The decision should be known early on Friday morning. Of course it could go either way. If the country decides on Brexit, what will the United Kingdom look like?
There will of course be awkward moments. Cameron and Osborne’s bluff will have been called. After months of spreading doom and gloom, will Putin be jumping for joy? Will World War 3 break out as the mighty Russian fleet storm the Northumberland beaches? Certainly not!
What is more certain is that Cameron will have to give the news conference of his life.
Hindsight, as they say is 2020 vision. 2020 is the scheduled year for the next general election. Cameron has already said that he will not be standing. He may wish to look back at what would have led hi to this situation.
The referendum, before the end of 2017 incidentally, was a pre-election promise, perhaps a short term measure to unite his own party after a term of uneasy coalition. Conservative seats were under threat from UKIP. The promise secured a majority.
Also in the manifesto was a range of promises about what would be secured in his “reformed” EU. These were not achieved yet he called a referendum with undue haste. Do we know why?
We may already have a clue as news emerges that a meeting will take place next week to discuss Turkey’s accession programme towards EU membership. This has surely not been arranged at the last minute? Free travel has already been granted to deal with the migrant crisis. Rules have been relaxed before.
What is equally, if not more pressing, is how the markets could respond to a vote to Leave. Will we face a run on Sterling as we have been told?
Markets are sensitive creatures. They can respond very quickly. We live in a world of information technology, where billions can change hands in seconds. That same technology provides for predictive models. It also provides for finesse in decision making.
The possibility of a Leave vote winning has already been a 50/50 possibility. Experienced traders will have already incorporated different outcomes into their models. It is likely that any moves will already have been discounted or hedged against.
Markets can also be very powerful. Ironically, 2 former Chancellors who support Leave have very real experiences on how to deal with “fast” markets, Nigel Lawson and Norman Lamont.
Lawson was Chancellor for the Stock Market crash of 1987. In a stroke of genius, he undertook to guarantee the share price of the newly floated BP at 70p. This became a safe bet for the Kuwaiti Investment Office (KIO) who led the path to relative stability.
Perhaps a closer match came 5 years later when Lamont faced a currency crisis which led to withdrawal from the Exchange Rate Mechanism (ERM). Currency speculators around the world sold Sterling, effectively challenging Britian’s ability to support Sterling. After costly intervention, interest rates were raised from 10% to 12% and 15% in order to attract buyers before defeat was conceded.
The currency became free floating. Effectively, the market for Pounds became too depressed, the price became attractive enough to buy back. The market corrected itself, albeit at a lower price.
After the market had stabilised, the following day saw a rise of 8% in share prices. The market had effectively corrected itself at what many would say was a more appropriate level. Britain went on to experience more than a decade of growth.
They key was to keep a cool head. Moments of panic cost the taxpayer significantly. Dealers did what dealers do, make money. Those who sold at the wrong time lost out.
In the heat of the moment, the message should be clear. Markets correct themselves, particularly those markets with a free flow of accurate information. Those who could lose need reminding of the broader picture.
So what should Cameron be saying in the event of a Brexit vote on Friday morning?
He and Osborne are in a difficult position, brought about by their own short term agenda. They have predicted economic collapse. It will obviously be time for a more balanced approach.
Britain will have voted to be a land of opportunity, choosing to be free from the constraints imposed by membership of a customs union that puts up barriers to the flow of goods from around the world. Asset prices may suffer in the very short term but markets will need to be reminded of the longer term prospects. In a moment of uncertainty, the path ahead should be certain.
The process for Brexit is covered by Article 50. This provides for a two year period to negotiate terms of exit. The time to panic is not now but at some stage within 2 years of that process beginning.
That process should not begin immediately. Parliament will have to vote and we should build up to the vote in an orderly way. A cross party committee, similar in structure to a Select Committee, should be assembled to consider priorities and process. The time to give notice under Article 50 will be when that committee has reported, perhaps 6 months from now.
A further provision from the Lisbon Treaty also provides guidance. No apologies are made for presenting Article 8 in full:
1.The Union shall develop a special relationship with neighbouring countries, aiming to establish an area of prosperity and good neighbourliness, founded on the values of the Union and characterised by close and peaceful relations based on cooperation.
2. For the purposes of paragraph 1, the Union may conclude specific agreements with the countries concerned. These agreements may contain reciprocal rights and obligations as well as the possibility of undertaking activities jointly. Their implementation shall be the subject of periodic consultation.
Investors, dealers and speculators may need reminding of Britain’s strengths. We are next door to the EU. We have a history of diplomacy and working with friends around the world.
Britain would still be a member of G7, have a permanent seat on the UN Security Council, and regain a seat on the WTO. We will still be an advanced economy, leading the way in services and with hi-tech opportunities and a liberal market.
We would have to recognise that alternative opportunities include an EU with uncertainty, particularly around the southern fringes. In the spirit of Atricle 8 we intend to cooperate fully, supporting where we can and determined to negotiate an appropriate free market without “free movement”.
Cameron would certainly have to remind us that he has already pledged not to continue as Prime Minister beyond 2020 and that he will be standing aside to allow his successor to take the reins for the whole period from when Article 50 negotiations start.
Yes, there may be very short term instability in the market place. If Sterling were to drop, perhaps we could start to look forward to a decade of growth, as we did after 1992.
He need not admit that he got his tactics totally wrong. He can withdraw gracefully, having led Britain to a landmark in her proud and innovative history. The people will have given the British government a mandate to negotiate on their behalf, to be a strong, independent nation, maintaining friendly relations with our neighbours whilst seeking opportunity elsewhere.
Compared with Cameron’s and Osborne’s Doomsday scenario, the reality should, in fact, be a typically British understated signal to a bright new future.