John J Hardy
The UK’s exit from the European Union is causing volatility in GBP, says Saxo Bank’s head of FX strategy John Hardy, and may be the start of a squeeze on sterling pairs.
Article / 04 July 2016 at 10:15 GMT

Brexit will be long, bumpy ride: Ex-WTO chief Lamy

First in Business Worldwide. /
  • UK economy faces challenges throughout the Brexit process
  • Britain's Europhobia is unparalleled across the bloc
  • Greek banker says that Grexit likelihood is gone
  • Italy's constitutional reform vote later this year is a hurdle
  • Italy's Monti says Cameron has abused democracy in holding referendum

Brexiters have "absolutely no plans" but there are a number of challenges that the UK economy will face through the process, Pascal Lamy former WTO Director General told CNBC at a conference in the south of France.

"I'm convinced it will take a very long time, first because we've got this so-called article 50, which is the sort of disentangling of the UK legislation from the EU legislation and that is square one. Once you've done that, and it will take a lot of time then you have to go to square two, which is the new relationship between the UK and the European continent."

Adding that while trade is only a small part of the arrangements it will still be a complex and bumpy ride. The bigger challenge he said is that the UK with its 60-65 million consumers, will have to negotiate with a bloc of 450 million consumers.


Pascal Lamy predicts a difficult journey towards departure. Photo: CNBC
Concerns over the UK's exit from the EU have been worrying not just market and political analysts in the euro area, but also political leaders across the region who think this may lead to a kneejerk reaction and may pose a risk to the integration of the European Union. However, the former WTO chief told CNBC there is nothing on the continent like the UK situation.

"If you look at the Poles, in the EU 27 on the continent, there is not a single country where the majority of citizens would like to leave the union. So, the British case has always been very specific," he said. He further explained that there is a lot of discussion and controversy but except for the extreme right movement there is no other notion that a country should step out of the union because "it is a bad bargain."

Meanwhile, fears that a soft approach to Brexit may lead to other countries following the referendum road has got political leaders maintaining a strong stance on Brexit. A number of leaders have been negating the speculation that they will follow the Brexit approach.
Speaking to CNBC, Louka Katseli, non-executive chair of the National Bank of Greece and chair of the Hellenic Banking Association said the fears of Grexit are now behind us.

"I think that Grexit, or the fears of Grexit are behind us. Greece is entering a new phase, phase of return to normalcy and stabilisation. And if rationality prevails all over Europe I think we can even see positive signs of growth and return of investment and better standards of living."


Former Italian PM has slammed Britain's Cameron. Photo: iStock
In a research note, Citi says they do not expect any other In/Out referendums on EU/euro zone membership in the near term, despite rising EU and euro-scepticism. The note however adds that political risks in Europe are high and rising and referendum risk contributes significantly to these risks. These could include boosting electoral prospects of challenger parties promising such referendums.

Risks such as these often create uncertainty and volatility in financial markets. "Uncertainty is bad for economics and we will have a long period of uncertainty which will harm the UK economy first. But as it harms the UK economy it will hurt our economies as well because we are inter-dependent," Lamy told CNBC.

Meanwhile, another referendum likely to be held in Europe will be in the second half of 2016 on Italy's constitutional reform. According to Citi's research note, this is probably the single biggest risk on the European political landscape this year as prime minister Matteo Renzi's political future depends on the outcome of the referendum.

"It is true that Mr. Renzi made a bit of a gamble by unnecessarily putting his prime ministership on the line. In case he lost, he'll lose the referendum," Mario Monti, former prime minister of Italy told CNBC at a conference in Aix-en-Provence in France.

He further added some people are saying that Italy could be the next country out of the Eurozone but Italy is a rather strong country. "Italy is the only country in southern Europe that has come out of the financial crisis of the Eurozone without asking for a single euro of external support." ‎
Adding that the UK's decision to leave the EU will have huge consequences not only within the UK but also for the rest of the Europe, Italy's Monti said prime minister David Cameron has abused democracy in holding this referendum.

"Mr. Cameron did to the extreme I must say, something that many national leaders in EU member states do, namely to use Europe in their political discourse, for their domestic political interest."

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