15. June 2016

Brexit – a threat to the European economy

On June 23, 2016, the United Kingdom will decide whether it should remain a member of the European Union (EU) or leave (“Brexit”). The polls currenly predict a neck-and-neck race between the supporters and opponents of EU membership, with a slight advantage for the "Remain" camp. Given its huge economic and political implications, the vote is being followed closely around the world – including in Bavaria.

After all, the UK is currently Bavaria’s second most important export market. In 2015, Bavaria exported goods amounting to 15.5 billion Euro to the UK – 8.7 percent of all Bavarian exports. At the same time, Bavarian imports from the UK amounted to to 5.6 billion Euro, or 3.5 percent of all Bavarian imports.

In order to discuss the potential consequences of a “Brexit”, the Bavarian Industry Association (vbw) hosted a panel debate on May 30, 2016. Politicians, business executives and journalists came together to discuss their concerns about the UK’s possible exit.

The perspective of the Bavarian Industry Association

Bertram Brossardt, CEO of the Bavarian Industry Association, emphasized the serious economic consequences of a British exit: The EU is the world’s largest single market, and it accounts for about 50 percent of the British trade in goods.

However, Brossardt also showed understanding for some of the concerns raised by the UK in its recent EU renegotiation, for instance regarding the need for more competitiveness and subsidiarity in EU decision-making. He urged the EU to pursue serious reforms, regardless of the outcome of the referendum.

The risks of a Brexit

The potential economic risk of a Brexit was also stressed by Dr. Paul Rübig, a long-time Member of the European Parliament for the European People's Party from Austria. He highlighted that the British economy alone accounts for around 15 percent of the EU’s total GDP. Therefore, the EU stands to significantly lose economic power in case of a Brexit.

Moreover, Rübig warned of the political consequences: The EU has played an important role in maintaining peace and democracy across Europe for the last 50 years. The withdrawal of an important member like the UK would be a huge setback for the European project. And it would considerably reduce the EU’s political impact.

Thomas Kielinger, a German UK expert residing in London, spoke about the public mood in the UK ahead of the vote. In particular, he pointed out that many Brexiteers expect to keep their unrestricted access to the Single Market even after leaving the EU.

Implications for the British and European economy

Professor Gabriel Felbermayr, Director of the Ifo Center for International Economics, envisioned three scenarios for a British exit from the EU: A so-called "soft exit" (trade agreement UK-EU: no tariffs, status like Switzerland or Norway), a "deep cut" (no trade agreement with the EU: tariffs, continuation of agreements with third countries) or "isolation of the UK" (loss of privileges and all existing trade agreements with the EU and third countries).

According to calculations by the German Ifo Institute, the potential loss to British GDP per capita in 2030 would be 0.6 percent with a "soft exit" and up to 3.0 percent in the case of "isolation". Felbermayr added that the GDP loss could be compounded by dynamic effects on investment and innovation activity, leading to a GDP drop of much more than 3.0 percent.

His negative view of a “Brexit” was shared by Dr. Thomas Becker, Vice President Governmental and External Affairs at BMW Group. Given BMW’s large investment in the UK and the UK’s importance as a market, he predicted no beneficial economic outcome after a Brexit.

Becker pointed out that the success of the British automotive industry is based on its deep integration into the European value chain. Leaving the EU, he concluded, would therefore lead to drastic disadvantages for manufacturers based in the UK.

The vbw has published a position paper (in German) on the risks of a Brexit which you can download here .


Dagmar von Bohnstein

vbw Gremienbetreuung, Bundes- und Europaangelegenheiten

Dagmar von Bohnstein