British exit risk casts shadow over EU policies

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LONDON >> Half a century ago, French President Charles de Gaulle twice vetoed Britain from joining what was then the European Economic Community, warning that the country's "fundamental hostility" to economic integration could sabotage the bloc.

In half a dozen weeks, the British could be fulfilling that prediction when they vote on whether to leave the European Union, a move that would be the biggest reverse in the bloc's near 60-year existence and a threat to its economy.

A vote for a British exit from the EU — so-called Brexit — on June 23 would likely trigger turmoil in financial markets and uncertainty for businesses, jolting the region's economy.

The real damage may take longer to emerge. The fear in continental Europe is that the U.K.'s departure could prompt other countries to seek changes to their EU membership. In a worst-case scenario, it could usher in a new era of nationalism that diminishes the drive to strengthen economic ties and undermines the EU's core purposes: the freedom to trade and move between countries.

'Another torpedo'

"It could be another torpedo in the ship of the EU," said Jan Bryson, global economist at Wells Fargo Bank. "Brexit could set a precedent and it could raise questions about the future of the EU itself."

As far ago as 1963 De Gaulle warned the other five founding members of the bloc that Britain's culture was too different to be interested in long-term integration. He had first-hand knowledge of Britain, having spent most of World War II in London organizing the French resistance.

"Non," he said in 1963, and again four years later, to Britain's attempt to join. The country eventually joined in 1973, after de Gaulle resigned in 1969.

The immediate aftermath of a British vote to leave the EU — which bookies give a 30 percent chance, against 70 percent for the "in" vote to win — would likely see huge volatility in financial markets.

Many forecasters predict the British pound would fall as much as 20 percent in the following days. Worries over the vote have already seen the pound drop this year to a seven-year low against the dollar. Though a weaker pound may help Britain's exporters, it would hurt European firms exporting to Britain.

The instability would discourage businesses from investing or hiring. Surveys of companies have already shown some executives, mainly in Britain but also the eurozone, becoming more cautious in the run-up to the vote.

The uncertainty could last a while. It would take at least two years for Britain to leave the EU. Renegotiating its commercial relationship with the bloc will likely take many years more.

The Organization for Economic Cooperation and Development estimates that a Brexit vote will shave around 1 percentage point off the EU economy by 2020. That's a lot for an economy that's barely grown over the last few years and in 2015 expanded by only 1.9 percent. The IMF considers Brexit risky to global trade.


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