Keep calm and carry on
World can manage Brexit risks
by Martin Hüfner in Munich
Mon 9 May 2016
I would regret Britain leaving the European Union. But ‘Brexit’ would not be the end of the world. It would not lead to a global financial crisis. Markets would have ample time to prepare. Central banks stand ready to intervene. The full effects of British departure would not become immediately apparent. They will only be seen after a transition period of at least two years of hammering out the details. This makes things less dramatic.
In the short term we would see substantial turbulence. Uncertainties abound. What would happen to the British government? Could a UK exit trigger political disruption on the Continent? Could Scotland raise the question of a new referendum? Could investment, growth and employment in the UK collapse? What happens to sterling?
All these risks add to the other well-known weaknesses of the world economy. That makes them dangerous.
But these uncertainties are temporary. Whatever is said today, whatever threats are raised during the campaign, Britain and the EU would remain neighbours. They depend on each other in so many fields. They cannot afford a lasting confrontation. This applies not only to the economy but also to national security. We will continue to live in the same house, whether Britain is inside the EU or not.
The big issues arising from Brexit can be resolved. The UK’s complete exclusion from the single market, for example, would be a setback for everybody. But it is in no way necessary. There are numerous examples, not least those of Switzerland and Norway, of how the relationship could be reshaped.
For London’s status as the financial centre of the euro, the European Central Bank will probably set some unpleasant rules. Paris and Frankfurt will come up with claims to kick the City out of the game. But it is doubtful whether they will succeed. The attraction of a financial centre does not depend on the decisions of central banks or governments. London has three advantages that are difficult to rival: the qualification of the people working there, the English language, and its geographic and cultural links with New York.
A further question centres on the redefining of European identity. Without Britain the EU would be smaller and less influential in the world. Its character would be less open, less democratic, less transparent, less market-orientated. Especially for countries in the centre of the continent, life would become more difficult.
Some other EU members could follow Britain’s example and exit too. That would create great problems. But it would not be the end of Europe. The euro would not break apart. The EU could reinvent itself.
So keep calm and carry on. British exit would create risks – but they can be managed.
Martin Hüfner is Chief Economist, Assenagon Asset Management. This is No.51 in the series – the 100th article will appear on 23 June.
OMFIF’s series on the UK EU referendum presents a wide variety of perspectives from Britain and around the world ahead of the 23 June poll. We are assuring a balance between many different points of view, in line with OMFIF’s overall neutral stance on the issue.
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