking shape. In the aftermath of the UK’s vote to leave the European Union, speculation has been rife about a mass exodus of financial firms from the City of London. Paris, Brussels, Frankfurt, Amsterdam and Dublin have all been mooted as possible alternatives as international companies begin looking for new European bases on the Continent.
The prospect of the UK exiting the EU has one major implication for the financial sector: the ‘passport’ that gives UK-based banks unobstructed access to the EU trading zone will be at risk. And without the financial passport regime, the case for global financial firms basing their European operations in London is hugely diminished.
Large US banks including Goldman Sachs and JP Morgan Chase have already been weighing up the options since the UK referendum was called. Felix Hufeld, head of the German financial market regulator Bafin, has also put pressure on London by saying the proposed merger between Deutsche Börse and the London Stock Exchange should not be located in the UK capital.
‘Without doubt it is hard to imagine that the most important exchange venue in the eurozone would be steered from a headquarters outside the EU,’ he said earlier this week.
At the other end of the telescope, several European capitals have reported a growing number of enquiries from London-based companies during the referendum campaign. In Belgium, prime minister Charles Michel is considering an advertising campaign to poach firms from the other side of the Channel.
‘I’m not interested in paying the bill for Brexit. From now on only European and Belgian interests count for me, not British ones,’ he told local newspaper Het Laatste Nieuws. ‘Many British companies are concerned that a Brexit will make access to the European market more difficult. In that case my message is a clear “Welcome to Belgium”.’
As the Brits desperately try to salvage what they can after the Brexit vote, the scavenging in mainland Europe has well and truly begun.
Judi Seebus
Editor-in-Chief PropertyEU
