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