On Thursday 23rd June, there will be a referendum on whether the UK should remain in the European Union (EU). A referendum within two years was promised by David Cameron in the Conservative Party's manifesto for last year's general election.
What does "Brexit" mean?
"Brexit" is shorthand for a Br(itish) exit from the EU. The precedent was set by the Greek crisis, where "Grexit" was used to describe the possible exit of Greece from the euro currency and the EU as a whole. The term "UKexit" would be more accurate, but that hardly trips off the tongue.
What will the question be?
The wording of the question in a referendum is extremely important as it is seen to influence campaigning. For example, in the Scottish independence referendum in September 2014 when the question was "Should Scotland be an independent country?" it was regularly claimed that it was harder for the "No" campaign to make a positive case for remaining part of the Union. While "No" did win the referendum with 55% of the vote, the result was far closer than most commentators believed at the outset.
In the forthcoming referendum, the solution was to avoid a "Yes" of "No" answer. The question will be: "Should the United Kingdom remain a member of the European Union or leave the European Union?" and the options will be "Remain a member of the European Union" or "Leave the European Union", which would lead to "Brexit".
What is the background?
The UK joined the European Economic Community (EEC), which later became the EU, on 1st January 1973. Two years later, in 1975, Harold Wilson's Labour government held a referendum to gauge the mood for continued membership: 67% voted in favour of continued membership.
Since Britain joined the EEC, it has developed from a trading bloc to a "single market" of 28 countries in which goods and people can move freely. To remove currency fluctuations and thereby facilitate cross-border trade, it has its own currency - the euro - which was launched as an accounting currency in 1999 and in a physical form (notes and coins) on 1st January 2002. Today, the euro is the official currency of 19 member countries.
In parallel to this economic evolution, the EU has also developed politically along federal lines with a Council of the European Union and European Parliament, which are essentially the bicameral legislature of the EU. While both institutions existed in 1973, their powers have grown considerably in the years since.
This is arguably the reason why there is still a vociferous anti-EU opinion in the UK 41 years after a referendum that was supposed to settle the issue. While some Euro-sceptics are opposed to the EU on principle, others feel it has become too powerful in relation to national parliaments and believe the British electorate does not support membership as the EU stands today. Should the "Remain" campaign triumph in the June, David Cameron will hope that the referendum has addressed the concerns of the latter group and help the UK to be a more convinced member of the EU in future.
Time will tell, but if unifying the public opinion and putting an issue to bed are the goals, the Scottish referendum is not an encouraging precedent: just eight months later, the Scottish National Party won 56 seats out of 59 Scottish seats in the UK general election, ensuring the issue of independence remains firmly in the public sphere.
If you would like to receive a copy of the white paper, "If you leave me now" which explores the implications of Brexit for the UK economy and markets, and/or a copy of "Breaking up is hard to do" which considers the impact for investment and currency for investors, please contact us on +351 289 392 484 or email us at info@privatefund.management.
Private Fund Management would like to thank Rathbone Investment Management of Mayfair London for their kind permission in allowing the reproduction of this "Brexit" article. In the following weeks, we will be publishing the "Five Myths" relating to the "Brexit" debate, leading up to the referendum.
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