There is a “significant risk” that another member of the EU will quit following the UK’s decision to leave the union, damaging markets further, says Columbia Threadneedle EMEA CIO Mark Burgess.
Speaking to Fund Strategy, Burgess says that there have already been signs of other EU nations looking to hold their own referendum, with the departure of a member of the single currency being “a whole different kettle of fish”.
“This is not a parochial UK event. Its a European problem. Because of the rising tide of populous politics this will act as a catalyst for Holland, Denmark, Italy, France and potentially Spain to maybe want to hold their own referendum,” says Burgess, who is also global head of equities at the asset manager.
“We have seen calls already from the far right in France and Holland to have a referendum so they too can follow Britain out of the EU. Whilst it is damaging for UK and Europe for the country to leave, for a member of the single currency to leave is a whole different kettle of fish.”
Such a departure would put a “very severe strain” on the European financial system, which is already under fire from negative bond yields and low interest rates, he warns.
“We have negative bonds yield in much of Europe, and that is really painful for the financial system, so banks struggle in that environment. Whatever we think of the banks we need them as a credit mechanism for the economy. If banks aren’t able to be profitable and generate cash and capital they can’t facilitate that and we hamper growth.”
Burgess also warned about the uncertainty that Brexit places on UK markets.
“Markets have got months, arguably years of uncertainty ahead of them … and markets hate uncertainty,” he says. “We don’t get new a new prime minister until mid-September so what relationship we endeavour to negotiate with the EU is unclear, probably until sometime next year, then we have a protracted period of negotiation to get to that place.”