Out-Law News 3 min. read
04 Apr 2016, 9:36 am
This is part of Out-Law's series of news and insights from Pinsent Masons lawyers and other experts on the impact of the UK's EU referendum. Sign up to receive our Brexit updates by email.
European economy expert and associate editor of the Financial Times Woflgang Münchau said that businesses should be aware of the impact across Europe of any UK vote to leave the trading bloc.
"I think a 'leave' vote would be worse for the EU than for Britain," he told an event analysing the impact of the referendum organised by Pinsent Masons, the law firm behind Out-Law.com.
"The economic arguments in the UK are paralleled in the EU – in the long run we have no idea what will happen, but if it is going to be bad for the UK then it is going to be bad for the EU too because they are trading partners," he said. "The UK leaving would damage the EU, it might even destroy the EU, though that is not something that I think will happen."
One of the biggest threats he identified contagion - that if the UK leaves then other EU countries would begin to hold their own referendums and renegotiations with Brussels.
He predicted that a 'leave' vote in the UK would lead to calls for a referendum in France, and that the government there may choose to have the vote before next year's elections.
"There is a poll that says the French want a referendum and the French president might do exactly what David Cameron did, get it out of the way of the general election," said Münchau. "Polls say they want a referendum but want to stay, but this depends on a lot of factors. Be prepared for accidents - if France were to leave, the EU would be dead."
Another problem is the general economic shock that would be a likely result of the UK's departure.
Münchau said that economies recovered from most downturns, but that the banking crisis of 2008 and the ensuing euro zone crisis had had a permanent impact, and that growth rates had still not recovered eight years on. Adding an uncertain and politically charged departure from the EU would compound that ongoing crisis.
"Brexit would be a big shock for the UK but it would also be a very major geopolitical shock, which is the main reason why we shouldn't want it," he said.
One place he identified as being particularly at risk is Ireland, which he said is already a "crisis country".
"It could throw Ireland into a crisis again. Ireland is small in terms of the EU but so is Greece and small countries destabilised the euro zone to a disproportionate extent," he said. "It could be one of the links through which the euro crisis could return."
Münchau said that some long-serving senior officials at the European Commission have even said privately that EU life and management of the euro zone crisis would be easier if the UK left, that the EU "could huddle together and solve the problem".
"My answer is that Britain is not the cause of the euro-zone crisis, but neither has it been an obstacle to the solution. The problem was the lack of political union, but the barrier to that wasn't Britain, it was Germany," he said.
Though he predicted "chaos" on the day of a 'leave' vote, Münchau cautioned against assuming that the economic effects would be all negative and long-lasting. In fact similar past events tell us that the impact is often much lesser than expected, he said.
"When the UK left the ERM [exchange rate mechanism] people thought it would be a disaster but it had very little impact," he said. "Joining the single market had no impact on productivity, when everyone thought it would. There was lots of change, but the overall aggregate impact of the single market was very small. So if the UK leaves it will not necessarily have a big impact in the long run."
"But it could be extremely disturbing in the short run," he said. "We had a shock in 2007-8 that had a permanent effect, the growth trend has been lower ever since not just in the euro zone but also in the UK and the US. So it is probably wise to avoid another acccident. Purely on a risk management basis I would say 'don't do it'."
