Among those who manage gobs of money, the possibility that Britain might actually disavow the European Union seemed until recently like a remote and even outlandish possibility.
But about a week before voters go to the polls to determine their future, masters of finance are suddenly absorbing the prospect that Britain might really walk, unleashing anxiety and uncertainty throughout the global economy.
Like local responders readying sandbags as a hurricane menaces their shores, financial industry overseers have been quietly drawing up contingency plans while surveying the expensive havoc a Brexit is already wreaking. Central bankers from London to Washington have been monitoring the tempest while making preparations to unleash credit should markets seize with fear.
Angst has seeped into the calculations. As investors digest the possibility that the largest marketplace on earth may be days away from a messy alteration, they have been yanking money out of riskier storehouses like stocks and putting it into safer instruments like bonds. The British pound and London stocks have been falling in frenzied trading.
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The conversation is now focused on managing the risks of Brexit. The trouble is that the worries are so diffuse and rife with unknowns that any attack plan amounts to an exercise in guesswork and hope. Executives, bankers and bureaucrats are grappling with something that could be minor or momentous and has never happened before.
Maybe the Brexit — for British exit — would merely lop value from the pound before traders turned their attention to a more consequential plot twist elsewhere. Perhaps it would inspire separatist movements from Scotland to Spain, embolden anti-trade populists across the Continent and reinvigorate existential questions gnawing at the common euro currency. That could sow fear across world markets.
A Brexit might spook investors into entrusting their money only to the safest repositories like U.S. Treasuries. That could strengthen the U.S. dollar and weaken U.S. exports, while starving riskier emerging markets of investment.
Whatever stories policymakers and businesspeople tell themselves, the only certainty is a surplus of uncertainty. Whatever provisional plans they sketch, they will find themselves mostly just wishing that nothing terrible happens.
“On the financial markets, there is nothing they can do; it will just hit them,” said Adam S. Posen, a former member of the rate-setting committee at the Bank of England and now president of the Peterson Institute for International Economics in Washington. “If my house is going to catch on fire, I can plan to have some water on hand, but there’s only so much you can do.”
If you run a central bank, water comes in the form of liquidity. Most experts assume the Bank of England and its counterparts have readied plans to lend to financial institutions that could face cash shortages. In recent days, European Central Bank officials have signaled readiness to inject money into the financial sphere. In a speech last week, the Federal Reserve chairwoman, Janet L. Yellen, warned that a Brexit could have “significant economic repercussions.”
Much of the business world once shrugged off the Brexit vote as noisy political theater that would eventually be muted by economic common sense. But recent polls have showed the “leave” camp slightly ahead.
“That kind of threw the cat among the pigeons and panicked everyone,” said Jeremy Cook, chief economist at World First, a London company that manages foreign exchange for multinationals. “We’ve seen a pickup in client hedging.”
A company that, say, imports goods from China to sell in Britain fears that the pound is about to drop, making those Chinese goods more expensive. So it buys contracts that essentially lock in today’s exchange rate for the future.
According to Laurence Wormald, head of research at FIS, which provides technology and market intelligence to financial services companies, British stocks would most likely fall 15 percent after a Brexit, with the pound dropping by a similar proportion.
If a Brexit vote hurts the British economy, the central bank might feel compelled to lower rates to motivate businesses and households to borrow and spend. But the bank might well do the opposite, raising rates to stop a currency slide.
The most nettlesome variable may be trade. Britain sells nearly half its exports within the European Union. Multinational corporations have set up headquarters in Britain, using those bases to serve customers across the Continent.
Those campaigning for a Brexit assure that a vote to leave would change nothing right away. Britain would remain a fully fledged member of Europe’s marketplace for two years as it negotiated a new arrangement with the 27 remaining members of the union.
But if Britain failed to secure a deal, commerce with Europe could be governed by the terms of the World Trade Organization, which gives member nations the authority to impose potentially steep tariffs on imports.
The debate over the Brexit is full of references to sundry alternative models. Norway enjoys access to the European market although it remains outside the union. Switzerland has achieved similar status through a thicket of treaties. But in both cases, they must accept something supporters of Brexit want to eliminate — European rules that allow people to move liberally from country to country.
Those urging a Brexit insist Britain can negotiate a tailor-made deal. Many economists describe that notion as somewhere between fanciful and delusional. Eager to discourage other members from considering an exit, Europe would seek to ensure that Britain paid a price.
If Britain dumps Europe, “they are not going to say, ‘Well, OK, here’s a good deal,’” said Paul Johnson, director of the Institute for Fiscal Studies, an independent research institution in London.
Nowhere are preparations more intense than in finance. London has parlayed expertise in banking and inclusion in Europe to secure dominance over large areas of trading. As the referendum approaches, financiers are now consumed by a jigsaw puzzle of diabolical complexity: They are mapping out what assets they hold and where, seeking to anticipate what jurisdictions and rules might apply post-Brexit.
“Investment banks and asset managers are pre-booking law firms, consulting firms and accounting firms for July,” said William Wright, managing director of New Financial, a research institution in London. “If we do vote to leave on June 23, no one is going to have the faintest idea what impact it will have.”
Jamie Dimon, chief executive of JPMorgan Chase, recently visited Britain with a pointed warning. “If the U.K. leaves the EU, we may have no choice but to reorganize our business model here,” he said. “Brexit could mean fewer JPMorgan jobs in the U.K. and more jobs in Europe.” Citigroup offered a similar caution.
If the sun rises on June 24 with Britain on its way out, such a shift could happen sooner rather than later. At a time of crippling uncertainty, banks would feel a compulsion to at least eliminate variables by quickly announcing their plans, moving people within the European Union — to Amsterdam, Dublin, Frankfurt, Germany, and Paris.
In the end, contingency plans may be devised more as salves for frayed nerves than bona fide operational blueprints. Britain may be on the verge of refashioning the world map. If that happens, the vote will set off proceedings so complex that the only guaranteed winners are the lawyers.
All plans will be subject to change.