Jitters as EU leaders meet for Brexit summit

Uncertainty over the UK’s status in the EU continued to ripple through markets and unsettled businesses in the countdown to today’s two-day summit of European leaders, as German chancellor Angela Merkel threw her political muscle behind the push for a deal to keep Britain in.

Investor concern over the prospect of the UK leaving the EU, a so-called Brexit, had already weighed on sterling. It was a third of a percent up on the day against the euro yesterday having fallen to a 14-month trough of 78.9p last week.

Analysts say sterling could be knocked dramatically if Britons vote to leave in a referendum that could come in June.

Goldman Sachs has said the currency could fall by 15% to 20%, and ratings agency Standard & Poor’s has said a Brexit could hurt the pound’s role as a global reserve currency. A drop in sterling would be a major worry for Irish exporters which have relied on the weak euro to sell many goods and services into Britain.

“If everything goes according to (Cameron’s) plans he may be able to announce by the end of the week the date for the referendum,” said Commerzbank strategists.

“It is difficult to determine whether that would be good or bad for sterling and that is unlikely to change until the day of the referendum.

“As a result the fluctuations of sterling exchange rates are going to remain pronounced until then,” they said.

In Berlin, Ms Merkel said during a speech to the lower house of parliament that it was up to all Europeans “to do our level best to enable the British government to marshal convincing arguments for the UK to stay in the EU.”

The German chancellor’s public endorsement looked to be swaying doubters towards a compromise deal that could pave the way for Britain to vote on whether to remain part of the EU.

“The impression we have at that moment is that no government will block this agreement,” Spain’s foreign minister Jose Manuel Garcia-Margallo told politicians in Madrid yesterday.

EU president Donald Tusk will send final proposed legal texts on the UK’s renegotiation to national capitals before the bloc’s leaders gather for a summit in Brussels. Incorporating the deal into EU treaties, how to pull a so-called emergency brake on migration, and the duration of a social-benefit safeguard are among the outstanding issues, an official said.

The UK financial services industry may see exports to the EU shrink about £10bn (€12.9bn) annually if Britain leaves the trade bloc, according to a report by Capital Economics confirmed.

Mr Cameron made a last-minute round of calls to leaders including Dutch prime minister Mark Rutte, holder of the EU’s rotating presidency, who agreed that “there was a good basis for a deal” at the two-day summit, though with “important detail” still to be settled, Mr Cameron’s office said.

“Equity markets hate uncertainty and if Brexit did take place, the uncertainty about the implications for the economy and companies will certainly not be insignificant,” said William Low, Edinburgh-based head of equities at Nikko Asset Management Europe.

The latest opinion poll, by Ipsos Mori for London’s Evening Standard newspaper, showed the ‘in’ campaign’s lead narrowing to 18 percentage points from 19 points in January.

* Bloomberg, Reuters and Irish Examiner