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Lack of international risk management in BREXIT?

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  • Paul J. J. Welfens

    (University of Wuppertal
    University of Wuppertal)

Abstract

BREXIT is a historical step for the UK and the EU27 which could bring a strong Pound deprecation, an increase in risk premiums for British bonds and a transitory rise of financial market volatility plus a long-term reduction of economic growth in the UK; but also risks for the EU27. New BREXIT aspects are considered in an enhanced Branson model. Macroprudential supervision is a crucial policy challenge for EU28 in the context of BREXIT and the European Systemic Risk Board thus should have a critical role in 2019 and the following years. The ESRB should timely analyze the potential risk of BREXIT and consider adequate policy options to reduce or eliminate risks. Contract continuity as well as cooperation in prudential supervision between the EU27 and the UK stand for BREXIT-related problems that could create financial market stability – as is the BREXIT-induced UK deregulation pressure. EU prudential supervision post-BREXIT faces problems since a very large part of EU27 wholesale banking markets in the UK and thus not regulated by the EU after March 29, 2019. The EU Commission’s competence for EU trade policy as well as international investment treaties gives the EU the opportunity to offer the UK not only a – limited – Free Trade Agreement but an international investment treaty as well, including options for global cooperation. Several policy innovations are proposed which could help to limit risk associated with instability.

Suggested Citation

  • Paul J. J. Welfens, 2019. "Lack of international risk management in BREXIT?," International Economics and Economic Policy, Springer, vol. 16(1), pages 103-160, March.
    • Handle: RePEc:kap:iecepo:v:16:y:2019:i:1:d:10.1007_s10368-019-00433-6
    DOI: 10.1007/s10368-019-00433-6
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    3. Welfens Paul J.J. & Baier Fabian & Kadiric Samir & Korus Arthur & Xiong Tian, 2019. "EU28 Capital Market Perspectives of a Hard BREXIT: Theory, Empirical Findings and Policy Options," The Economists' Voice, De Gruyter, vol. 16(1), pages 1-16, December.
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    More about this item

    Keywords

    Macroprudential supervision; BREXIT; EU; Financial risk; Economic policy; Instability;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • N14 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: 1913-
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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