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Paul J.J. Welfens: International Risk Management in BREXIT and Policy Options

Paul J.J. Welfens: International Risk Management in BREXIT and Policy Options

 

 

Summary

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. Macroprudential supervision thus 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 2018 and the following years. The IMF’s FSAP as well as the ESRB thus should timely analyze the potential risk of BREXIT and consider adequate policy options to reduce or eliminate risks. As regards the ESRB this requires full cooperation of all EU28 actors in that organization. Moreover, the EU27 faces major problems in terms of prudential supervision after BREXIT since a very large part of EU27 wholesale banking markets are 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. Contract continuity is a dangerous BREXIT challenge for EU-UK negotiations. The influence of US regulation on Europe will increase due to BREXIT. Several policy innovations are proposed.

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