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EU Economics

Digging their own grave: No Brexit deal will unleash new EU recession that kills off euro

BRITAIN has the upper hand in the Brexit negotiations because failure to reach a deal would unleash a devastating recession in Europe which would kill off the euro, a leading economist warned today.

Professor Patrick Minford said the EU has by far “the most to lose” in the event of a no deal scenario which would place unbearable pressure on the bloc’s weakest economies.He predicted Greece, which is laden with unsustainable levels of debt, would implode as a result of the economic shock caused by a drop in tourism and tariffs being placed on its exports.

The respected academic’s remarks came after a senior Greek minister warned his country is set to lose up to 0.8 per cent of its GDP just from a post-Brexit reduction in UK holidaymakers alone.

Professor Patrick MinfordGETTY               Professor Patrick Minford said the EU has the most to lose from a no deal scenario


This philosophy – known in Brussels circles by the French term ‘pour encourager les autres’ – is being driven primarily by euro purists like Jean-Claude Juncker and his chief of staff Martin Selmayr.

But Professor Minford, who is Margaret Thatcher’s former economic advisor, said the financial shock of not reaching a deal would be far more threatening to the EU’s future than any political divisions opened up by a post-Brexit trade settlement.

Jean-Claude Juncker with his chief of staff Martin SelmayrGETTY          A tough line is being pushed by EU purists like Jean-Claude Juncker


Theresa MayGETTY             Theresa May has warned Brussels she will be a ‘bloody difficult woman’ during the talks


He told express.co.uk: “The people who have got the most to lose from not having a deal with the UK are the Europeans.“They are going to do themselves a lot of damage. They’ve just come out of recession, they don’t need a recessionary shock like this any more than one needs a hole in the head.

“The banking system there is as rickety as hell and they are stuffed to the gills with government debt.

“The whole situation is very fragile and it just needs a shock pushing it back into recession to make it quite a mess, and the euro would fall in those circumstances.”

He concluded: “So all this talk of punishing Britain is very silly and very immature. This really looks like an own goal from their point of view.”

 
Professor Minford from the group Economists for Free Trade – formerly Economists for Brexit – said heavily indebted Greece would likely be the trigger for a fresh eurozone crisis.He said: “The Greece problem isn’t going away, but it’s not getting any worse for now.

“But a blow which knocks their exports is potentially quite a recessionary impact and the particular impact in Greece could be very significant because it’s always teetering on the edge of chaos because of the way they’ve treated it.”

Yesterday George Katrougalos, the Greek deputy foreign affairs minister, gave a dire assessment to MPs of the impact Britain leaving the EU could have on the country.

He revealed calculations which show that Athens’ overall GDP could contract by 0.4-0.8 per cent just from a reduction in British tourists if the negotiations do not lead to a good outcome.

The people who have got the most to lose from not having a deal with the UK are the Europeans

Professor Patrick Minford

Some 2.4 million British holidaymakers visited the sun-kissed country in 2015 spending £1.7bn between them – a crucial economic lifeline for Greece’s scattered islands and remote coastal regions.The UK is also one of the country’s biggest exports markets, accounting for around 10 per cent of the goods sold abroad by Greek companies, meaning any return to tariffs would hit its fragile economy hard.

Mr Katrougalos warned the Greek Parliament’s European Affairs Committee: “We are currently moving into uncharted waters, as not all mechanisms have been activated in order to have a clear picture of the impact.”

In contrast, Professor Minford predicted that the British economy would emerge relatively unscathed from a no deal scenario thanks to the UK’s emerging trade links with the rest of the world.

He said dropping out of the single market, and so shedding the tariffs the EU places on goods coming into Britain from outside Europe, would lead to a drop in living costs of eight per cent for UK citizens.

And he accused “protectionist” eurocrats of vastly underestimating the impact of this change on the EU’s economies, pointing out it would mean European exporters having to do battle on a level playing field with the rest of the globe for the first time when courting British custom.

Prof Minford, who does not believe any other countries will leave the EU said: “If we don’t get a deal with the EU we’ll be in a perfectly good position as we’ll simply free trade with the rest of the world.“For them the big problem is actually that we go to no deal and we have free trade with the rest of the world.

“They will find this is a very competitive market indeed and they will sell far less in it because stuff will be coming in from the rest of the world without those protectionist barriers.”

Saying the election of Emmanuel Macron was a good thing for the Brexit talks, he added: “We do want a strong Europe, we’d like them to sort themselves out. It’s not in our interests to have them falling apart at all.”

http://www.express.co.uk/news/politics/802336/Brexit-news-no-deal-scenario-EU-Greece-recession-end-euro-economist-Patrick-Minford

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