Are new risks delivering value or warning for International trade?
As a Sustainable Capitalist, I have always
marvelled at how short term gains are celebrated at the expense of the longer-term
view, which transfers with interest, the unresolved issues to someone else,
whilst enjoying the “big win” of the day. Politics, like business is marred by
such short termism and with the UK celebrating a decisive victory for the
conservative party, what does David Cameron’s majority conservative government
present to the international trading community in terms of relevant positive
and/or negative risk?
Europe and the UK have had a turbulent relationship over the years. The
increase in posturing is seen in the UK as an acceptable response to an overbearing
EU, which is perceived to have too much say in what path the UK charts for
itself in the present and into the future.
This grass roots shift more to the centre
right in the UK as evidenced by the recent election results showing that the
conservative party message resonates with the voting public in the UK, which on
Europe is one of confrontation with the EU. The “in/out” referendum pledge to
be held and included in the 2017 British renegotiation of EU membership gives a
clear indication that an exit from the EU is possible, which the EU must be
prepared for given the grass roots sentiment in the UK presently.
From a risk perspective, companies who have
large EU/Euro trading exposures within the UK need to plan how they would cope
with the following:
- 1) Manufacturing provision and what extra costs would be associated with manufacturing and supply chain to EU nations in the event of a UK EU exit?
- 2) Tax and regulatory import tariffs on UK produce to EU nations noting Ireland is within the EU Eurozone and is the UK’s largest export trading partner?
- 3) Restructuring requirements for multi nationals settled in the UK. What contingency plans and/or risk assessment do they have should the UK leave the EU??
- 4) Political risk, if the UK does leave the EU, what is the possibility of a return to the EU within 10 years given shifting public sentiment especially if the UK economy is adversely affected? Is political and economic risk understood on a direct and contingency/scenario basis?
- 5) FX risk is a section in it’s own but the UK’s firm commitment to the sterling point should feature in any UK country risk assessment especially for companies situated there with large Euro exposures and plans to grow their business in the Eurozone.
- 6) UK determination to set their own definition of ‘regulation’ for financial markets based in the UK if they split from Europe. This could have worldwide ramifications depending on what the UK would consider to be acceptable governance of the financial markets. Companies need to understand the UK position on non EU Financial Market Regulation and its interaction with the markets in such a scenario.
These are some of the risks companies of
all sizes should consider in the matrix of a larger risk assessment on shifting
UK policy positions with regards to the EU. It may all lead to no actual
movement, which often happens in politics. However, if the Cameron
administration in the UK decides to action an “out” from the EU, business
should be ready.
As for risk V opportunity, there are plenty
of promises in the pledges by the Conservative government under David Cameron,
which may or may not come through in his forthcoming tenure as UK Prime
Minister. If conservative pledges become government policy, there appears in
their substance to be a focus on creating a good working UK for its
inhabitants, which bodes well for employee welfare and thus for companies who
can rely on a stable UK for its employees to live and work in. The UK’s position
on Europe and Financial Markets
should be borne against the positive intentions heralded by David Cameron’s
government on wider governance pledges. Do they turn into actual policy
actions, I guess we will have to wait and see…
Sources/Credits:
Pics;
Credits;
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