What would be the economic, financial, geo-political, political consequences of a Brexit?
Michael Heise: Both the EU as well as Britain stand to lose from a Brexit in economic and political terms. A Brexit might not cause immediate turmoil on financial markets as it would be an orderly process, but it would have major long-term consequences. London’s role as the largest financial center in Europe would be undermined and investment in the “gateway to mainland Europe” would be redirected. The economic impact on the EU would likely be more limited. Countries with long-standing trade links with the UK, like Ireland, Luxemburg and Belgium would suffer most from a UK exit.
Politically, the departure of the UK would impair the image of the EU and reduce its clout on the international stage. Internally, EU moves towards more integration might become easier without the reluctant Brits. But that would come at the price of losing the liberal and pragmatic stance of British policy influence.
Mohamed A. El-Erian: Yes, it would be costly for all involved, and especially the UK. This realization is likely to focus minds in two ways: first, before the referendum, in helping the UK work with its EU partners to agree on some concessions that would allow the Conservative Party to “declare victory.” Thus they would be in a position to advocate to voters to opt for continued EU membership; and second, for the Party to unite with other mainstream political parties in the campaign to remain in the EU. In turn, these two factors would materially lower the probability of a Brexit.
How can the UK and its European partners work together to prevent Brexit? Michael Heise
: The EU Commission and, perhaps most importantly, the German government have both signaled their willingness to listen and cooperate. At EU level, a working group has been established to explore solutions. There should be common ground concerning some of the British demands for EU reforms and subsidiarity. But Britain’s new deal cannot go too far. An opt-out of the free movement of labor will not be granted. But there could e.g. be more rights to restrict benefit payments to EU migrants. Also, there may be ways to give national parliaments a stronger say in EU lawmaking. Reforms that require a change in the EU treaties cannot be implemented quickly but there might be a protocol that sets out issues in the interest of Great Britain when the EU treaties are re-opened the next time. According to the recent “five-presidents-report”, this may be the case after 2017.
Mohamed A. El-Erian: There are a number of possible EU concessions for the UK that can then be used to strengthen the underpinnings of the union, at least rhetorically. Over the longer-term however, the fundamental difference on vision will remain; and there will again be a periodic need to find a way to reconcile them operationally.