The ‘biggest threat’ to the euro as UK moves to exit European Union
Giorgio Chiesa/AFP via Getty ImagesGiorgio Chinaglia/Getty ImagesGail Burton/Getty Getty ImagesMashableGiorgi ChiesAAP/GettyImagesMashablesGiorgios Stavrakis/ReutersGiorgiannis Papanikolaou/ReutersNathan Farrar/GettyPhotos/AFPReutersGail Cushman/GettyReutersNathaniel Balsamo/GettyBusiness InsiderGiorginio ChiesThe European Central Bank and European Monetary Authority, along with the European Commission and the European Banking Authority, have issued a joint statement warning that the UK could be forced to abandon the single currency, triggering a trade war.
The ECB says that, if the UK does not implement its commitments under the single market agreement (SMO), it would likely be unable to raise its benchmark interest rate, a decision that would also trigger a trade conflict with the United States.
The EU Commission says the UK’s decision to leave the EU would trigger trade barriers with the US, including tariffs, duties and capital controls.
It says that the “vast majority” of US firms will be unable or unwilling to compete in the EU without UK access to the single-market.
In a joint press conference with the ECB on Tuesday, the two sides agreed that the risk of a trade trade war was real and would likely lead to a slowdown in trade in goods and services between the EU and the UK, and a potential slowdown in global economic growth.
The Commission says that “a Brexit that results in no tariff barriers or capital controls for the UK would be a serious threat to the stability of the euro area, which is the single largest economy in the world”.
The ECB also says that if the British government decides to end the single economy, “the possibility of trade war between the UK and the EU, including with respect to investment, exports, investment in the UK as well as in the other member states, will increase”.
In a statement, the ECB said that, “in order to protect the stability and growth of the economy, the Commission is working towards ensuring that all member states are able to maintain a single currency and avoid the trade conflict that would result from a Brexit that does not guarantee the UK a seat at the table of global economic and monetary policy”.
The UK’s economy is expected to shrink 0.4 percent in 2018, as the effects of the Brexit fallout hit hard.
The Bank of England said that it would cut interest rates to a record low of 0.5 percent by early 2019, while the Bank of Ireland and the ECB both announced that they would also raise interest rates by 0.75 percent.
Meanwhile, the UK has been cutting back on spending, slashing the number of hours workers can work each week to just over 200 from its previous record high of 400.