Sterling will tumble. Markets will go into free fall. Foreign investment will dry up. Our banks will quickly depart for Frankfurt and Paris. There have been no shortage of dire warnings of the potential impact of Britain leaving the European Union, not least from the Treasury on Monday morning with its assessment of the likely impact.
Whether the UK stays or leaves remains in the balance. The majority of polls show a narrow victory for the Remain camp, and Project Fear, as the campaign to stay is known by its critics, has turned into a juggernaut that is running over a badly organised and incoherently led Leave campaign. That said, the polling numbers are within the margin of error and there is little experience of testing public opinion on this kind of vote the pollsters could once again be getting it wildly wrong. We will see on the day.
If Brexit does happen, however, it will be a major global event. No country has ever left the EU before, and Britain is one of the three major economies within it its economy has been a rare EU success story. Here are four trends to watch if Britain votes to leave the EU.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
First, there may well be a fresh debt crisis in the peripheral eurozone. It will be a lot easier to be the second country to leave the EU than the first. The British example will encourage politicians in Greece, Spain, Portugal and Italy who want to get out. After all, it is not as if they are exactly thriving as members.
The Italian economy, extraordinarily, is now smaller than it was all the way back in 1999. The Greek economy has shrunk by more than a quarter since the euro crisis began. If a Brexit starts to increase support for getting out, then bond yields will start to creep up and very soon we could be back to the crisis of 2011.
Second, financial turbulence. All the continent's banks have a lot of exposure to this country. If sterling takes a major hit, and the exit negotiations go badly, there may start to be some doubts about the banks' loans. The Spanish banks, for example, have 16% of their loan exposure to the UK. For Ireland, the figure is 8%. Neither of those banking systems have yet fully recovered from the last crash. A Brexit will create financial turbulence across the continent, and the banks will be the first to suffer.
Third, there will be a slump in specific countries and industries. Because it is a much larger economy overall, UK trade is not that significant for the EU as whole. It matters, but it is not crucial. It is though important for certain industries and countries. For example, 15% ofIrish exports go to the UK, and 10% of Dutch and Belgium exports. Any doubts over the deals that are struck after a Brexit will hit those economies very hard.
Finally, and on the upside, some countries may benefit. If the UK was outside the EU, it would be free to negotiate its own trade deals around the world, and open up its markets anyway it wanted to. Take New Zealand, for example. It will be able to sell us more food far more cheaply and easily than it does now, as it used to before we joined what was known as the Common Market.
The EU imposes tariffs on wine from outside the EU and we are big drinkers of the stuff. If they were lowered, then it would help the Chilean or South African vineyards at the expense of the French and the Spanish.
The impact of a Brexit might not be that great in the UK, whatever Project Fear says. We will lose a bit of foreign investment and some exporters will suffer, but trade with Europe is declining anyway and a few new deals may open up some new markets. Overall, it may not make much difference. But it could have some huge knock-on effects elsewhere. Markets have hardly even begun to think about those but as the vote draws closer they certainly will.
