Iowa bankers see potential economic uncertainty in United Kingdom’s EU vote

The outcome of the United Kingdom's vote Thursday whether to stay in the 28-nation economic and political partnership of the European Union holds implications not only for Europe but also for businesses in America and Iowa.

Great Britain has the world's fifth-largest economy and the second largest in the EU after Germany. Its potential decision to bolt from the EU has been dubbed 'Brexit.”

Large and small American companies have used Great Britain as an entry to selling their products and services on continental Europe because of its being part of that union of countries, Mathhias Berninger, candy company Mars Inc. public affairs vice president, told NPR. If the UK no longer were part of the EU, the rules for doing business in Europe would become less certain.

Eastern Iowa bankers agree a UK departure could cause economic uncertainty, lead to lower interest rates in this country and have a negative impact on international trade.

'If Great Britain votes to leave the EU, you could see our interest rates go even lower,” said Charles Funk, president and CEO of MidWestOne Bank in Iowa City. 'I think most people in the bond market believe that's what is going to happen.

'On the other hand, if Britain votes to stay in the EU, a lot of people think these recent declines in interest rates could easily reverse themselves in the short term.”

Moreover, Funk said Great Britain leaving the EU could open the door to other countries taking the same route, which would affect Eastern Iowa companies engaged in international trade.

'Looking out 10 years, maybe Denmark, Netherlands, Spain or Latvia leave,” Funk said. 'That becomes really complicated for any American exporter. Right now, you have one currency (the euro) other than the British pound.”

'Even though we're here in Eastern Iowa, more and more companies in the Corridor are doing business overseas,” said Tim German, president of F & M Bank in Cedar Rapids. 'Most of what we read believes the impact (of Great Britain leaving) will be negative.

'It's really the uncertainty of knowing what effect it will have on the companies doing business in Great Britain and Europe. (Peoria, Ill.-based) Caterpillar has tens of thousands of employees in Great Britain.”

John Dorfler, market president at Wells Fargo Bank Iowa in Cedar Rapids, said the short-term effect of Great Britain voting to leave the EU will add to existing global economic uncertainty.

'It (uncertainty) has been going on for years. There's always the next thing around the corner,” Dorfler said. 'That impacts business owners' decisions about capital spending, hiring and you name it.

'Even if Great Britain votes to stay, they're going to require certain changes within the EU that other members may not be willing to accept.”

The European Union was formed after World War II to foster economic cooperation and has grown to become a single market allowing goods and people to move freely between countries.

Those who favor Brexit say Great Britain has been held back by the EU, which they claim imposes too many rules on business. They also want Great Britain to take back full control of its borders and reduce the number of people coming to live and/or work.

Those who favor the UK remaining in the EU note it makes selling goods and services to other EU countries easier. They argue that the flow of immigrants - most of whom are young and eager to work - fuels economic growth and helps pay for public services.

Those who favor staying also believe Great Britain's status in the world - in terms of economic influence, in particular - would be damaged by leaving, and it will more secure as part of a 28-nation union.

In the lead up to Thursday's vote, the British pound has fluctuated widely, money has moved into bonds, London stocks have gyrated and central banks in the United States and Europe are looking at contingency plans to stave off market shocks, according to the Tribune News Services's Washington Bureau.

The Federal Reserve held off raising interest rates last week, in part because of the risk of Brexit. Investment specialists have put some transactions on hold and are telling clients to sit tight, according to Winnie Sun of Sun Group Wealth Partners in Irvine, Calif.

'What I'm concerned about is the unpredictable,” Hal Scott, a Harvard law professor and expert on international finance and securities regulations, told the Tribune.

Scott's biggest worry about Brexit is the possibility that it could set off a panic that leads to a global financial crisis, similar to what happened in 2008 when the Wall Street firm Lehman Bros. filed for bankruptcy.

The British pound has slid about 3 percent against the dollar since the start of this month. Economist Mark Zandi of Moody's Analytics predicts the British currency would fall as much as 20 percent - to about $1.15 to the pound - in the immediate days after a Brexit.