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01/10/2016

IMF warns of uncertainty around Brexit vote

UK & Europe

IMF warns of uncertainty around Brexit vote

Wird Schottland in der Brexit-Debatte überhört?

[Anna&Michal/Flickr]

A referendum on whether Britain should leave the European Union would create economic uncertainty, IMF chief Christine Lagarde said in a report Friday, adding she hoped the country would remain in the bloc. 

“On a personal basis I’m very much hopeful that the UK stays within the European Union,” said Lagarde, adding that at this stage it was “premature” to probe the potential consequences. 

The head of the International Monetary Fund recognised that “it’s a political decision at the end of the day and in that respect we don’t give advice.” But she added: “as economists we would like as little uncertainty as possible… certainty is always better than uncertainty.” 

British Prime Minister David Cameron has promised to organise a referendum on the issue by the end of 2017 and is engaged in discussions with EU partners designed to push through reforms in the 28- nation bloc. 

Cameron faces calls from industry to hold the poll swiftly in order not to prolong the uncertainty on what a “Brexit” could mean amid concerns over the effect on foreign investment and the economy generally.

The IMF will publish its next report on Britain next May examining the potential consequences of a British EU exit, Lagarde said. 

The body’s latest report highlighted concerns including high house prices and the UK’s current account deficit but concluded that, overall, “the UK’s recent economic performance has been strong, and considerable progress has been achieved in addressing underlying vulnerabilities”. 

British Chancellor George Osborne reacted to the report by saying that “today’s IMF report, frankly, could hardly be more positive.”

The report said factors that needed to be considered if Britain did decide to leave the bloc were: “how quickly will there be trade agreements? How promptly will the partners want to re-establish or reset the framework within which both financial and trade relationships are put in place?” 

The potential ‘Brexit’ is one of the top issues for next week’s European Council summit, on 17-18 December. However, since the publication of a letter from Council President Donal Tusk last week, and the visits of Cameron to Poland and Romania this week, it has become clear that no deal on the UK’s terms of renegotiation can be achieved that quickly, and the February 2016 Council meeting is more likely to be the make-or-break summit.

>>READ: December deal for EU reform difficult, says Commisison’s Brexit boss Faull

Away from the EU issue, the report praised the UK’s response to the global financial crisis. 

 “The UK authorities have managed to repair the damage of the crisis like very few other countries have managed,” said Lagarde. “We are saluting a very strong performance by the UK economy. 

“The fiscal deficit has been more than halved over the past five years, but both it and the public debt remain high,” she said. 

The IMF also backed the decision this week by the Bank of England to maintain its low 0.5 percent interest rate and the current level of quantitative easing “until stronger signs of inflationary pressure emerge”.

Background

Britain’s governing Conservative Party won an absolute majority in the UK general election on 7 May 2015. With 12 more MPs than the other parties combined, the Conservatives no longer have to rely on a coalition partner.

Prime Minister David Cameron promised to renegotiate the UK's relations with the European Union. The renegotiation will be followed by a referendum by the end of 2017, to decide whether or not the United Kingdom should remain in the EU.

If he achieves the reforms, Cameron will campaign to stay in. Otherwise, the Conservatives might campaign to leave the EU. This decision could have far-reaching consequences for trade, investment and Great Britain's position on the international scene.

Some other European countries are ready to listen to Cameron's concerns on issues such as immigration, and may be prepared to make limited concessions to keep Britain in the bloc.

But EU leaders also have their red lines, and have ruled out changing fundamental EU principles, such as the free movement of workers, and a ban on discriminating between workers from different EU states.

Timeline

  • 17-18 December: EU summit dedicated to possible reforms to accommodate the UK ahead of the referendum.

  • 2016: Likely year for British EU referendum.

  • 2017: Self-imposed end of year deadline for British Prime Minister David Cameron to hold his in/out referendum.