Brexit ‘could boost eurozone GDP’

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Eurozone economies would gain at the expense of Britain if the UK voted to leave the EU, a leading French economist has predicted, with a relocation of financial activity out of London causing sterling to plummet.

Mathilde Lemoine, a prominent member of the French government’s budgetary watchdog and chief economist of the Edmond de Rothschild private bank, said sterling could rapidly fall 34 per cent against the euro.


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The report by the private bank demonstrated how European finance houses could profit from Brexit if the Leave campaign wins the referendum on June 23.

Ms Lemoine, also a former adviser to the French prime minister, wrote that the rapid relocation of financial activity would add to the “brutal drop” in sterling she expects after a vote for Brexit.

Such a vote, she said, would “immediately” reopen the question of the location of clearing houses for eurozone business, which are mostly in London after the UK government won a case last year in the European Court of Justice. It ruled against the European Central Bank’s requirement that clearing houses of euro-denominated business between European banks had to be based in the eurozone and regulated by the ECB.

After a Brexit vote, “it is certain that the grounds for the European Court of Justice’s decision would no longer exist,” Ms Lemoine wrote. “As a result, the European Council could immediately require clearing houses handling euro transactions to be located in the eurozone. On our calculations, sterling would fall 34 per cent against the euro in the space of three months”.

A fall in sterling of that size would hit incomes by raising import prices and UK inflation substantially, while helping British exporters of price-sensitive goods.

While the Edmond de Rothschild report suggested the overall effect of Brexit in the short term is hard to quantify, the relocation of financial activity would hit UK gross domestic product by about 1 per cent, it said.

“Brexit would undeniably require major short-term adjustments on both sides of the Channel,” Ms Lemoine said, with a reduction of trade, the value of sterling, higher prices and a greater cost to servicing debt.

The eurozone would be the main beneficiary of UK woes, Ms Lemoine said, adding “on our calculations, Brexit could boost eurozone GDP by 1.3 per cent after two years”.

But she expects the UK to be able to agree access to the EU single market, which would ultimately limit the damage to the UK economy from Brexit, although this would “not necessarily reduce the UK’s contribution to the EU budget”.

But she also had a warning to Britain that even in the event of a vote to remain in the EU, eurozone countries would try again to get financial business such as clearing houses located in the single currency area, despite the ECJ decision.

With the eurozone having a qualified majority in the Council of Ministers from April 2017, “the eurozone will still be able to impose itself as the location for clearing houses handling euro transactions”.

Any move by eurozone countries could be challenged by the UK at the ECJ under the greater safeguards against discrimination within the European single market, which prime minister David Cameron negotiated in February.

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