The International Monetary Fund has made a series of warnings about Brexit in its latest World Economic Outlook. Vote Leave was quick to dismiss these, saying the IMF had been “consistently wrong” in past forecasts. But InFacts has checked out all six key claims and they are valid.
“The planned June referendum on European Union membership has already created uncertainty for investors”
The pound has fallen 8% against the euro and 3% against the dollar this year. This is a sign of investor uncertainty.
“‘Brexit’ could do severe regional and global damage by disrupting established trading relationships”
It could definitely disrupt established trading relationships. How severe the regional and global damage would be depends on how acrimonious the divorce was and what, if any, trading relationship Britain and the EU ultimately agreed. Brexiteers cannot agree on what they want. Different models – Canada, Switzerland, Norway or relying on the World Trade Organisation – have all been proposed. None is as good as the status quo.
“Negotiations on postexit arrangements would likely be protracted”
Exiting the EU would be an extremely complex process, which could take years even if both sides were working amicably – and that can’t be guaranteed. We wouldn’t just have to negotiate our exit from the bloc; we’d also have to cut new trade deals with both the EU and the 50-plus countries the EU already has pacts with.
“… resulting in an extended period of heightened uncertainty that could weigh heavily on confidence and investment”
A Brexit vote would lead to both political and economic uncertainty. David Cameron would probably have to resign. The new prime minister would then have to figure out what sort of divorce deal he or she wanted from the EU. After that, talks with the EU would start. Until they were concluded, business wouldn’t know what sort of access it would have to the EU’s single market. During the period of uncertainty, investment would probably slow down.
“… all the while increasing financial market volatility”
A vote to leave the EU would probably cause a further fall in the pound. There’s little risk of a bank run, given that the Bank of England would act as a lender of last resort, but financial markets would be in for a bumpy ride. In the worst case scenario, the government could find its budget squeezed by higher borrowing costs.
“A U.K. exit from Europe’s single market would also likely disrupt and reduce mutual trade and financial flows, curtailing key benefits from economic cooperation and integration, such as those resulting from economies of scale and efficient specialization.”
The single market has all these benefits: efficient specialisation, economies of scale and mutually beneficial trade and financial flows. Quitting the EU would probably mean losing full access to its single market.
Hugo Dixon is the author of The In/Out Question: Why Britain should stay in the EU and fight to make it better. Available here for £5 (paperback), £2.50 (e-book)