When the British voted in June 2016 for the UK to leave the European Union, they made a choice that changes the destiny of the continent and has a significant impact on the economy, perhaps around the world. Brexit puts the entire European project into question and has invigorated eurosceptic political parties. A few days after the surprising referendum result, we asked Andrea Mennillo for his opinion on possible future scenarios.
1. Since the eve of the vote, there has been vigorous debate about the possibility the UK will exit the Europe Union, and much else has been said about the result of the referendum. Is there too much panic or is there really something to worry about?
The result of the referendum was a reason to celebrate for the eurosceptics throughout the Old Continent and, as expected, it sent a shock wave through European financial markets and forecasts for its economy. That probably happened because of the storm of different opinions that are each concerned with different positions. The news of the “Leave” victory was enough to cause a sudden collapse of the pound on the dollar, with losses over 10 percent — a record drop in the last 30 years. The main European stock exchanges were hit by losses due to market uncertainty. Milan closed at -12.5 percent, its worst result in recent decades, while the London Stock Exchange closed at -3.15 percent. But let’s consider real political facts: The British people have democratically chosen to leave the European Union. One can agree or disagree with the reasons that led to this result, but now it is time for the British government to follow the popular will. Certainly the exit of the UK will not be without economic and political consequences, some obviously negative. However, I would like to point out that what has happened is mostly symbolic. The European Union is not something eternal and untouchable — it is an institution that can be modified. This is the message the British wanted to send. From Europe, you can enter and exit, and European integration is not always beneficial.
2. Dr. Mennillo, you seem to be favoring Brexit….
I neither favor nor oppose it. I just take into consideration the result of the vote. We cannot live with the firm conviction that our certainties are eternal. We must remember that important changes can happen in any time, including the upturning of the status quo. History teaches that to us. How many times has the unthinkable happened? Let’s think about the two world wars not many years apart, or the technological revolution that has led to the globalized world. Almost anything can happen, so let’s keep in mind that there will be inevitable economic impacts, and also political ones, especially with regard to European unity.
3. In your opinion, what could be the foreseeable consequences for Europe?
There is not too much we can predict at the moment. We are in the field of conjectures. To avoid further uncertainty, the presidents of the European Commission called on the UK to leave the EU “as soon as possible, however painful that process may be.” However, the process is expected to take a long time, and it will be a couple of years before the operation is completed. At this initial stage, uncertainty is high due to many factors. What will be the future relationship between UK and rest of Europe? The old equilibriums will be replaced by new ones, and the reorganization process may not be without pain for everyone. But I do not think the catastrophic scenarios will happen. Just to give you an example, we talk a lot about financial institutions running away from London, which is today the most important financial center in the world. However, I do not think we will see a mass migration of grey suit bankers. On the contrary, many would be ready to deal with British government, considering the huge costs they would incur for moving elsewhere. If the UK negotiates an association agreement with the EU, such as the ones with Switzerland and Norway, where the sharing of large parts of the Single Market is a reality, the medium-term economic consequences may be not so relevant for all parties involved.
4. In your opinion, how will Europe’s international status change without UK?
It is hard to say. Having lost an important country like the UK, it is easy to imagine a weakening of Europe. But Brexit could turn into an advantage: With the awareness that others could follow the example of Britain, member countries may find that although cohesion seems to be cracking today, it may result in giving more strength to the union. Although it will be difficult … we see how the EU is, for example, incapable of creating a common plan to handle the number of refugees coming from the Middle East and Africa. It also proved incapable of offering sensible solutions to the economic crisis in Greece. How many states will be willing to accept these shortcomings for the sake of an inconsistent Europe that also does not grow economically as it should? The new grounds for relations between the UK and EU will, of course, depend on delicate political negotiations. If London is out, many companies could decide to leave the country to continue to benefit from the EU market. On the other hand, it may happen that London remains, is excluded from European institutions, but is fully integrated into the European market. However, in that scenario, it would have no leverage to influence the economic processes in which English people are included. In all this, there is also the burden of the United States and the forthcoming presidential elections. But the future is open to all possibilities.
5. Finally, what do you think the consequences are for Italy?
Much will depend on what new equilibrium is achieved. In the short-term perspective, the estimates are for the UK to experience a reduction of 3 to 5 points in GDP over the next 12 to 18 months, which could have an impact on Italy. Great Britain is in fact our fourth largest market for exports, albeit with a small share (around 5 percent of total Italian exports). However, it is possible that if the UK were no longer a convenient market, Italian trade would be repositioned quickly and at a lower cost to other countries. In addition, Italy could benefit from new investment opportunities from those who will leave Britain to re-orient their positions towards the continental market. Therefore, it will be important to become a more attractive destination to capture this re-allocated capital.