‘Brexit’ Would Splinter World Structure

[Editor's Note: An earlier version of this interview incorrectly identified Lord Hague's side of the referendum.]

The upcoming referendum on June 23 as to whether the UK should leave the European Union has caused heated debate. The “Leave” campaign says it is fed up with red tape and are worried about the surge in migrants, while the “Remain” camp argues the UK would be significantly weaker outside of the union—and even vulnerable to threats from its enemies.

One man firmly entrenched on the Remain side is William Hague, the conservative Yorkshire politician and former MP, leader of the Conservative party, and most recently secretary of state for foreign and commonwealth affairs. He believes that rather than make the UK stronger, separating from Europe would only cause great uncertainty—the biggest enemy of the financial services industry.

Hague, keynote speaker at the upcoming Inside ETFs Europe conference in Amsterdam on June 13-15, recently talked to ETF.com about Brexit, implications for capital markets and how the UK would have to renegotiate trade deals “with half the world from scratch.”

Voters often say they are confused or undecided on Brexit because the debate often relies on rhetoric rather than fact. Does voters’ indecision worry you?

I think it’s true that people are looking for facts and truths on how to decide how to cast their vote, and that includes listening to both sides of the argument.

In the case of both the “Leave” and “Remain” scenario, there are very few hard facts about the future and whether the country would be more prosperous or secure.

In some way, this debate has been going on for many years. But voters do often make up their minds late in the day. In my experience, they will probably do so on the weekend before the election, but it doesn’t mean they haven’t been thinking about it for a long time.

As we speak, it’s six weeks to the referendum. That’s longer than we spend on UK election campaigns. I think by June 23 people will have heard enough of the arguments, and any more time would not shed more light.

In the Scottish referendum in 2014, one of the biggest uncertainties was the future of the sterling currency in Scotland. What is the biggest uncertainty around Brexit?

Here, the biggest uncertainty is what would be the relationship with the EU if we were to leave.

The “Leave” campaign side does not have a clear answer to that. Some say we should have a different trade agreement with Europe. Some say we should somehow keep access to the single market, but they don’t explain how we would achieve that. Some say we would not have any agreements and we would rely on the free-trade rule.

The uncertainty would severely affect decisions for businesses and the financial services industry.

The real cost here is uncertainty. That is the one fact we do know. There's no doubt it would affect investments in businesses.

UK defense has been the latest talking point. David Cameron recently suggested that leaving the EU could threaten war on the continent. Former NATO chiefs in the US have also said the UK would be more vulnerable. Is the prime minister’s view justified?

I think Europe would be more unstable and the EU would be considerably weaker without the UK. Whatever happens, we need a framework for the UK and EU to work together. Europe has a complex and difficult history, as we know, with more nationalism and different views emerging, and these things can explode in ways that were unimaginable a few years before.

Another political hot potato is the Transatlantic Trade and Investment Partnership (TTIP), the free-trade deal in negotiation between Europe and the US. What would become of TTIP if we left the EU?

A link across the Atlantic would be more difficult, because the EU uses its influence in a way to keep it and us at the forefront in world affairs.

We are entering a period of great instability and volatility, and Brexit would be a splintering in the world's architecture.

It would be more difficult to achieve TTIP outside the EU, as we are the strongest advocates of that deal. We would have to negotiate our own new deal and with the EU—with more than 50 countries.

We would never assume that because things are friendly with the US that means the US will give us advantageous trading terms. It would be a long and difficult process, starting from scratch with them—and with half the world.

Debate over Brexit has become quite personal recently. Former London Mayor Boris Johnson has argued that US President Barack Obama had no right to tell the UK that it would fall down the pecking order for global trade if it left Europe. Was Johnson right to say that?

I think the president of the US is entitled to explain what is in the interests of the US.

Yes, what Obama is saying is on the same side as I am speaking, but it’s important for us to hear from foreign leaders on this. Foreign leaders are not going to decide on the result of the referendum, however.

The ‘Leave’ campaign blames Europe for red tape. Can you deny that Brussels is a hive of bureaucracy?

There can be too much regulation sometimes from Europe and from London. The UK has recently been named one of the least regulated economies and easiest places to do business. We have achieved that status even though we are in the union.

In the last few years the UK economy has done very well. It is one of the most advanced economies in the world, and [PwC forecasts that] business services will create 1.5 million new jobs over the next decade.

There should be less regulation. There are many faults with the EU but that doesn’t mean we should leave it.

Can you comment on the possible impact of the Brexit debate and its result on capital markets?

It’s creating a period of uncertainty about what the result will be. But it’s impossible to forecast what the effect on markets will be. No one is able to do that, as it depends on whether the result will be the same as expectations.

The only point we can make with certainty is that if we are to leave the EU there will be a damaging effect on the financial industry. A PwC report showed that between 70,000 and 100,000 jobs would be lost by 2020. It’s a gloomy outlook, but if the result of Brexit is to remain, there would be a resurgence of confidence to invest in the UK.

There is a lot riding on it.

Has the refugee and migrant crisis in Europe changed how people in the UK view being part of Europe?

People are very worried about immigration, and that is one of the issues in the referendum.

Immigrants are coming in via the Mediterranean in large numbers. There has been a reduction in the numbers due to the deal with Turkey but we don’t know whether that will hold. The scale of immigration has created support for the “Leave” campaign.

Some people want Scotland to leave the UK, but for Scotland to remain in the EU. Is this a likely scenario?

We are best off in the UK and in the EU, but people will have to vote according to their own opinions.

But if [Scotland] left the UK, they would leave the EU whether they like it or not.

My worry is there would be renewed momentum for Scottish independence if we left the EU, and that result could rejuvenate another referendum prematurely.

You wrote in a recent column that the implications of Brexit would be “catastrophic” and a “disaster” for Ireland, the Falkland Islands and Gibraltar. Do these countries factor in to voters’ minds?

People might think this point about Ireland and Gibraltar is small, but we have been prepared to go to war about these places and people feel passionately about their rights there, and they ought to know the implications of Brexit.

Whatever the outcome on 23 June, is there a chance for a second referendum if politicians don’t like the result?

There would not be one in the next few years. I think this will settle the matter for quite some time.

It depends how the EU develops 20-30 years from now. That is the unknown factor.

It was different in Scotland, as there was an elected government that wanted to find an excuse to have another referendum. In London, we have honoured our promise to have a referendum, and we won’t be rushing to have another one.