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March 2016

EU expats wary of Brexit vote

Published: Thursday 17 March 2016

On the 23rd June 2016, Brits will take to polls to decide the UK’s EU future. While everyone will have an opinion over whether the risks of leaving the EU are greater than the risks of staying, it is arguably expats – both EU citizens living in the UK and Brits living in another EU country – who are most likely to be affected by the result.

There are roughly 2 million EU nationals working in the UK and approximately 2.1 million Brits in EU states, so should Brits choose to leave the EU this summer, you would like to think arrangements will be made to accommodate these migrants.

Anyone who has lived in an EU state for more than five years can apply for long-term resident status through EU law, and it is likely that a number of qualifying expats will look to do this in the coming months in a bid to protect themselves should Britain leave the EU. However, should this happen, this status would be far more restrictive than their current standing as an EU citizen living in an EU member state. There may even be ‘integration rules’ for long term residency – such as being able to speak your host nation’s language.
Of course, freedom of movement outside of the EU countries is not unheard of. David Cameron has himself already cited Switzerland as an example of a non-EU country which benefits from a freedom of movement pact with the EU – albeit with more say over the annual intake quota. It is likely that any vote to leave the EU will see a similar agreement implemented.

However, even if British expats are still able to live freely in the EU come June, one thing that could suffer is their finances – especially if they are still transferring assets from the UK into Euros. 
As soon as David Cameron announced that he had completed his negotiations and was ready to ask the UK public for their decision on Britain's membership of the EU, the Pound fell in value. It then slumped again when Boris Johnson announced he would be pressing for an exit; the added weight of The London Mayor's endorsement being seen as vital to the strength of the 'leave' campaign. 

The drop in support for the Pound, though, was not an unbridled endorsement for continued EU membership. Currency markets hate uncertainty like nature hates a vacuum and few things are more uncertain than a country deciding whether it wants to change a political situation that has developed over 40 years. Undoubtedly, if Britain votes to leave the EU, there will be a whole heap of renegotiation, restructuring and clarification required by the UK government and by the EU.

There are many factors that will impact on the Pound’s strength over the coming months. Due to its economic strength, most EU member states would like to see the UK remain a member but this sizeable financial contribution is at the heart of the EU membership debate and yet little is being said about how that money would be spent if it was not being sent to Brussels each year. If there were more certainty over this aspect of a potential Brexit, the markets may look more favourably on the Pound. But do the UK Chancellor and the Bank of England really want that?

A weak Pound generally fuels inflation because it raises the cost of imports and that would normally be a reason for the Bank of England and Treasury to try to maintain a strong-ish Pound. However, the weakness in energy and commodity markets and the paucity of demand across the globe means there is virtually no global inflation at the moment. So the major benefit of a weaker Pound, i.e. cheaper prices for British goods overseas, is a very attractive bonus for the UK. The UK economy is already in relatively good form and has weathered the recovery from the mid-noughties financial crash with rather more aplomb than most. So the added assistance of an export advantage is very welcome. Hence the BOE is not panicking at the sight of a 10 per cent fall in Sterling's value.

Over the coming months there will be a lot more speculation and a great deal more spin in the debate over Britain's relationship with the EU. That will bring increased volatility and a significant rise in the frequency and magnitude of the spikes and troughs in the value of the Pound. Those extremes of the exchange rate movement are all opportunities, not only for speculators but for those who need to physically deliver currencies to settle invoice, pay bills or make plans to emigrate.

So whilst the sheep-like traders and investors are doing their thing, a cool head and some considered planning will offer all sorts of advantages to those who can keep their heads when all around are losing theirs.