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UK will suffer most from Brexit, warns European Central Bank

Published 07/10/2016

Yannis Stournaras says the eurozone will be in a stronger position to weather the uncertainty caused by Brexit (AP)
Yannis Stournaras says the eurozone will be in a stronger position to weather the uncertainty caused by Brexit (AP)

The UK's exit from the European Union single market would not hurt the continent's eurozone economies as much as initially expected, and it will be Britain that suffers most, a leading European Central Bank official has said.

As Britain and the EU, including 19 countries in the eurozone, prepare to enter thorny discussions on how to set up new trade relations,Yannis Stournaras's comments suggested the eurozone would be in a stronger position to weather the uncertainty.

"Negotiations will not be easy," Mr Stournaras, who is also governor of the Bank of Greece, told the Associated Press in an interview. "But it seems that the effect on the euro economy will be much less than initially anticipated. I think the greatest cost will fall on the UK economy, I'm afraid."

Britain voted in June to leave the EU, and will become the first nation to leave the 28-member bloc, which grew out of efforts to foster closer ties on the continent in the aftermath of the Second World War.

Prime Minister Theresa May has suggested the country could be heading for a definitive break from the EU's single market, in a move that has become known as "hard Brexit". The comments have put renewed pressure on the pound and rattled markets.

While economic indicators of the UK and the eurozone have held up since the June vote, experts warn that the impact could be felt over the longer term. Once the UK starts official negotiations, expected before April, it will take years to find new trade relations.

Leaving the single market will throw up tariffs on trade between the UK and the EU, although Britain depends more on the EU for its exports than the other way round.

Greece, which is struggling to emerge from six years of a deep financial crisis that has hit the euro, will barely feel the impact of Brexit, Mr Stournaras said, as its economy was not particularly exposed to Britain apart from in the tourism sector.

"There's already some impact from the depreciation of the pound, but we don't envisage a disastrous effect on Greek tourism," he said.

Greece has been dependent on rescue loans from three successive international bailouts since 2010, when years of profligate spending and fiscal mismanagement exploded into a financial crisis that left it unable to borrow on international bond markets.

In return for the loans, successive governments have had to make deep reforms to the economy, including tax hikes, deep spending cuts, privatisations and structural reforms.

The painful austerity has led to a series of political crises that have seen seven governments since 2009, while a quarter of the country's economy has been wiped out and unemployment remains hovering at about 23%.

Greece has long argued its debt - currently at 179% of GDP - is unsustainably high and that debt relief is essential. The International Monetary Fund, one of Greece's creditors, agrees, putting it at odds with Greece's main lenders in the eurozone, particularly Germany.

Mr Stournaras said it is time for the eurozone to "commit realistically to debt relief as it has committed itself since November 2012", adding this would be fair given the "huge restructuring" the Greek economy has undergone.


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