A Brexit 'would open Pandora's box' in Europe

Everyone's suddenly talking about the upcoming Brexit vote.

The latest polls seem to suggest that Brits are leaning towards Leave:

• The ICM phone and online poll: Remain 47% / Leave 53%
• ORB phone poll: Remain 48% / Leave 49%
• YouGov online poll: Remain 39% / Leave 46%

Meanwhile, the Sun, which has the largest circulation of any physical newspaper in British, has come out in favor of a Brexit - which is somewhat relevant given that the Sun has a great track record in general elections, and has always backed the winner.

And, on the markets side of things, the British pound has been getting slammed over the last few days immediately after each new poll result.

However, although the looming vote itself is exciting, a team of Barclays analysts previously argued that whatever the UK ultimately chooses could have serious consequences for the rest of Europe.

"In our view, markets are overlooking two crucial aspects of the UK referendum on EU membership that is likely to occur this year and which must take place by end 2017," wrote Barclays' Marvin Barth back in January, before the issue heated up.

"First, the referendum is generally seen as a 'UK' or 'GBP' issue, when it is better seen as a European issue," he argues. "Second, it has largely been viewed as an economic issue, but should best be analyzed through the lens of political economy."

As for why one should look at the potential political ramifications here, Barth argued that a Brexit could inspire other European countries to think about leaving the EU whenever things got tough (emphasis ours):

A UK exit would set an unwelcome precedent for countries to leave the EU whenever domestic priorities conflict, and would do so at a time when political risks and potential for sovereign-EU confrontation already high. Simultaneously the UK would present Continental opponents of immigration with a politically potent example (and threat) of how to deal with one of the thorniest and most emotionally charged trans-national issues confronting European voters: immigration.

Although this may seem somewhat extreme, it's worth nothing that last year analysts warned a similar domino effect could happen following a Grexit. And that was before the migration crisis turned Europe upside-down.

"The precedent of a member state leaving the union would open Pandora's box: it could be used as a political argument by populist and extremely parties in several countries, both from the right and the left, to push for an EU exit, including for some euro area countries," added Barth.

"Such events would certainly revive the 'redenomination risk' in the euro area."

In short, get ready for that June 23 UK referendum on EU membership. It might just be the first domino to fall.