Britain will incur economic damage if it leaves the EU
May 17 2016 11:35 PM
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There is just over a month left for the June 23 referendum to address the question of whether Britain should leave (or Brexit) the European Union.
While opinion polls suggest the vote is likely to be close, taking on some elements of the classical dilemma of “to be or not to be,” the referendum is no laughing matter.
Make no mistake; Britain will incur a massive and lasting economic damage if it chooses to leave the EU.
Here is why.
The latest studies from the Organisation for Economic Co-operation and Development, the International Monetary Fund and the UK Treasury, among others, converge on some hard-to-ignore findings.
Leaving the EU would hit trade, weaken Britain’s vital finance industry and reduce inward foreign investment.
The OECD report puts the long-term annual cost between 3% and 8% of gross domestic product, similar to the findings in the Treasury study.
The OECD’s central estimate of 5% is equivalent to a tax of roughly £3,200 ($4,700) per household.
The Vote Leave campaign bemoans a deficit of sovereignty, democracy and the pains of immigration.
They are legitimate concerns, for sure, but fail to see the bigger picture.
Some 7% of UK economic output comes from financial services.
About half of the world’s largest financial-services firms, including HSBC, JPMorgan, BlackRock, Man Group, Aviva and Standard Life, have global or regional bases in the UK.
Financial services attract 30% of the inward foreign direct investment into the UK, equivalent to 17% of GDP.
Nearly one-half of the FDI into the UK financial services sector comes from EU investors.
Even if London were to maintain its status as a global financial centre in the event of a Brexit, global firms could still consider other locations as bases for their European operations.
Britain is running a big current account deficit at 7% of GDP.
If Brexit leads foreign investors to pull their capital out, or even to reduce their rate of new investment, the country might have to reduce its external deficit by depreciating sterling (which is in a free fall against the dollar) and severely squeezing imports.
Standard & Poor’s, which rates the UK at the elite AAA bracket, has warned that a downgrade might follow the Brexit.
Bank of England governor Mark Carney has a point when he stresses the risk that Brexit poses to the economy.
Champions of EU membership point out that the bloc is the country’s largest export market, and that global companies locate in the UK because they can sell into other EU nations without tariffs.
But Eurosceptics argue that the EU wants to grow into a super-state that impinges more on national sovereignty.
It’s up to Britons to make the final in-or-out call on June 23.
But IMF chief Christine Lagarde called the Brexit risk a “serious concern” to the global economy.“It’s been a long marriage between members of the European Union,” she said.“It’s really my personal hope that it doesn’t break.”




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