The report by the CPB Netherlands Bureau for Economic Policy Analysis predicts that — if the UK left the European union following the In-Out referendum on its membership on June 23 — it would have a "severe" effect on the Netherlands, because the two economies are intertwined.
However, it would also affect Belgium and Ireland and could lead to a split within Europe over they negotiations for a new trade agreement with the UK. The authors argue that the EU could move to penalize the UK — using tariffs — to deter others from leaving the common trade area.
However, countries who trade heavily with the UK — chiefly those in the North of Europe — would be adversely affected by such penalties, but would not share the support of southern European countries in reducing any tariffs against the UK.
'Pick and Choose'
The report states:
"A Brexit will have a relatively severe effect on the economy of the Netherlands, because the Dutch economy is more connected to the economy of the United Kingdom via trade than to that of the European Union (EU) as a whole. A new free trade agreement poses a dilemma for the EU. On the one hand, the EU wants to avoid the Brexit setting a precedent, or encouraging Member States to pick and choose from the different benefits and costs of EU membership."
"It would therefore want to increase the costs of the withdrawal as much as possible. On the other hand, this would then also lead to higher costs for the EU itself. A new trade agreement could reduce those costs for the EU but also for the withdrawing country.
"Furthermore, the Brexit-related costs are relatively low for countries in eastern and southern Europe, as they are less connected with the UK. Those countries, therefore, would benefit less from a new free trade agreement than countries such as the Netherlands, Ireland and Belgium. For this reason, it is conceivable that countries with a large economic interest in a new free trade agreement with the UK will not be able to muster the support of all EU member states."
