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Article / 17 June 2016 at 10:00 GMT

Saxo on Brexit: If Britain quits, what then for the EU, Scotland?

Managing Partner / Spotlight Group
United Kingdom
  • Even before the UK votes, evidence says Euroscepticism is on the rise in Europe
  • Losing the UK would rob the EU of a key cultural bridge to the US
  • If the UK goes, France and Germany face having to dig even deeper to fund the EU
  • Greying EU populations will react if they perceive their pensions being misspent
  • A Brexit could have implications for whether Scotland stays in the UK
  • For more on the landmark UK referendum, click here for our Brexit round-up

By Stephen Pope

If the UK goes, what happens to the EU and Scotland? ... devolution or federation?

Imagine, if you will, that on Thursday, June 23, we have been up all night after the polling stations closed at 2000 GMT.

We have closely followed the coverage on television, or radio, until the moment arrives, at some point on the following day that pollsters forecast, with a high level of certainty, that the UK has chosen to leave the European Union. 

The UK may not be part of the inner circle that is the Eurozone. However, its financial contributions (third largest) and the cultural bridge to the US that the UK offers the EU will surely shake the union at a time when many nations are feeling a wave of support for Eurosceptic political parties.

 Will you all go together? SNP leader Nicola Sturgeon, above, would see Brexit as a change in circumstances that justifies a fresh independence vote for Scotland. Photo: iStock

Such a split may well have aftershocks felt with the fabric of the UK itself. The three smaller UK nations/areas, namely Scotland, Wales and Northern Ireland that total roughly 16% of the UK population will demand retribution if they have been torn away from the EU by the sheer force of an English decision to leave.

This article considers the impact on the EU and UK that would become the consequence of “Vote Leave” emerging victorious in the June 23 referendum. If Britain goes …What happens to the European Union?

A post-Brexit EU

Following a “leave” vote in the UK, the EU has become an economic and political union of 27 (down from 28) member states with an area of 4,082,287 square kilometres and home to a population of 444 million. (When the UK was in, these statistics area 4,324,782 square kilometres and 508 million people).

The level of EU GDP will have fallen from $19.205 trillion to just $16.356 trillion (2015 World Bank estimates) and the GDP per capita will also have fallen as a result of the UK’s quit decision, from $37,852 to just $36,838.

On January 1, 1973,  the UK, led by Prime Minister Edward Heath finally joined the European Economic Community after President de Gaulle had blocked UK membership twice in the 1960s. Two years later in 1975 the UK electorate agreed in a referendum with the then Prime Minister, Harold Wilson and voted to stay in the EEC under renegotiated terms of entry by 67.2% to 32.8%. 

As Edward Heath, Harold Wilson and successive Prime Ministers have discovered, the relationship of the UK with the EEC and in turn the EU was usually as “detached” or “offshore” as was the island’s geography from the European continent.

By voting to leave, one wonders if the UK has inadvertently opened a geopolitical “Pandora’s Box”?

 Euroscepticism is on the rise across the EU, with many Greeks holding
negative views of the bloc following years of troika-driven austerity. Photo: iStock

The Pew Research Centre has collected data in a new multi-nation survey that shows there is a significant decline in the level of favourable opinion toward the EU. In short, even before the UK voted to quit, the evidence suggests Euroscepticism was on the rise across Europe.

The negative view is most keenly felt in Greece among two-thirds of the electorate, who have been long under the yoke of troika-driven austerity, and are understandably frustrated. However, what is shocking is that in the two nations that were the furnace within which the European project was forged are also highly Eurosceptic.

The unfavourable view is in the majority within France at 61%; in Germany the unimpressed amount to 48%. Clearly the Front National in France and Alternative für Deutschland in Germany have gathered significant momentum in recent years and at local elections. They will only be emboldened by the UK decision as the remaining 27 member states said that “Brexit” will prove harmful to the EU overtime.

Clearly France and Germany face having to dig even deeper into their pockets. Therefore, I am certain that the magnitude of unfavourable opinion will intensify.

Euroscepticism on the rise across Europe

Source: PRC

In several member states, the portion of the public with a favourable view of the EU and all that Brussels represents peaked in 2010, before tumbling between 2012 and 2013. The EU's economic performance collapsed in 2009 to minus 2.5%.

Economic lag effects meant that unemployment in the EU rose from 7.0% in 2009 to 11.0% in 2013. However there was a mild recovery in 2014 to 2015, as the jobless rate moved lower to 9%. 

Now, however, the EU is once again experiencing a serious decline in public support in a number of its largest member states. EU-wide business confidence has failed to regain the post financial crisis levels and manufacturing production has flatlined.

money flows

Source: European Commission

The strongest support for the EU comes from Poland at 72% and Hungary at 61%; this is unsurprising as both are healthy cash recipients from the EU budget. What stands out is that in other nations, even net beneficiaries, the level of favourable support is best described as tepid. Just 27% of Greeks, 38% of French and 47% of Spanish voters expressed a favourable opinion of the EU. 

The PRC has discovered that heading onto the UK referendum, EU favourability has fallen in five of the six nations surveyed, both in 2015 and 2016. I have no doubt that a UK decision to leave will create a “Me Too!” mentality. Within two years, other nations will also demand that their governments hold an “IN/OUT” referendum; what is now a club of 27 will soon shrink further. A real crisis will happen if a Eurozone state votes to quit the EU.

An ageing issue

This is not fantasy. The decline in overall EU support in key member states in the past 12 months can be linked to a loss of enthusiasm among older people. In France a favourable EU opinion backing among those aged 50 or older slipped 19%. The decline among the same age group in Spain was 16% and in Germany 11%. 

Still, a legitimate question is whether or not the decline can be balanced by the enthusiasm of Europe’s youth. Those aged between 18 and 34 years do, in general, hold a more favourable opinion of the EU. They have not been affected by the two world wars of the 20th century that ravaged Europe. This generation has benefitted from free movement of labour and education under the Erasmus Programme.
The generation gap is most pronounced in France at minus 25% with 56% of young people but only 31% of older people holding a favourable opinion of the EU. There are similar generation gaps of minus 16% in the Netherlands and minus 14% in Germany.

These observations should be of concern to the EU, as the process known as the “greying of Europe” will have an impact on European economic performance. The International Monetary Fund projected in September 2006 that the ratio of workers to retirees in Europe will halve from 4:1 in 2006 to just 2:1 by 2050. In support of this the Brookings Institution forecasts the median age in Europe will rise from 37.7 years old in 2003 to 52.3 years by 2050, while the median age of Americans will rise to only 35.4 years old.

The implication is clear to see; EU economic output will radically decrease over the next four decades. If economic growth and hence national wealth declines, an ageing population may be increasingly angered if reserves intended for their state pensions is diverted toward welfare for new arriving immigrants. Xenophobia has two key drivers: age and a lack of prospects, so it is no exaggeration to suggest that the EU may not survive until 2050.

Will post-Brexit Scotland want devolution/federation?

What of the ramifications at home? The UK is a union of four nations; England, Scotland, Wales and Northern Ireland. The respective proportions of each nation's population broadly matches its share of UK GDP.

The following charts clearly show that England is the dominant force within the UK, with 84% of the population and 87% of the GDP.


Source: Office for National Statistics 
Throughout the referendum campaign, the opinion polls indicated that Northern Ireland and Scotland were the regions most in favour of remaining inside the EU, with almost 60% of respondents wishing to remain.

Wales was not so disposed to the EU, with opinion in the last few weeks running neck and neck even though Wales had directly received £4bn in structural funding from the EU since 2000.
Transfers of this nature were intended to continue through to 2020. However as the cash is pledged in seven year periods, there is no certainty that the rate so far of £25m/annum would be maintained. Welsh GDP had recovered to stand at 75% of the EU average and many other regions of the EU were seen as potentially more deserving cases.

However, despite the prospect of a lower level of EU funding in future, the fear of the unknown economic outlook outside the EU won over the undecided voters and 55% of Welsh voters opted to remain within the EU.

Blame the English

Given the UK voted to leave the EU, a relevant question now is to ask how secure will the British union be in the future? It will come down to whether the other nations were dragged out of Europe by a small majority of English Euroscepticism. Or was the vote so opposed to remaining that the overall majority was greater than the combined Scottish, Welsh and Northern Irish population, that is, 10,239,800 people?

Given we have the populations of the nations and we can adjust to exclude those below voting age, my model shows that in England, if “vote Leave” garnered 52% of the vote, then the UK would have a majority for leaving of 414,912.


Source: Spotlight Ideas

Such a small majority is equivalent to just 4.05% of the UK ex-England population. A decision for the UK to leave the EU based such a small majority, that is, just 50.32% of the total UK electorate, would not be accepted by the other three nations. In fact, it would probably disrupt the UK overall by dominating the political agenda in terms of party leadership and economic policy.

A “vote leave” share in England other than 56% in favour of quitting would mean the UK had a majority in favour of leaving that was roughly equal to the population of Scotland. That would mean the UK vote to leave had reached 52.6%; clearly a decisive majority. However, the larger the will to stay in the EU from Scotland, Wales and Northern Ireland, then the more fragile the UK’s future as a union will become.

Fresh Scottish vote push

In reality, the only threat to the UK is Scotland. The Welsh and Northern Irish economies rely too heavily on transfers from Westminster for them to pursue an independent path. They would, however, seek a greater devolution of powers and in turn there would be a renewed push for only English MPs to vote at Westminster on solely English issues.

As for Scotland, the Scottish National Party did not win an outright majority in the May elections but it has indicated that it might attempt to hold a second referendum on independence should the UK indeed vote to quit the EU and Scotland vote to stay.

SNP leader Nicola Sturgeon has argued that such an outcome could constitute a “material change in circumstances” that would justify holding a second independence referendum. Of course that is a new story as one would need to verify that those who voted against independence in 2014 but favoured remaining in the EU in 2016 would suddenly switch to support independence in the event of the UK-wide vote to Leave.

I think The Scottish First Minister would only call for an independence vote if she was sure she could win, and of course quickly gain admittance to the EU as a separate nation. The Spanish may well block such a move, as they will be anxious to avoid channelling support to the Catalan region. Other nations may question how much cash would Scotland need to be a net beneficiary of. Therefore, I cannot see an independent Scotland being as warmly welcomed by the EU as the First Minister suspects it will.

Given that Scotland’s future is far from clear, I believe that as the UK starts the two-year process of EU withdrawal the UK as an sovereign entity is secure for now although even more powers will be transferred to Holyrood, Cardiff and Belfast.

Trading the Brexit vote?
Find more analysis, insight and essential resources on our dedicated Brexit page.

– Edited by Clare MacCarthy and Robert Ryan


Stephen Pope is managing partner at Spotlight Ideas

17 June
Hey Stephen,

Thanks for a great article with important charts (as always from you).

Next week will definitely be exciting, perhaps the most important election in a decade or two for EU and rest of Europe (and the world).
17 June
vanita vanita
Hey Stephen ,
What's you think UK will remain in or out .
What's ur guess??????
17 June
Stephen Pope Stephen Pope
I am away in Spain and not trading... is too close to call...sadly I think remain has done a poor job. But I hope we stay.

No more now from me till 27th...over and out!
18 June
vanita vanita
Okk Steve take care enjoy....weekends........😉
19 June
Krunil48 Krunil48
Thank you for the insights of this article. I was under the impression that state pensions were met from current income (National Insurance contributions) rather than reserves. Therefore difficult to see how 2 workers could support the pension of 1 retiree in 2050 across Europe. This appears a frightening prospect and would like to know more as a subject in itself. Many thanks.
20 June
HindustanForex HindustanForex
All the Brexit updates in one place
Is your broker Brexit ready? Some brokers are changing margins also for the euro


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