The UK’s disorderly departure from the EU could cause “disruptions” after decades of financial integration and bring volatility to markets and business operations, European Commission Vice-President Valdis Dombrovskis warned on Tuesday (2 April).
The EU has been prepared since December 2017 for a no-deal Brexit, by putting forward 19 legislative proposals and issuing around 90 recommendations for citizens and the private sector.
But Dombrovskis admitted before the European Parliament’s Committee on Economic and Monetary Affairs that “we will not be able to mitigate all possible negative economic effects”.
A cliff-edge departure will be “economically damaging both for the UK and for the EU 27” because it will create “disruptions” after “decades of financial integration”, he told MEPs.
A ‘no deal’ Brexit has become increasingly likely after UK lawmakers again remained deadlocked on Monday night, narrowly rejecting all four alternatives to Prime Minister Theresa May’s Withdrawal Agreement. Unless something changes in the coming days, the UK is set to leave the EU without a deal on 12 April.
Among the damaging consequences of a disorderly exit, the Commission vice-president mentioned market volatility and problems for business operations.
He also warned of effects on the liquidity available. But he added that the European Central Bank and the Bank of England are ready to pump additional cash into the system in the aftermath of a chaotic divorce.
Despite the expected turbulence, he said the EU’s financial system is “robust” enough to withstand “the severe economic downturn.” But “it is going to be disrupting”.
His comments followed other recent warnings made in past days by other senior EU officials.
Speaking to the same committee the day before, ECB vice-president Luis de Guindos said the consequences of a no-deal Brexit would not be negligible because “markets have not priced in a no-deal scenario”.
De Guindos said that a disorderly departure could amplify the downward trend of the European economy.
“We should say that a no-deal Brexit would be something that is not irrelevant,” he told MEPs on Monday.
Last week, the chair of the Single Resolution Board, Elke König, said that “there will definitely be volatility”.
But she was convinced that the Brexit shock did not represent an “imminent risk to financial stability” of the EU.
The SRB is in charge of supporting ailing systemic banks in times of turbulence.
“No deal was never our desired nor intended scenario. No deal was never my intended scenario, but the EU 27 is now prepared,” said EU’s chief negotiator for Brexit, Michel Barnier.
“It becomes day after day more likely,” he stated in an event hosted by the European Policy Centre.
French Finance Minister Bruno Le Maire also told reporters on Tuesday that “we are heading towards a no-deal Brexit.”
[Edited by Zoran Radosavljevic]