Brexit: Macroeconomic implications for the UK, the world economy & Greece

Banking, Company Profiles, Finance, Markets, Person Profiles, Reports — By on April 11, 2017 at 5:56 PM

  • On 29 March 2017, British Prime Minister Theresa May activated the Article 50 of the Lisbon Treaty, setting in motion the process for the country’s withdrawal from the EU. The Article sets out several negotiation phases that require the involvement of the European Commission, the Council of the European Union and the European Parliament.
  • Withdrawal negotiations should address a wide range of issues related to the UK withdrawal itself and a new association agreement between Britain and the EU. Brexit negotiations may create rifts and ambiguities for which no clear precedent exists. The Article 50 has never been tested as no country has ever withdrawn from the EU after the Lisbon Treaty came into effect.
  • Against this background it is questionable whether a comprehensive deal will be reached within the two-year period foreseen by the EU Treaty or more time will be needed for the two sides to conclude talks. A negotiation extension could be granted subject to the unanimous approval by the remaining 27 EU Member States.
  • The UK economy defied expectations for economic stagnation in the six months following the EU referendum. Nevertheless, after the activation of Article 50, the formal Brexit process may start to have a more visible effect on the real economy as domestic businesses and consumers will need to adjust their behavior to a long period of increased uncertainty over the terms of the UK withdrawal and a new association agreement between Britain and the EU.
  • Empirical studies suggest that by leaving the EU, the UK will face potential impacts through certain channels including, inter alia: (i) external trade with the EU and other economies; (ii) inward FDI flows; (iii) immigration and labor market; (iv) productivity effects via trade, migration and regulation; and (v) EU budget contribution.
  • The timing and the content of a new association agreement between Britain and the remaining EU members as well as the trade agreements that the UK will have to renegotiate outside the EU (so as to prevent its trade relationships with these countries defaulting to WTO rules) will determine, to a large extent, the medium- and long-term macroeconomic effects of Brexit on the UK, the remaining of the EU countries and the rest of the world.
  • There is currently a wide dispersion of views as regards both the potential direction and the size of such effects. Yet, as regards the UK economy, most studies predict a permanent output loss as a result of Brexit, though there are a few assessments that point to potential net gains…..

 

 

 

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