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5/15/16

Brexit - Impact: The Economics of Brexit: A German View - by Holger Schmieding

The British “in or out” EU referendum on June 23 poses the top economic and political risk for Europe this year. Germany would love the UK to stay in the European Union.

The UK is simply part of Europe. Managing relations with the UK is much easier in the established framework of the EU than it would be on an awkward bilateral basis.

Beyond making economic and political sense for all sides (except for Vladimir Putin and some other interested politicians), a vote to stay in the EU would also avoid ‎a host of potential complications that could stem from a Brexit.

What might be the economic impact of Brexit on the continent? And how far would Germany go to offer the UK good terms of access to parts of the Common Market after a Brexit?

As a highly‎ open economy that specializes in the export of cyclical goods such as high-end machines and cars, Germany tends to be affected by any spike in global or European uncertainty more than most other countries.

A potentially turbulent Brexit could thus dampen the near-term outlook for German investment and exports noticeably.

Instead of expanding at an annualized clip of around 1.6% in the second half of 2016, German growth may slow to less than half that rate. Other eurozone countries would, on average, not do better than that.

Fortunately, Germany tends to be good at overcoming short-term shocks. As long as a Brexit does not cause the remainder of the EU to unravel, the direct impact of a Brexit would be brief. German and Eurozone growth can be expected to rebound back to its trend rate by the end of 2017.

Read more: The Economics of Brexit: A German View - The Globalist

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