Eurozone: Political contagion is by far the biggest risk - Westpac

Richard Franulovich, Research Analyst at Westpac notes that Westpac’s North American clients think that the "Political contagion" to the Eurozone is by far the biggest risk from Brexit.

Key Quotes

“This is not to be dismissed out of hand either with some key events to watch in coming months - the Italian referendum on Senate reforms to be held in Oct 2016, Dutch elections to be held in March 2017, French Presidential elections due April/May 2017 and German Presidential elections in Sep/Oct 2017. The risk here is for yet another rebuke of the European project, raising EUR sovereign and political risks. One client thought this risk is overstated – political, financial and economic turmoil in the UK could offer an important sobering effect on electorates in the EU.

Back on this side the Atlantic, Brexit has focused minds back on “Trump risk” in the US. More than one client felt his anti-immigration / anti-NAFTA stance would see MXN and CAD underperform if the polls showed the race tightening up in the weeks ahead of the November Presidential election.

Dublin, Edinburgh, Frankfurt or Paris? Dublin is considered the most likely beneficiary if/when jobs and the finance sector relocate out of London, Ireland already being in the EU whereas Scotland's arrangements within the UK are unsettled and it may be years before they are admitted to the EU as a separate sovereign state, if at all. Some Banks maintain a Dublin presence for back-office as it is and its favourable corporate tax system means there is already a heavy multinational presence there.”