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Feeling the Pinch: Brexit Will Not Cause Any Major Economic Harm to EU

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With the UK referendum on whether or not to leave the EU less than a day away, Radio Sputnik asked Xavier Timbeau, director of Observatoire Français des Conjonctures Economiques, to share his thoughts about the consequences of Britain’s exit from the EU.

People hold Union Flags and the EU flag at a kiss chain event organised by pro-Europe 'remain' campaigners seeking to avoid a Brexit in the EU referendum in Parliament Square in front of the Houses of Parliament in central London on June 19, 2016. - Sputnik International
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“The economic repercussions of this look pretty vague. In the short term we could see a devaluation of the British pound and market indices going down and interest rates going up. This may be a pretty lengthy process and I don’t expect something extraordinary happening in the short haul, so there is no immediate reason for alarm,” Xavier Timbeau said.

He added that Britain could feel the pinch as investors, unhappy about the legal situation in the UK, could shift their attention to the Continent.

“In the long haul, much will depend on what is happening now. And secondly, we don’t know what will be happening to the City [of London]. With the City gone, the British will see half of their present wellbeing going out the window.”

Xavier Timbeau said that what Brussels fears more than Brexit, which will not necessarily cause any significant economic harm to the EU, is that some other EU members might be tempted to follow suit.

“Even if the EU wants the City to move elsewhere, this strategy will take time before it starts bearing fruit. You can’t have the financial sector moving from London to Frankfurt or Paris in just overnight.”

Mr. Timbeau said that when sinking their money into the EU economy investors know full well that there is the European Court, the EU administration, a Commission they can go to speak about their problems and try to find a solution.

Conflicts can be resolved at the Arbitration Court, which is a supranational structure.

“In a word, they feel safe doing business there. If Britain exits the EU this sense of security will be gone and it will become less attractive to foreign investors,” Xavier Timbeau noted.

When asked about the possibility of City relocating to Europe, he said that unlike Frankfurt, Paris is almost as full of company headquarters, law firms, banks and consulting companies as London is.

“Well, Frankfurt is a good candidate too. Several major banks have their head offices there, above all the European Central Bank. Closeness to a major financial regulator has always been useful and important. What I’m saying is that both Paris and Frankfurt are seen as primary candidates,” Xavier Timbeau said in conclusion.

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