The bombings in Brussels on Tuesday, March 22nd could have an impact on the up and coming June referendum on Brexit.  PTB’s assessment of the Brussels’ bombings is as such:

If the Paris and Brussels terrorist incidents continue to escalate including potential bombings in London, then the possibility of the United Kingdom (UK) leaving the European Union (EU) gets closer to becoming a reality. The security crisis in Europe, especially in France, will escalate as the Islamic State morphs into becoming a global terrorist operation. It is anticipated that the Islamic State will lose territory and a shift is underway.

At this point in time, there is a level of uncertainty about the June Brexit referendum’s outcome. It is now becoming clearer that the U.K. polling indicates that staying in the EU has been reduced to a 3% point lead. Because of the bombings and chaos the momentum is shifting toward Brexit.

The political and financial dynamic reveals a growing complexity in PTB’s evaluation the Brexit succeeding. The UK and Europe are faced with a series of new challenges that are contradictory and hard to assess as it unfolds.

A potentially significant development that adds to the complexity is the proposed merger between the City of London’s Stock Exchange (LSE) and the German Bourse (DE) based in Frankfurt, Germany. As of early March when the talks took a very positive turn, most British officials were skeptical about the merger’s possibility.

The reason for the considerable skepticism is the fact that this is the third attempt at merging the exchanges. The potential merger could  become a necessity if the Brexit referendum vote succeeds.The City of London never fully recovered from the impact of  the 2008 Great Recession. Moreover,  the British economy as a whole weakened significantly.

As a result of the weakness in the British banking system, the British financial elite shifted their thinking and looking to expand the nature of the strategic partnership with China and Hong Kong. The London-Beijing agreement, known as the “Osborne Doctrine” can “save” the City of London. The British are cognizant of the negative reaction among the German political elite. One German diplomat, a top expert on China, saw the British partnership with China as nothing but a “sellout.” One line of thinking of the proposed London-Frankfurt is that it represents a way of offsetting the negative reaction to the London-Beijing alignment.

As a  strategic move, the City of London hopes to regain some of the lost ground in terms of global market share by embracing China. The London-Frankfurt merger could redefine the  City of London’s operating system. From the City of London perspective, the merger can restore and transform London  into becoming, once again, the dominant player in the globalized financial markets.

Although the British banking establishment links with the German Bourse will place them in a minority position,  it will provide the UK new strategic leverage and will be the critical value-added for  the City’s global approach. The German Bourse will own 54.4% shareholder control and LSE will be 45.6% and will become the world’s largest revenue.

For the complete report, please contact Pacific Tech Bridge.