The UK elections – Is it the end of European Union relationship By Dr. Bobby Srinivasan and Dr. Sudhakar Balachandran

April 8, 2015 | Posted by bobbysrinivasan << back to blog

The coalition government under the conservative leader of David Cameron has come to an end in UK and the country is heading for a national election of May 7, 2015. At the time of dissolution of the parliament, the Conservative Party (leader David Cameron) had 306 seats, the Labour party (leader Ed Miliband) had 258 seats and the Liberal Democrat (leader Ed Clegg) had 57 seats.

Besides these three parties there were 2 other parties namely the Scottish National and Democratic Unionist who had less than 10 seats each. The majority required for party or its coalition is to have 326 seats elected to form the government. The normal tenure of office is 5 years. The question now is who will form the government and how they will conduct themselves with regards to their relationship with the EU. The outcome will have the following possible outcomes which is relevant for a currency trader to take a position.

The value of the pound against the dollar could change substantially either up or down.
The relationship between the pound and the euro could change substantially (similar to the Euro and the Swiss Franc) as the trading relationship between the UK and the Eurozone may be disrupted.

Let us first set the records straight and start with the labour party.

Labour party which ran the country from 1997 to 2010 is generally takes a Pro-European stance. Gordon Brown who was the finance minister (otherwise known as the chancellor of the exchequer) under the Prime Minister Tony Blair from 1997 to 2007 prior to becoming a Prime Minister himself aspired to have the UK join the Euro union. Labour approach is to negotiate on behalf of the UK interests within the European framework and the party is in general in favor of integration with the Euro.

The Conservative party (Tories has long been split between a dominant pro-european faction and a smaller Eurosceptic wing. Prime Minister Margaret Thatcher, a euorsceptic herself was ousted as PM in 1990. She was followed by Prime Minister John Major and Prime Minister David Cameron who were more pro-european. Recently, this task has been complicated by the rise of the UK Independence Party (UKIP) which has become extremely popular. Many traditional conservatives have moved away to join the UKIP. If a referendum is held to-day the UK voters would voice their opinion to leave the EU.

Summarising, the outcome of the UK election could be a humdinger where the citizens may vote to stay away from the EU. As it stands, it appears to be the real possible outcome of this election could be,

Tory win
Hung parliament
Labour win

All those currency traders are waiting to know the outcome of the election. Hung parliament for example, means that the British pound will take a beating. The same thing will happen if the labour wins outright. However the sterling value could improve against the dollar, if the Tory wins outright.

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