Referendum fears are self-fulfilling, so Out campaigners must prepare

Jonathan Lindsell, 14 July 2015

In the weeks before the Scottish independence referendum, multinationals like RBS said they worried about an independent Scotland and what currency it would use. The pound weakened and the FTSE fell. In the weeks before the 2015 General Election, when business leaders criticised Ed Miliband’s economic competence and perceived attacks on wealth-creators, the FTSE stagnated. When other politicians lamented the prospect of an SNP-Labour coalition, the markets reacted negatively.

In January when it appeared Syriza would become the largest party, euros started to flow out of Greek banks even before polling day. People’s legitimate fears that the left-wing party might damage their economy contributed to damaging the economy. This phenomenon only increased in recent months as eurozone leaders implied Syriza was mismanaging Greece and would struggle to negotiate a bailout, meaning more divestment from Greece, a greater GDP drop, and a greater need for a bailout.

Essentially, if a visible portion of business or political leaders declare they are fearful about economic prospects, individuals and the market react. Prominent voices to the contrary do not seem to mitigate this: despite numerous decorated economists repeating in early 2015 that the Greek crisis could be fixed, investors thought otherwise.

This pattern is extremely important for No/Out campaigners in the EU referendum. Business leaders from companies large and small, academic commentators, politicians domestic and foreign, all will have indirect influence on the climate before the vote. Factor in revived threats of Scottish departure. Even if companies’ lobbying is sincere and cautious, it will likely manifest as a freeze in foreign direct investment, a drop in productivity, a weakening pound. The size of this disturbance will be proportionate to No’s chances of winning. This will, of course, then be used by the Yes/In campaign as evidence that we should stay in.

The immediate consequences of a business leader outright promising to withdraw from the country if Brexit happens, or of the pound really falling, will be far more compelling to the average voter than a study claiming everything will be fine. One is hard fact, one is theory. However robust sceptic research is – whether it shows the single market holds Britain back, explains Britain could have influence after exit, or promises that single market membership could continue – real world evidence will be stronger. This will be especially true in 2016/17, given how many pro-EU research bodies will be claiming the opposite, and how relentless EU leaders have proven themselves in tough negotiations.

This is not an easy lesson for the sceptic campaign, but a vital one. However important it is that the economic Out case is established, it cannot be the centrepiece. Sceptics should manage expectations by forecasting a brief market slowdown due to the vote’s uncertainty. They will need to convince voters on the merits of political independence, on sovereignty, localism and accountability, to the extent that 50% vote for these, even in an atmosphere of economic risk.