Britain is on the cusp of exiting the European Union.
If it does, the consequences could be so bad that it would stop any other country from thinking about leaving the 28 nation bloc.
A team of Bank of America Merrill Lynch analysts, led by Robert Wood, say that if Britons vote to leave the EU in the referendum scheduled for 2017, the UK would experience so much economic pain if it left the EU that it would make the EU stronger, because no other country would ever want to leave.
“In our view there would be serious economic fall-out for the UK in the short- and long-term if voters choose to leave the EU,” said BAML analysts in the report. “In the long term, the UK could cope outside the EU: other countries do. But coping does not mean the UK would be better off: exiting would be a costly backward step in our view. How costly would depend on post-exit policies. The fallout could be acute if Britain chose to withdraw from the process of globalisation.”
Basically, a Brexit would be bad for Britain but brilliant for Brussels.
Wood and his team warn in the report that the ongoing refugee crisis, which is seeing around 1 million migrants docking in Europe this year alone, is boosting the leave campaign and that if the UK did leave the EU, uncertainty would spike and sterling would probably fall.
The report is pessimistic on Prime Minister David Cameron’s chances of securing the “headline-grabbing changes” he needs to ensure the UK votes to remain in the EU. While it claims that a face-saving deal isn’t out of the question for Cameron, it says he simply won’t be able to secure the deal to restrict migration he needs.
“Do we think he could achieve a face saving deal? Yes. Are important but arcane changes likely? We think yes. Will he be ableto restrict migration or allow discrimination by nationality? No. Could there be a change to the totemic “ever closer union” goal from the Treaty of Rome? Possibly, but it is far from certain.”
The analysts also argue that the UK will lose global influence if it leaves the EU.
“This argument applies in a broad sense as well as specific: the large size of the EU single market means its rules can have a bearing on many types of world standards. In other words, EU membership gives the UK a voice in determining rules that are sometimes applied across the world.”
The report suggests that this lack of global clout would become particularly apparent when it came to negotiating trade deals.
Despite the UK having the fifth largest economy in the world, the analysts say that the size of the UK means it will have less bargaining power than the EU. This is important because many people who advocate leaving the EU say that Britain will actually gain more influence in the world if it votes to leave, because it will be able to sit on global bodies in its own right.
EU would benefit
Wood and his team don’t think the the the UK will will face a major crisis if it exits the EU, and they even concede that it could “cope” with a Brexit. They just don’t think it would be better off and would probably get a little bit worse as some banking business migrated away from London to avoid the legal complexities of trying to run EU operations from a non-EU UK.
The report also goes on to say that a UK exit would be a “hindrance” for the countries remaining in the EU, but only in the short term. In the long term a Brexit could apparently strengthen the EU, because if the remaining countries saw that the UK was not doing particularly well on its own they might be encouraged integrate further.
“In our view, Brexit would be disruptive and damaging in the short term, but nowhere near on the same scale as breaking up the currency union. Indeed, a UK exit could arguably strengthen belief that the Eurozone countries and the remainder of the EU could further integrate, potentially delivering a better-performing union.”
Of course, not everyone agrees with Merrill Lynch’s assessment. Robert Oxley from the Vote Leave campaign told Business Insider that the American bank is trying to frighten people into staying in the EU.
“We expect establishment figures like investment bankers to try to frighten people to vote to stay in the EU. Multinational corporations like banks do very well out of the EU because they spend millions on armies of lobbyists to stitch up the rules in Brussels. It is the people of Europe who lose out as the rules are rigged in favour of the rich.”
As the referendum vote gets nearer, we are going to hear a lot more arguing over what a Brexit would really mean for the UK and the EU.
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