Brexit will have mi­nor im­pact on EU coun­tries, but could pose chal­lenges for some

Financial Mirror (Cyprus) - - FRONT PAGE -

The di­rect im­pact of Brexit is lim­ited for most EU mem­ber states, although the ef­fects on Ire­land, Bel­gium, Spain and Cyprus could be more sig­nif­i­cant, Moody’s In­vestors Ser­vice said in a re­port.

“Most EU mem­ber states have lim­ited ex­po­sure to the UK as an ex­port des­ti­na­tion, tourism mar­ket and source of in­vest­ment,” said Sarah Carl­son, a Se­nior Vice Pres­i­dent at Moody’s and lead au­thor of the re­port.

“That said, Ire­land has by far the largest ex­po­sures to a UK exit from the EU. Other coun­tries more ex­posed to Brexit are Bel­gium, through its trade links with the UK, and Spain and Cyprus, which ben­e­fit from tourism.”

Ac­cord­ing to Moody’s, Brexit may have a larger im­pact on coun­tries with less pol­icy space. Coun­tries most ex­posed to Brexit through the tourism chan­nel — Cyprus, Por­tu­gal, Spain — also have high ex­ist­ing debt lev­els and el­e­vated gross bor­row­ing re­quire­ments for 2016.

North­ern EU states with strong fis­cal met­rics, such as Ger­many, the Nether­lands, and Swe­den, are the best po­si­tioned to with­stand any pres­sure — but could also be ex­pected to pay some­what higher con­tri­bu­tions to the EU bud­get in com­ing years in the event that the UK’s de­par­ture leads to a loss of rev­enue.

When it comes to fi­nan­cial and cor­po­rate link­ages, Moody’s ex­pects any gains from re­lo­ca­tion to be small and grad­ual, and largely de­pen­dent on the busi­ness en­vi­ron­ments of in­di­vid­ual Euro­pean coun­tries. Cyprus, Ire­land, Lux­em­bourg, and the Nether­lands are the most closely in­te­grated with the Bri­tish econ­omy in terms of fi­nan­cial ser­vices.

More­over, many Euro­pean com­pa­nies main­tain size­able man­u­fac­tur­ing, sales, and re­search op­er­a­tions in the UK, and the de­pre­ci­a­tion of ster­ling will have a neg­a­tive im­pact on prof­its and div­i­dends in euro terms from these firms’ UK sub­sidiaries.

Moody’s notes that Brexit could im­pact EU co­he­sion in the long term, although fur­ther frag­men­ta­tion of the EU re­mains a re­mote pos­si­bil­ity at this stage.

Brexit could em­bolden anti-EU move­ments in the short term, par­tic­u­larly in coun­tries that have elec­tions sched­uled in the next 18-24 months. This has the po­ten­tial to in­flu­ence the tone and con­tent of po­lit­i­cal de­bate, as well as the range of pol­icy op­tions.

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