Dutch referendum could boost Brexit's cause

With all the hype surrounding the UK's referendum on EU membership, Barclays warns the euro could be at risk from the 'other' referendum in the Netherlands, which goes to the polls today to decide whether the country backs the EU's integration deal with Ukraine. Firstly, a "no" vote would leave Dutch Prime Minister, Mark Rutte, in a very difficult political position, because essentially the agreement was already approved by the Dutch Parliament. The referendum may also weigh heavily on the euro by highlighting growing European political risk related to the UK's EU referendum. The Netherlands is experiencing a rise in anti-EU sentiment, which has increased due to recent revelations in the "Panama Papers" that Ukrainian President, Petro Poroshenko, registered an offshore company in 2014 associated with a confectionery business he founded. On another note regarding Brexit, Bloomberg has noted that while there are growing doubts about the future of the UK's EU membership, UK stocks have rallied rather than being punished for the uncertainty, reaching their most expensive levels ever relative to others in the region.

Have you heard the one about the Ukrainian president who hired a Cypriot agent to engage a Panamanian lawyer to incorporate a company in the British Virgin Islands? No? Well, that convoluted chain is a factor in a referendum in the Netherlands today (April 6) about a trade deal signed in Brussels that, ultimately, may boost the chances of the UK leaving the EU.

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Analysts are tracing the circuitous route after the recent leak of the so-called “Panama Papers,” which uncovered the extensive offshore dealings of prominent public figures via Mossack Fonseca, a Panamanian law firm. Among those named was Ukrainian president Petro Poroshenko, who registered an offshore company in 2014 associated with the confectionery business he founded, before turning to politics. He denies wrongdoing, but the timing is awkward, with the paperwork filed as war raged in separatist-held areas of eastern Ukraine.

Meanwhile, in the Netherlands, rising anti-EU sentiment has focused on a trade agreement recently agreed between the bloc and Ukraine. A new law allows Dutch citizens to call a nonbinding referendum on laws and treaties, so eurosceptic activists hope to scotch the EU’s “association agreement” with Ukraine, their first opportunity to put the new petition powers into action. Even though aspects of the deal have been provisionally in effect since 2014, enough signatures were collected to trigger a vote on the agreement.

Dutch lawmakers say they will respect the results of the vote, provided turnout reaches at least 30%. (Parliament has not yet completed ratifying the deal.) Even though the referendum is only nominally about Ukraine—it’s mainly about sticking it to the EU, by whatever means is available—the revelations about president Poroshenko’s offshore dealings come at a bad time. Calls for Dutch “solidarity” with Ukraine now ring more hollow.

Whatever the Dutch decide, the EU is unlikely to suspend its deal with Ukraine completely—only unanimous agreement by all EU leaders can do that. (There is little chance of this happening.) A Dutch “No” could spur special opt-outs for the Netherlands in the final deal, but the bulk of the agreement will likely remain intact.

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Across the water, the anti-EU camp in the UK is looking to the Dutch vote to give the ”Brexit” campaign a boost ahead of a referendum on June 23 on Britain’s membership in the EU. Brexit supporters paint the eurocrats in Brussels as a distant, unaccountable elite that ignores the will of member state’s citizens. Anything that reinforces this perception will strengthen their case in the close-run race.

Carsten Nickel, an analyst at Teneo Intelligence in Brussels, tells Quartz in an email that “the connection between all these issues is more basic: Panama is one of those factors (like broader economic inequality) that has the potential to lure voters away from the political center.” News about Poroshenko’s secret offshore empire may have dented his credibility ahead of the Dutch vote, but growing political fragmentation and the rise of anti-establishment sentiment was already underway in Europe, Nickel adds. “The leaks of course have the potential to provide a further boost to that trend.”