Brexit just the start of more problems to come in Europe
With the news that Theresa’s May’s exit deal has been rejected by the UK parliament today, the country and the Eurozone is plunged into further uncertainty.
With the news that Theresa’s May’s exit deal has been rejected by the UK parliament today, the country and the Eurozone is plunged into further uncertainty. May and her cabinet are losing control of the process, with several backbench amendments reducing her capacity to negotiate and prolong the process. With last week’s amendment giving her only three days to table a revised proposal, and no consensus as to how it should look, the deal that took two years to negotiate seems dead in its current form.
The Bank of England (BOE) projects that a no-deal Brexit would wipe between 4.75 and 7.75% off UK GDP by 2024, figures corroborated independently by the Office of Budget Responsibility. The BOE is also forecasting that in the event of a disorderly no-deal Brexit, the value of the pound would plummet by 25%, and unemployment levels would rise to 7.5%.
Were a deal not to be agreed by the March 29th deadline, the UK would immediately revert to trading under WTO rules, and goods crossing the border, upon which the UK is reliant, would suddenly incur a tariff of up to 38%. While prominent Brexiteers like Jacob Rees-Mogg have indicated that this is their preferred outcome, unsurprisingly that isn’t a sentiment echoed by almost any business leaders.
The upshot of a no-deal Brexit, according to the International Monetary Fund, is that the average UK household will be £6000 (AU$10,000) a year worse off as a result. Credit ratings agency Standard and Poor’s anticipates that this scenario would lead to a recession comparable in length with that of the 2008 Financial Crisis. Faced with these projections, UK MPs have worked to avert the possibility of a no-deal Brexit being allowed to happen through sheer parliamentary paralysis, but whether their efforts will bear fruit remains to be seen.
The Eurozone’s problems in 2019 go beyond just Brexit however. According to Stratfor, Italian debt overhang will be the region’s biggest problem this year, not Brexit. Italy’s new, defiantly populist government is faced with an unenviable task, which they have shown little willingness to address, other than to level blame at the EU. But while the European Union is making for a popular punching bag amongst populist politicians, JP Morgan suggests that it is the self-inflicted state of the country’s finances, not Brussels, that will be Italy’s biggest threat this year.
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