KPMG is one of the world’s biggest accounting firms and its clients, which include some of the world’s largest banks and financial institutions, are of course worried about Brexit — but the global chairman of KPMG says this is not his main concern.
John Veihmeyer told Business Insider that the rise of populism in Europe is far greater a threat to the continent’s stability than Britain’s exit from the European Union.
“We can all have our own views and it is going to be a personal view, but when I look at my role in the global economy and my concerns about it, I am more concerned about Europe than the UK,” Veihmeyer told BI.
“The elections [in Europe] and the decisions [that are going to be made in 2017], like what will happen in France, could be very impactful for the rest of Europe — especially if we begin to see a trend or more similar activity in the Netherlands and other countries. It could threaten the [European] union. It would mean a disruptive period for years especially since there will be a focus more on Brexit.
“I wouldn’t underestimate the concern I have for the health of the global economy and how this can become the biggest impediment of growth. The world is facing a lot of major uncertainties.”
I wouldn’t underestimate the concern I have for the health of the global economy
In France, there is a genuine possibility that the country could elect a far right, anti-Islamic president in Marine Le Pen. With just under four months until the first round of the election, much remains unclear. We know that Le Pen will be the Front National’s candidate, and that Francois Fillon — who won a shock primary victory over rival Alain Juppe — will be the centre-right Republican candidate.
At the beginning of this month, the former prime minister of Britain David Cameron said the election of Le Pen would be a “big body blow” for Europe.
He said the recent rise of “anti-system, populist” and “quite extreme political parties” in western Europe did not mark the end of globalisation, but warned of the immediate need to make a “major course correction” to address related economic and cultural challenges.
The impact of Brexit on populism
Britain voted for Brexit on June 23 and there is uncertainty over what a final deal will look like. Prime Minister Theresa May needs to trigger Article 50 in order to start the two-year negotiation period. Technically nothing has changed and will not change until Article 50 is triggered and a new deal begins to be negotiated.
However, it looks like Britain is veering towards a “hard Brexit”, which would see the UK leave the European Union without any access to the single market, in exchange for full control over immigration. Veihmeyer told BI that banks and financial institutions are sitting tight for now and are devising contingency plans for the worst.
A “hard Brexit” would be the worst possible outcome for financial services as it would mean the loss of passporting rights, one of the biggest fears in the City of London. If the passport is taken away, then London could cease to be the most important financial centre in Europe, costing the UK thousands of jobs and billions in revenues. Around 5,500 firms registered in the UK rely on the European Union’s passporting rights for the financial services sector, and they turn over about £9 billion ($11.2 billion) in revenue.
So I fear that this success in electoral terms for the Leave campaign in Britain will create similar legitimisation, whether it’s for Marie Le-Pen and the Front National in France
This is because immigration control was one of the biggest issues for a majority of those voting for a Brexit. This has had a massive impact on populism, according to Adam Posen, president of the Peterson Institute for International Economics.
A former member of the Bank of England’s Monetary Policy Committee, Posen detailed what Brexit represented:
“It is very frightening. It’s an analogy which I used before the vote, which unfortunately I think is valid, which is, you had Mussolini come to power with the fascists in 1920s Italy. And he did some nasty things but he didn’t do what we all now recognise as terrible, so that gave some legitimacy to frankly, explicitly, to Hitler’s election campaigns in 1930 and 1933. That a) you could vote for such a person, b) that such a person had a chance of winning and c) it seemed at least it seemed initially that it wouldn’t be the end of the world if you voted for a person like that.
“So I fear that this success in electoral terms for the Leave campaign in Britain will create similar legitimisation, whether it’s for Marie Le-Pen and the Front National in France, which is a racist anti-Europe movement, their counterparts in Poland and Hungary, the horrible people in Greece who are beating up foreigners, and then of course for some of the supporters of Mr. Trump in the US.”