Brexit on Libra

What if? .. The likely consequences of Brexit for the economy of Great Britain, the European Union and the World

On June 23, British citizens will have to decide on a referendum whether the country is part of the European Union - after 43 years of its stay in the European community? Recent surveys have shown that supporters of both the exit from the EU and the preservation of Status quo are approximately equally. But if we assume that the first in the end will be more, then the direct consequences of Brexit for the economy and the UK itself, the European Union, and the world today are still exaggerated, the international expert is sure. While the consequences of indirect ones may be much more important.

In early June, the organization of economic cooperation and development (OECD), uniting today 34 of the most industrialized countries of the world, introduced another overview of the world economy. Speaking at his presentations, the chief economist of the OECR Katherine Mann compared the significance for the global economy Brexit, that is, the UK exit from the European Union, with the so -called "strict landing" of China’s economy , a sharp inhibition of its growth. Unless, of course, both events occur ... and although the comparison was not direct, they were attributed, relatively speaking, to one weight category.

China is the second largest economy of the world after the United States, Great Britain is the sixth. In this context, how compared the consequences of events, both happen? Our interlocutor is a researcher at the Huver Center for Stanford University in the United States Professor of Economics Mikhail Burnshtam :

- Comparison with the "hard landing" of China, of course, an exaggeration. Here is a very simple arithmetic. The global economy, counting the parity of the purchasing power of currencies, is 110 trillion dollars. The economy of Great Britain is approximately 2.5 trillion dollars, that is, 2.4% of the world economy. Assessments of what can happen to her in the case of Brexit vary. There are official grades of the British Ministry of Finance, which is possible a recession and a decline in GDP by 6%. Other economists suggest a much smaller decline. So, the Nobel laureate Paul Krugman, collecting all kinds of grades, came to the conclusion that in this case it was possible to fall in GDP of Great Britain by 2%...

- This is that, based on the specific gravity of the British economy, we can assume a possible effect of Britain’s exit from the EU if the referendum decides so? ..

- If we assume a decline by 2% and the fact that there will be no positive shifts, for example, then the final effect will be minus 0.05% in the global economy. If we proceed from the assumption that the economic decline in the UK in the case of Brexit will be 6%, this is a deep recession, then it will result in a reduction in the global economy by 0.15%. All this is within the statistical error. This is what the world economy will actually "not notice."

- In turn, the share of China in the global economy is several times more ...

-China now makes up a 16% volume of the world economy, again considering it by parity of purchasing power. And a sharp “inhibition” of its economic growth - let’s say, from the current 6.5% a year to zero, if it happened, it would turn out to be a decline in the world economy by a full 1%. And this is already a lot. Therefore, these values are simply not comparable.

This protest is worth calling "leave" from the European Union! Moreover, he is by no means unique in the case of Great Britain. The same moods can arise in Germany, and in France, and in the Netherlands ...

- Recall that today about half of the total exports of Great Britain goes to other countries of the European Union. In turn, 7%are entered from the aggregate exports of these European countries to the UK. In the case of Brexit, will it be possible to maintain such a ratio? Say, as part of an agreement on the free trade of the European Economic Zone ( EEA - European Economic Area ), which unites with the European Union such countries such as Norway, Iceland or Liechtenstein?

- Even in the case of Brexit, Great Britain will certainly remain in the European trade system. Firstly, nothing happens instantly. The legislation of the European Union contains a detailed scheduled procedure for leaving it. In particular, a two -year process is provided. If during these two years they do not agree on the conditions of joint actions, then it will simply automatically end. But in two years, of course, they will agree. Everyone is interested in the UK remaining in the system of pan -European trade! The European economic zone operates on the same conditions as the European Union, but without regulation by the EU government. Therefore, nothing will change for the trade itself.

-But in recent months, many rather transparent hints have come from different European capitals that, they say, one should somehow “punish” the UK economically, if it suddenly gathers to leave the EU ...

-No one is interested in punishing someone! .. Let us recall what the European Union began in the 50s of the last century in general? ” More precisely, his predecessor is a European association of coal and steel, at the origins of which France and Germany stood ... Even then, one of the founders of the new system, the great man, the French Prime Minister and Minister of Foreign Affairs Robert Shuman said: the task is not to “punish” Germany (although it was short after the war!), But to incorporate it to create a new Europe. So: there can be no question of the European Union and Great Britain, if even Brexit would not agree on some unified economic and trade zone.

In addition to the direct effects of Brexit, which are still exaggerated, there are indirect ones. But just they can have very significant consequences. Namely, disintegration can occur, that is, the collapse of the European Union

- Today, 30% of all direct foreign investments that come to the UK are sent to its powerful financial sector. And their volume is, respectively, 17% of the total GDP of the country. Moreover, half of the investment in the financial sector of the British economy comes from the countries of the European Union! Such data was recently given by the international rating agency Standard & Poor ' S. In the case of a decision at the upcoming referendum in favor of the country's exit from the European Union, how real, according to your ideas, is the threat of reducing these investments in the UK?

- Gradually, of course, some reduction can occur ... although this is unlikely. The fact is that now all these countries use the liberal financial regime of Great Britain in order not only to profitably place their capital here, but also to diversify their own investments around the world, since the British has its own and very strong currency - a British pound. Let's say China today is significant in the British financial market and already through the financial centers of Great Britain works with other countries of the European Union . And now it is not profitable for anyone to change the prevailing system of these financial flows. In addition, the world financial markets themselves have already "answered" in general to all these political debates of recent months about Brexit. Namely, interest rates on assets in British pounds are reduced, as well as interest rates around the world. That is, the markets do not expect precisely for the financial sector of some big shocks, regardless of the outcome of the British referendum.

There can be no question of the European Union and Great Britain, if even Brexit happened, do not agree on some unified economic and trade zone

- That is, in general, judging by your words, the consequences of Brexit , if it happened, still does not seem so dramatic - both for the UK itself and for the EU economy or the world as a whole. But how then to explain why the world financial markets were so nervous on the eve of the referendum? Indeed, about the outflow of capital, in connection with the real possibility of Brexit , from risky assets (whether it is oil or developing markets), literally all said in the more safe days ...

- In addition to the direct effects of Brexit, which are still exaggerated, there are indirect ones. But just they can have very significant consequences. Namely, disintegration, that is, the collapse of the European Union, can occur. By the way, I just wrote an article that it is very likely (Forbes - The European Delusion. - RS). I will explain my point of view. The fact is that the European Union, now that the former socialist countries of Eastern Europe are adopted in it, is a very “unequal” education. He united countries, very different in economic development. Moreover, countries with very different levels of social support. And not only non -working people, but primarily working! Therefore, labor migration in the UK, Germany, France or the Netherlands, that is, in the richest countries of the European Union, has become so attractive. In the UK, by the way, it is even more difficult for migrants to get to migrants, since the country is not part of the Schengen zone ...

That is, the markets do not expect precisely for the financial sector of some big shocks

- Well, this “attractiveness” itself begins already when people understand the difference in minimal and medium earnings or volumes of social support ...

- Let's say the minimum salary in the UK is about three times higher than the minimum salary in Eastern Europe, or twice as high as the average in the European Union. In addition, there are all kinds of social benefits to employees again. They receive various kinds of tax benefits, subsidized or even free housing ... As a result, the European Union involuntarily turns into a system of huge social, financial overcoming - from countries richer to countries more poor. And this is not the fault of the migrants themselves, the levels of economic development are simply too different. And such an education, although it arose as if naturally, simply cannot exist in a long term! .. If only the rate of economic growth in the countries of Eastern Europe will not be much higher than in Western Europe, due to which convergence will occur, and everyone will be approximately at the same level.

- And if such alignment does not happen? Or at least take many years?

- This is precisely the essence of Western European protests against migration, against “subsidies” as if more poor countries, a protest against those regulations of the European Union that “impose” such a practice for richer countries. This protest is worth calling "leave" from the European Union! Moreover, he is by no means unique in the case of Great Britain. The same moods can arise in Germany, and in France, and in the Netherlands ... And in such a situation, the fate of the European Union itself is already problematic! After all, if in a British referendum they vote for Brexit, and the UK will give the first signal that people do not want to continue this practice, the "domino effect" may arise. This will then become the most significant consequence of the Brexit of those that can be.