Markets are often wrong, particularly when the consensus thinking seems unstoppable.
Remember the late 1990s, when the debate was whether we should join the euro?
The business community, including real estate people, appeared to want to join the euro on the basis “it’s inevitable, so let’s get on with it”. The great and good, such as the CBI, BBC and Goldman Sachs, as well as Sir Richard Branson and Sir Martin Sorrell, warned that otherwise we would be left behind and much of the City’s business would go to Frankfurt. Thankfully, Gordon Brown defied Tony Blair and the consensus on that one.
Fast forward to 2015 and the markets have been wrong again on the big issue of the day. They have been assuming that a Greek bailout deal would be done. At the time of writing, Greece had defaulted and the Greeks had voted ‘no’ to the terms of an international bailout. They seem to want nevertheless to stay in the euro, but in my view, they would be better to leave so they can regain their own competitiveness again through a major devaluation of a new Greek currency.
Greece can then rebase its debts, reset its balance sheet and grow again through competitive exports and tourism. Yes, it will have some short-term pain, but that was always going to happen. It has just unnecessarily endured five years of brutal austerity to satisfy the EU, ECB and the IMF when it was obvious Greece could never repay debts that were 150% of GDP in 2010 and rising fast. They should have defaulted then, but they had to pay the price to save the EU and the euro.
There will be market volatility as people reassess the uncertain prospects for the eurozone. Investors will respond by seeking out relative stability and arriving at the UK real estate market, both commercial and residential, despite the forthcoming EU referendum.
Here, the market consensus assumes Britain will stay in the EU, as shown by the recent Nabarro/FTI Consulting survey of a few hundred property people. While in the minority, my views are well chronicled. We should definitely leave.
I wrote last year in these pages on how this would benefit the UK property industry. Our economy would grow faster as we would save some £15bn a year in net EU contributions, save tens of billions more in unnecessary regulations and focus more on expanding global markets while still trading in the same way with the EU. The City would be a global haven of offshore excellence, sensibly regulated and relatively lightly taxed. Global specialist manufacturers would follow the lead of the likes of Tata and JCB by accelerating their activities, not leaving. This growth will demand more buildings, which, freed of EU regulations, can be built at lower cost.
We would be back in control of our own laws, whereas now the EU directly or indirectly accounts for more than 60% of laws and regulations. We would also be able to welcome the right quality and quantity of global talent by controlling our borders.
If you don’t listen to me, listen to serious economists such as Ruth Lea, Roger Bootle and Tim Congdon who all favour leaving. Look out later this year for Cameron jetting back from Brussels, Chamberlain-style, confusing voters with a paper entitled Reform in our Time. Also look out for an ‘out’ campaign that surprises many with its positive, forward-looking approach.
There is a democratic deficit shown by business people who complain that the referendum should not happen because it will lead to uncertainty. This is a one in 40-year chance for a major strategic national debate and decision; embrace it.
My prediction is the market consensus will be wrong again.