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The Greek debt crisis that has been troubling Europe since 2010 will come to a head this Sunday when the country holds a referendum on whether to accept the bailout conditions put forward by the so-called troika of lenders – The European Commission, The European Central Bank, and the IMF. The rather wordy question that will be put to the Greek people will require a ‘yes’ to accept the troika’s proposals and a ‘no’ to reject them. And whilst the ruling Syriza party has taken pains to stress that a ‘no’ vote will not necessarily precipitate a Greek exit – or ‘Grexit’ – from the single currency, this is indeed the outcome that many commentators believe would result.

Polls released today show the dual campaigns to be neck-and-neck in terms of support. But increasingly eminent figures, including Nobel Prize winners Paul Krugman and Joseph Stiglitz, have lent their clout to the ‘no’ vote. Both make similar arguments about the failure of the current package, which has led to a 25% decline in GDP, and the inability of the Greeks to devalue their currency to restore competitiveness as reasons to vote ‘no.’ More, they fear that adhering to the demands of the Greeks’ creditors will deepen the nation’s recession under an ever-increasing debt burden.

So a rejection of the creditors’ demands is a distinct possibility. And if these leading economists are to be believed, a return to the drachma may even be a desirable outcome if this occurs. Directly this would have a rather limited impact on UK businesses, as the Greek market represents just 0.55% of the UK’s global exports. But the repercussions of Grexit would be felt acutely by Britain’s biggest trading partner, the EU, and this would create problems. The fallout would clearly create fear and uncertainty in the currency markets which would erode the value of the Euro, making it more expensive for European businesses to import goods from the UK, whilst credit conditions would also likely worsen. The combined effect of these two events would be a fall in demand for British goods from the Eurozone. As John Longworth, Director General of the BCC, has put it “many UK businesses may be hit by the resulting market upheaval, changes in trade flows, and payment issues.”

The looming referendum presents a dilemma then. Whilst a ‘no’ vote appears the only long-term solution to Greek financial woes, the nation’s likely subsequent exit from the single currency would have a deeply negative effect on the Eurozone and its trading partners. UK exporters would be forced to find new markets for many of their goods which, in the current global economic climate, may not be a simple task. A tense weekend lies ahead.

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Three days after being appointed the new Conservative Business Secretary, Sajid Javid is already weathering a storm of media attention. Commentators have been pushing him hard in an attempt to tease out his plans for the next five years, and a key talking point to emerge from this scrutiny surrounds the tentative response he gave when questioned on Britain’s future within the EU. Mr Javid justified his evasiveness by saying he could give no firm answer on the issue of the UK’s membership until “we know the outcome of the renegotiation process.”

So the Business Secretary is holding his cards close to his chest on Europe for now. But even if the renegotiation process were to fail, would leaving the EU be a good deal for Britain and for business? The four million votes garnered by UKIP and their pint-swilling leader would seem to suggest many think so. They cite, amongst other things, the ability the UK would gain to regulate immigration from the European Union, make trade deals of its own volition, and disentangle the EU’s mass of bureaucratic processes as reasons to break with the organization.

These arguments are are specious. EU immigration has been shown to make a net economic contribution to the UK, any ability to broker our own trade deals would be offset by the loss of huge EU-led trade deals such as the Transatlantic Trade and Investment Partnership (TTIP), and striking deals with EU members from outside may well require regulation to be put back in place.

Furthermore, it is clear that powers abroad do not wish to see a “Brexit”. A guest column in The Telegraph written by a Norwegian minister warned of the angst caused by “not being at the table when policies… critical to our own security are determined.” And worrying noises have also emerged from the US and Japan, both of whom have stated that many of their companies based themselves in the UK primarily to be able to gain access to Europe.

Despite this noise from abroad, though, there has been an increase in the number of small businesses considering leaving the EU. In 2014 the Quoted Companies alliance found 4% favoured withdrawing; a poll this month by Zurich has found that that number has risen to a third. With almost 90% of SMEs that sell to foreign markets trading with EU members, this rise would seem inexplicable – exports would not vanish in case of an exit, but tariffs and duties might well be levied. Indeed, a recent report from the LSE has modelled the effects of a Brexit and found negative economic welfare results in both optimistic and pessimistic scenarios. “Reduced integration with EU countries is likely to cost the UK economy far more than is gained from lower contributions to the EU budget,” they concluded.

With David Cameron now likely to bring the referendum forward to 2016, we must hope that clearer heads will prevail.

Tag: referendum

How will a “no” vote by Greece affect UK business?

Are SMEs better off in or out of the European Union?