Deutsche Bank are correct: A no-deal Brexit is nothing to fear
Matt Snape agrees with the chief economist of Deutsche Bank that a No Deal Brexit is not the end of the world.
With the possibility of a no-deal Brexit fast becoming a reality, the mainstream media are doing everything in their power to warn people about how this will impact upon their lives. The BBC have produced numerous reports about how Brexit will disrupt rubbish collection and more.
The biggest fear commentators have is how a no-deal Brexit will impact upon the economy. Reuters UK reports that Britain’s banks face a hit of up to 25 percent to their earnings if Britain crashes out of the EU without a deal. An economic slowdown, and the likelihood of interest rates and borrowers defaulting on their loans, would hit earnings per share by between 15 to 25 percent, analysts at Citigroup warned in a research note. This has caused Business Secretary Andrea Leadsom to urge banks to continue lending after October 31st.
However, Deutsche Bank, which is facing its own problems in Germany after a failed merger with Commerzbank and the German economy on the verge of a recession in general, does not seem to fear the prospect of no-deal. Their Chief Economist, David Folkers-Landau, appeared on Bloomberg and told them:
‘A no-deal Brexit is not the end of the world.’
He added that the UK is technologically very advanced and that the economy will do very well in the long-term. To go for an inadequate deal (in reference to Theresa May’s Withdrawal Agreement) would be the second-best solution, according to the economist. Although Folkers-Landau acknowledged there would be more volatility on the pound in the short-term if Britain leaves the EU without a deal, it will recover in the longer term. It is refreshing to hear an economist utter these words and Deutsche Bank’s Chief Economist is correct- a no-deal Brexit is not the end of the world.
Firstly, as Politico economist Shanker Singham suggests, Brussels has more to lose from a no-deal scenario. EU services would suffer as they would not be able to access UK markets, and this would cause capital costs to increase significantly and investment deals to dry up.
Meanwhile, the UK is likely to benefit. Professor Patrick Minford, Chair of Economists for Free Trade, estimates that leaving the EU would provide a £135 billion boost to the British economy or 7 percent of GDP. This would be brought about by a reduction of the cost of imports from outside the EU and a reduction in the cost of tariff barriers.
A no-deal Brexit is also a fantastic opportunity for the UK to slash taxes to attract investment, particularly under a Conservative government led by a Prime Minister more enthusiastic about leaving the EU than his predecessor. Graham Gudgin and Robert Tombs at Prospect suggest realistic economic modelling should incorporate sensible policy responses to a weaker currency, and these include cutting VAT and import tariffs. Corporate tax would also need to be reduced to offset trade frictions and attract foreign investment.
It is preposterous to believe the UK cannot survive a no-deal Brexit. It is time for more respected economists like Deutsche Bank’s David Fonders-Landau to start advocating the benefits of no-deal, and fast, because a poor deal would prohibit Britain’s ability to thrive more so than remaining in the EU.
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