‘Brexit’ would create uncertainty in markets, EU bloc, Goldman’s Pill says

20 April 2016. By Bjarke Smith-Meyer.

A “Brexit” from the EU would do more than create uncertainty in financial markets, a Goldman Sachs economist said today. The fallout could also harm industrial output and encourage other countries to leave the union, “unraveling” the bloc, he said.

Huw Pill, chief European economist for the bank, made the remarks in a personal capacity at an event* in Brussels that explored how a British withdrawal might affect financial markets and the EU as a whole.

“Financial markets don’t like uncertainty,” Pill said. “But it could go a lot further.”

“Uncertainty leads to a reduction on industrial output,” and an “out” vote would create additional uncertainty, he said.

UK citizens will decide whether to stay in the EU in a referendum on June 23. An exit vote would probably lead to two years of negotiations, as Britain separates itself from EU laws and trade relationships.

Failure to agree on an accord would effectively end free trade between the UK and the rest of the bloc. That process would add another level of uncertainty, Pill said.

“There are some countries that are toying with referendums and EU exits,” he continued. “If Britain does leave the EU, there could be a further unraveling across the European Union.”

There is also no guarantee that a deal would easily be found within two years, Pill added.

The European Commission would probably take a hardnosed approach to the talks, he suggested, to avoid creating incentives for further referendums across the bloc.

“In order to keep the EU club together, you can’t have people leave and do very well,” Pill said.

“If you allow people to cherry pick, then everyone will ask for the same thing and the whole thing will unravel,” he said. “So there will have to be a disciplinary stance coming from the EU.”

* “How Does the UK Look at the Euro and the EU: Pros and Cons of Brexit,” Belgian Financial Forum, Brussels, April 20, 2016.

	Eliot Gao

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