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Topical Terms in Economics

Brexit

In a referendum held on 23 June 2016 the citizens of Britain voted in favour of leaving the European Union. The Ifo Institute examined the implications of a Brexit back in 2015 in a study conducted on behalf of the Bertelsmann Foundation. The study warns that an exit by Britain would have many negative economic implications not only for the country itself, but also for the EU and Germany. In the worst case scenario free trade would grind to a halt, internal market rules would cease to apply and customs barriers would be re-established. Trade would become expensive – especially for Britain, since the EU market is far more important to the British than Britain is to most EU member states.

In recent years Britain has become the second (behind Germany) and/or third (behind Germany and France) net contributor to the EU; and it paid almost 10 billion euros to Brussels in 2014. Yet Britain is neither a member of the Eurozone nor of the Schengen area. Certain EU rules, like freedom of movement within the EU, for example, or the European working time directive, are increasingly subject to criticism.

Uncertainty overshadows calculations of the economic effects of an EU exit, which must also take into account a potential transitional period. To assess the scope of potential effects, three scenarios were analysed in the study.

In the best case scenario Britain and the EU countries find a joint solution that minimises losses on both sides. This could occur via an arrangement similar to that with Norway: despite an EU exit, Britain would be represented in the European internal market through the European Economic Area (EEA). This arrangement would have advantages, especially for companies operating in the EU area and would involve little change to trade agreements. Like Norway, Britain would have to pay contributions to the community, but would no longer have a say in EU legislative procedure.

The second scenario is a settlement along the lines of the Swiss model. If Brussels and Britain agree that Britain should decouple from the EU, a free trade agreement could be reached along the lines of the Swiss model. Economic relations with Switzerland are defined by 120 agreements that give the country direct access to the EU’s internal market. However, it would not only take years to negotiate such contracts for Britain, but trade constraints would also have to be reckoned with.

Disaster scenario. The Europeans prove unwilling to compromise. There is no chance of a free trade agreement and internal market rules collapse. Thanks to customs duties trade becomes really expensive – especially for Britain. For the British the EU market is very much more important than Britain is for most EU member states. However, German automobile manufacturers with production plants in Britain face higher costs.

By 2030, or twelve years after a potential Brexit, its negative effects can be expected to unfold fully. According to the extent of Britain’s trade policy isolation, its real gross domestic product (GDP) per inhabitant would be between 0.6% and 3% lower than if it had remained in the EU.

For Germany and the rest of the EU, by contrast, the economic welfare losses of a Brexit would be far smaller. Depending on the extent of Britain’s trade policy isolation, real GDP in Germany per inhabitant would only be between 0.1% and 0.3% lower than if Britain were to remain in the EU, if pure trade effects only are considered. Several branches would be affected differently by lower exports to Britain. The greatest decline - of up to 2% - would be in the automotive sector. Alongside the automotive branch, the electronics branch, metal processing and the food industry would also incur losses.

Alongside losses in economic growth, the remaining EU states would have to face additional contributions to the EU budget. Thanks to the absence of British contributions, Germany, for example, would have to contribute an additional 2.5 billion euros per year as the EU’s biggest net contributor.

Speech

Brexit: Eine volkswirtschaftliche Einordnung
Gabriel Felbermayr, 30 May 2016 (PDF, in German) 

Ifo Viewpoints

  1. Clemens Fuest, Ifo Viewpoint No. 175: How to deal with Brexit | Jul 1, 2016 | Ifo Viewpoint | Details

  2. Clemens Fuest, Ifo Viewpoint No. 173: Brexit and its Economic Implications | May 27, 2016 | Ifo Viewpoint | Details

Press Articles and Interviews

  1. Großbritannien und der EUexit – Das Volk gegen die EU
    Presseartikel von Torben M. Andersen, Giuseppe Bertola, John Driffill, Clemens Fuest, Harold James, Jan-Egbert Sturm und Branko Urošević, oekonomenstimme.org, 09.03.2017 Details

  2. „Das Ergebnis muss nicht schlecht sein”
    Interview mit Clemens Fuest, Kölner Stadt-Anzeiger, 18.01.2017, S. 3. Details

  3. Ifo-Chef: "Noch nicht das Ende der Verhandlungen"
    Interview mit Clemens Fuest, Deutschlandfunk, 17.01.2017. Details

  4. Experte erklärt: So teuer kommt uns der Brexit
    Interview mit Clemens Fuest, tz München, 17.01.2017. Details

  5. „Viele meinen, unser Wohlstand sei gesichert“
    Interview mit Clemens Fuest, Frankfurter Rundschau, 01.10.2016, S. 28. Details

  6. „Die Briten bestrafen? Das wäre eine große Dummheit“
    Interview mit Clemens Fuest, WirtschaftsWoche, 15.07.2016, S. 38. Details

  7. „EU darf jetzt nicht beleidigte Leberwurst spielen“
    Interview mit Clemens Fuest, welt.de, 03.07.2016. Details

  8. Den Brexit-Schaden begrenzen
    Presseartikel von Clemens Fuest, Frankfurter Allgemeine Zeitung, 01.07.2016, S. 20. Details

  9. „Ganz Europa wird unattraktiver als Standort“
    Interview mit Clemens Fuest, Deutschlandfunk, 28.06.2016. Details

  10. ifo-Chef über die Kosten des Brexit
    Interview mit Clemens Fuest, Deutschlandfunk, 24.06.2016. Details

  11. Die EU hat zwei Optionen, aber der freundschaftliche Umgang mit den Briten ist nicht unbedingt die bessere Wahl
    Internetartikel von Gabriel Felbermayr, derstandard.at, 24.06.2016. Details

  12. "Ein zu hoher Preis"
    Presseartikel von Clemens Fuest, Handelsblatt, 23.06.2016, S. 38-39. Details

  13. Der Brexit würde Deutschland schaden
    Presseartikel von Clemens Fuest, n-tv.de, 16.06.2016. Details

  14. "Mit dem Brexit würde ein Tabu gebrochen"
    Interview mit Clemens Fuest, Handelsblatt, 10.06.2016, S. 10. Details

  15. „Deutschland wäre der größte Verlierer bei einem Brexit“
    Interview mit Clemens Fuest, Euro, Ausgabe 06/2016, S. 36-39. Details

  16. "Der Brexit ist ökonomisch irrational"
    Presseartikel von Clemens Fuest, WirtschaftsWoche, 27.05.2016, S. 38. Details

  17. How Germany Views Brexit
    Internet Article by Clemens Fuest, Project Syndicate, 19.04.2016; additionally printed in: Financial Nigeria (Nigeria), EJ Insight (Hong Kong), Toyo Keizai (Japan), Business Times (Singapore), Taipei Times (Taiwan), AZERNEWS (Azerbaijan), Bota.al (Albania), fondsprofessional.com (Austria), Wirtschaftsblatt (Austria), Postimees (Estonia), Il Sole - 24 Ore (Italy), Project Syndicate Polska (Poland), Jornal De Negocios (Portugal), Danas (Serbia), Finance (Slovenia), Gulf Times (Qatar). Details

  18. „Brexit beschädigt die Briten“
    Interview mit Hans-Werner Sinn, Frankfurter Neue Presse, 19.03.2016, S. 2. Details

  19. Diese Folgen hätte ein Brexit für Europa: drei Szenarien
    Internetartikel von Gabriel Felbermayr, xing.com, 01.03.2016. Details

Literature

  1. Boumans, Dorine, "Brexit bleibt vor allem europäisches Problem: Ergebnisse einer Sonderfrage im jüngsten Ifo World Economic Survey ", ifo Schnelldienst 69 (16), 2016, 55-57 | Details | PDF Download

  1. "CESifo World Economic Survey August 2016", Ifo Institute, Munich, 2016 | Details | PDF Download

  1. Jäger, Kai, Manuela Krause and Niklas Potrafke, "Soziale Ungleichheit und Brexit – Ergebnisse der April- und Mai-Umfragen des Ökonomenpanels 2016", ifo Schnelldienst 69 (12), 2016, 64-67 | Details | PDF Download

  1. Nikolka, Till and Panu Poutvaara, "Brexit – Theory and Empirics", CESifo Forum 17 (4), 2016, 68-75 | Details | PDF Download

  1. Grimme, Christian, Magnus Reif and Timo Wollmershäuser, "Die Auswirkungen des britischen Votums für einen Brexit auf die deutsche Konjunktur 2016/17", ifo Schnelldienst 69 (13), 2016, 38-43 | Details | PDF Download

  1. "67. Jahresversammlung des ifo Instituts", ifo Schnelldienst 69 (10), 2016, 03-04 | Details | PDF Download

  1. Ryan, John, "UK Referendum and Potential Brexit?", ifo Schnelldienst 69 (10), 2016, 10-12 | Details | PDF Download

  1. Wohlgemuth, Michael, Friederike Welter, Holger Schmieding, Franz Peter Lang and Bert van Roosebeke, "Austritt Großbritanniens aus der EU: Kann die Europäische Union einen Brexit überstehen?", ifo Schnelldienst 69 (10), 2016, 13-26 | Details | PDF Download

Video Presentation


The European Union at a Crossroads
John Ryan, Jeromin Zettelmeyer, Quentin Peel
Ifo Annual Meeting
28.04.2016 | 00:52:02 | English

CESifo Media Library


Discussion
Clemens Fuest, John Ryan, Jeromin Zettelmeyer, Quentin Peel
Ifo Annual Meeting
28.04.2016 | 00:52:02 | English

CESifo Media Library


Munich Economic Summit 2016: Brexit
Clemens Fuest, Elmar Brok, John Peet, Quentin Peel
01.07.2016 | 00:59:25 | English

CESifo Media Library


Short URL: www.ifo.de/w/4MdjerhFj