The Brexit gamble

The EU is still Britain's biggest export market
The EU is still Britain’s biggest export market. Source: ONS


An analysis by Commerzbank Economic Research

Commerzbank Economic Research provides an overview of the key issues involved in the Brexit debate.

“In our view, many of the economic arguments used to justify departure from the EU are unconvincing and ultimately the Brexit question has to be seen as a political issue.

However, it is hard to avoid the conclusion that Brexit represents a gamble with the UK’s economic and political interest whose pay-off is at best uncertain.


Key points

      • Prime Minister Cameron’s promise to hold an in-out referendum on EU membership by the end of 2017 is largely motivated by political rather than economic considerations. That said, the dissatisfaction felt by the UK electorate is common to many other EU nations.

      • It is clear that there are economic, regulatory and fiscal costs associated with the creation of the Single Market. Many of these are unavoidable and on balance, the evidence suggests that the Single Market delivers a net benefit.

      • Trade links between EU nations are strong although the UK records a persistent deficit in goods trade with the EU, which is only partially offset by a surplus on the services balance.

      • The UK is a net beneficiary of FDI flows from the EU that supports jobs and generates spill-over effects by boosting productivity. Empirical evidence suggests that around 13% of jobs are dependent on EU-related activity, with above average dependency in manufacturing and financial services.

      • The City of London enjoys the privilege of being the entrepot to a market of 500 million people. As a result, the UK generates a substantial surplus on trade in financial services and continues to enjoy a rising share of global activity in areas such as FX trading. Brexit may open the door to rapidly growing markets in Asia or the Middle East and allow them to capture market share.

      • Many argue that a reduction in EU regulation would help to improve the UK’s growth performance. But it already has amongst the least regulated product markets and the lowest level of labour protection in the EU. It is hard to conclude that removal of EU legislation would provide much of a boost.

      • Ultimately, the extent of any gains from Brexit will depend on the nature of the UK’s trade relations with the EU. Striking a deal with the EU could preserve access to the Single Market but will come at a cost in terms of having to contribute to the EU budget, despite having no say over the drafting of legislation.

      • Alternatively, it could seek a cheaper deal with the EU, or no deal at all, but a reduced degree of access to the Single Market would be a more risky strategy.

      • The EU also benefits from UK membership. It is an important export market for many countries and the UK is a net contributor to the EU budget. Politically, the EU is strengthened by the membership of a large, stable economy with a commitment to liberal economic reform, which is well plugged into the global institutional network.

      • Exit simply means that the UK will be faced with a different set of problems. It will have reduced access to its biggest export market and depending on the nature of the deal, it may be subject to large parts of EU legislation but without any power to change it – something which the Eurosceptics would like even less than the system they have now. The EU is far from perfect, but life on the outside may be even harder.







For the full Commerzbank economic analysis of Brexit, visit this link: