Is a Brixit a wise move, or a catalyst for catastrophe?

10th August 2012

Like the end of a tempestuous love affair where both partners have tried their best to accommodate the others' demands, the relationship could finally hit the rocks with Britain leaving the EU for good, according to a report by Nomura, says CNBC.

Japan's biggest bank has issued an 11-page study evaluating the likelihood that the UK will leave the European Union entirely or partly.

It says: "The effect a looser relationship with the EU would have on the UK economy in general and on the financial services sector in the UK in particular is not clear at this time, even though British eurosceptics argue that being freed from EU regulation would be a booster.

"However, the prospect is, in our view, bound to raise concerns – indeed, is doing so already in the City."

According to The Daily Telegraph's Ambrose Evans-Prichard, the point is that the eurozone may have to take drastic steps in integration to save the euro, making it nigh impossible for a fully sovereign state to remain part of the Project.

One of hundreds of comments on the blog reads: "We have nothing whatsoever to fear from leaving the EU. Indeed it will be positive. No more contributions, no more open borders, no more idiotic directives from Brussels. The sooner the better as far as I am concerned."

The suggestion caused a strong reaction on the Twittersphere. Seema Mavani ‏@Mavanis says: "Bring on the EU Brixit! The EU is like the titanic with a dozey Captain, so lets jump off before it hits the iceberg!"

But is this fact, or purely a political argument?

Evans-Prichard writes: "It has been my gut feeling for some time that the EMU debt crisis – or rather the intra-EMU currency misalignment crisis since debt as such is not the root problem (except for Greece) – has already led to de facto divorce.

"Britain is no longer part of the Project. This is proving less traumatic than supposed. It is quite possible to imagine various forms of semi-detached, or mostly-detached status where we carry on trading much as before."

Ruth Sutherland argues on This is Money: "Even the most europhile British politician would surely baulk at the prospect of the UK having to underwrite bust eurozone banks, despite being outside the single currency.

"Not so long ago, business accepted EU membership for the supposed trade benefits of the single market, but that view seems to be changing.

"A survey by the British Chamber of Commerce this week found no fewer than a third of firms believe the drawbacks of EU membership outweigh the benefits."

On the other side of the coin, the Guardian believes that Britain would do better to drive reform from within than leave and risk losing all the benefits. It says "Britain desperately needs to map out an alternative vision for the future of the EU. We are the only large country in Europe that is not preoccupied by the euro, so it falls to us to take a lead. We should argue for a new model for Europe where there is an inner core – the single market in goods and services that all member states sign up to because they benefit from it."

Meanwhile, David Cameron said in July that it was a "perfectly honourable position" to call for a referendum on Britain's membership of the EU – despite polls showing that the majority of British people would vote to reject this. And Business Insider says that former Prime Minister Tony Blair has said he is "deeply worried" that Britain will leave the European Union via a referendum.

So what about reason behind the hyperbole? Britain would surely lose influence if it left the union, and its economy would still be influenced by rules made in Brussels anyway – and what about trade relationships? Would it not derail everything, and cause further economic strife? Disentangling ourselves from the EU would be a hideous process.

And what about investors? A Departure would rock markets and cause serious concern.

 "We believe, increasing  possibility of either a looser U.K. relationship with the EU or a U.K. exit is bound, in our view, to raise both economic and political concerns, including in financial markets," Newton wrote.

What do you think?

 

More on Mindful Money:

The end of economics as we know it

What can the eurozone learn from Latin America?

Financial crisis: Alternative routes to recovery

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