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Blog Carsten Brzeski

Damage from a rolling stone/Brexit implications for Europe

The UK referendum on its EU membership and the resulting threat of ‘Brexit’ have already taken their toll on financial markets. If the UK were to vote in favour of Brexit, further turmoil seems guaranteed, with significant negative effects on the British economy. But the European economy will not remain unscathed either. From our baseline forecast we estimate that the initial hit to Eurozone GDP could be a cumulative 0.3% by end-2017. But the extent of the damage will depend heavily on the political impact, which is likely to be profound. The risk of further fragmentation is high, which suggests that the damage could be greater and longer lasting. However, one cannot entirely exclude the possibility that Brexit might give dramatic impetus to European integration and reform. One thing is for sure: the genie has already left the bottle. The stone is rolling and will do some damage.