Yahoo Finance The bombings in Brussels feed into a major political debate in the UK
The series of terrorist attacks Tuesday targeting Brussels, which is the de-facto capital of the European Union, was seen as a “deliberate attack on the European Union”, according to European Parliament member Richard Howitt.
As Brussels processes the tragic events, the political implications of the terrorist attacks are rippling through Europe.
The dark cloud of terrorism appears to have returned to haunt European markets this morning with reports of fatal explosions at Brussels airport weighing heavily on sentiment,” said Trustnet Direct market analyst Tony Cross in a note.
Furthermore, some analysts say Tuesday’s events could influence the ongoing debate around Britain’s membership in the European Union.
The pound posted the most marked decline among major currencies amid speculation that the tragic explosions in Brussels will boost the case for “Brexit” advocates calling for Britain to leave the European Union.
The pound fell about 1% versus the dollar and 0.9% versus the euro on Tuesday.
According to Barclay’s Marvin Barth, “EU referendum risks leave the GBP vulnerable and its crosses will likely experience significant volatility due to pre-vote event risks.”
Britain’s right-wing UK Independence Party (UKIP) spokesman Mike Hookem called the Brussels incident a “horrific act of terrorism” and said the European Union’s “free-movement lax border controls are a threat to our security.” UKIP leader Nigel Farage on twitter called Brussels the “jihadist capital of the EU.”
Politicians advocating for an exit argued that migration leaves the UK vulnerable to terrorist attack. Prime Minister David Cameron has continued to make the case that being part of the economic and political union makes the country safer.
“There is a growing perception among European public opinion that EU leaders are not in control of the continent’s terrorist threat,” according to a note from risk-consulting firm Eurasia Group. “Combined, these attacks will increase xenophobic and anti-immigration sentiment across the EU, which has already been rising in light of the EU’s on-going refugee crisis,” they said.
Morgan Stanley’s Elga Bartsch said in a note earlier this month that “if the UK votes to leave the EU, the economic implications for the eurozone would be significant.” Bartsch said GDP would be hit by around 0.8 percentage points by the end of 2017 and would predict a “sharp deterioration” in sentiment along with tightening financial conditions and a slowdown in exports. Bartsch also said there are some scenarios that could trigger an outright eurozone recession.
Huw Pill of Goldman Sachs also said that “the path to withdrawal from the EU is untested and therefore characterized by significant political and economic uncertainty.” Pill added that the renegotiation of trade agreements with the EU and other trading partners in the event of Brexit, as well as changes to the UK regulatory and legal regime for business, would generate significant macroeconomic uncertainty.
Britain votes on June 23rd on whether or not to leave the European Union.
