Every Monday, Société Générale Global Head of Economics Michala Marcussen puts together a list of the top questions her team is getting from clients.Last week, a curious candidate for the chief concern on investors’ minds rose to the top of the list: Will the U.K. exit the EU?
Marcussen writes (emphasis added):
A week of marketing in North America saw this question pop with surprising frequency. In our opinion, a UK EU exit would cause very substantial damage to the UK economy (around 50% of UK exports go to the EU, many foreign direct investments (FDI) to the UK are motivated at also by the EU membership and London’s position as a financial centre relies on strong ties to EU).
Over the weekend, Labour leader Ed Miliband warned that a referendum was not in the UK’s national interest. Michael Heseltine, a former Tory Minister and advisor to the current government on economic growth warned that “to commit to a referendum about a negotiation that hasn’t begun, on a timescale you cannot predict, on an outcome that’s unknown, where Britain’s appeal as an inward investment would be the centre of the debate, seems to me an unnecessary gamble.”
PM Cameron is expected to use his speech in the Netherlands on 22 January to announce that the UK will seize the opportunity of a major revamping of the EU Treaties to renegotiate its membership terms and put this to a referendum after 2015 (assuming PM Cameron wins the general election).
MARKET ISSUES: Even if the UK ultimately remains in the EU, which is our base case, uncertainty alone can exert significant damage. Investments will be the leading indicator to watch, and notably foreign investments to the UK.
Months of uncertainty over the timing of his announcement on the EU — dubbed simply “The Speech” in the British press — fuelled claims that Cameron was wavering over his policies.
The speech was originally expected just before Christmas 2012, then Cameron said it would be in mid-January, and finally there were widespread reports it would take place on January 22.
But then it emerged that date clashed with the deeply symbolic reconciliation anniversary between EU big guns France and Germany, and — with Cameron already short of friends in Brussels — Downing Street changed again.
Cameron said earlier on Monday that the speech was “largely finished and ready to go.”
Marcussen doesn’t make any trading recommendations, but Cameron’s speech Friday will be of interest to investors, nonetheless.
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