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Brixit: What a British Exit From the EU Looks Like


With Brixit, England would become the most attractive European place for financial engineering, whether for banks, investments, or large corporations. But will it happen?

Are you familiar with Brixit? Not yet? It might become the next catchy buzzword for yet another European Union drama. Brixit, "British Exit." After the established Grexit and $Pain and PIIGS and my own "Francestein," Brixit could be the next shoe to drop on the European dream… or nightmare, depending on how one looks at it.

As I like to do, let me write my conclusion first: I am massively bullish on London's future (and by extension, England's) and the English economy over the next five to 10 years. Funny enough, I am writing this article from London, and it might be skewing my views, but here they are: England is going to become the new Switzerland / Luxemburg of Europe, and the world. Let's not forget the British Virgin Islands (less than 10 miles away from where I usually write my other articles).

England is going to become the closest thing to a fiercely independent tax-accommodating country (maybe not a full blown tax haven – that's more for the BVI), welcoming all the spurned individuals and entities from an ever, either imploding or federalizing, schizophrenic European Union.

Now, how do we get there and why pay attention to Brixit?

Ironically, it's pretty interesting to see Scotland playing the tricks on the United Kingdom that the UK is playing on the EU! It's almost like watching a game of Russian dolls!

The background, just for memory, is pretty simple: England joined the EU with a very privileged and independent status. It benefits from the four main European freedoms of circulation (freedom of labor, capital, goods and services), while keeping a sovereign central bank (the CBE), its own currency, and many special rules. The historical reasons for this slew of compromises are well documented, so suffice to summarize that they reflect 30 years of alternating cuddling and blackmailing between England and the EU.

The latest spat, the actual risk for Brixit, came from England's current Prime Minister David Cameron's January 22 announcement that should he be re-elected around 2015 and 2017, he would ask by referendum whether England should remain in the EU.

A negative answer, by popular choice, would make Brixit official and a reality.

I realize a lot of this issue is subject to conditions: Cameron would have to be re-elected, he would have to keep his promise to organize the referendum, Brits would have to say no to Europe (based on many polls, for the time being, it looks like it would be the case, but things can change fast).

Brixit is far from happening, but it is worth putting on the radar map.

So, for his 2015 re-election campaign, Cameron will effectively run for Brixit. That will be his platform (ironically enough, he will have to fight against "Scoxit" and Scotland efforts to secede from the United Kingdom). By campaigning around getting yet even more special powers and protections from the EU or threatening to leave, Cameron is going to continuously barter and blackmail the rest of the European countries to get a special status, including special banking and financial regulations.

Considering the recent developments concerning Greece, then Cyprus and now Luxemburg, it is doubtful that the Franco-German block will accept Cameron's conditions, which could then indeed lead to Grexit.

Let's think about this: Cameron will run on an anti-European, pro-growth, anti-austerity platform, pretty much catered to the banks and financial world. Should he win the elections, he will likely have to indeed organize the referendum.
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Alex Salomon has positions in EWU and GBP.
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