Governor of the Bank of Finland Olli Rehn attends the informal meeting of ministers for economic and financial affairs (ECOFIN) and Eurogroup in Helsinki, Finland, 13 September 2019. Lehtikuva/Emmi Korhonen
Britain would suffer much larger economic damage than the euro area if it decided to part ways with the European Union without a deal, according to European Central Bank policy maker Olli Rehn.
Speaking at a parliamentary hearing in Helsinki on Thursday, the Finnish governor cited a Bank of England analysis last November showing a no-deal Brexit could lead to as much as 8 percentage point contraction in the U.K. economy. That worst-case scenario has since been updated to show a 5.5 percentage drop in output.
"The contraction that would be felt in the euro area is small in comparison -- our and the ECB’s estimate puts it between 10% and 30%” of the hit to the U.K., he said. The impact would be "unevenly spread: Ireland would suffer the most, and then countries that export a lot to the U.K. or engage in a lot of trade in the U.K., such as France and Germany.”
ECB President Mario Draghi has warned of a rising risk of Britain tumbling out of the EU without a transition agreement, and the OECD warned on Thursday that a no-deal Brexit would push the U.K. into a recession.
The U.K. is currently scheduled to depart at the end of October, and Prime Minister Boris Johnson has promised to stick to that deadline with or without a divorce agreement.
The ECB last week unveiled a stimulus package that included a rate cut and renewed quantitative-easing in an attempt to boost the sputtering economy. Draghi said the institution’s new growth and inflation forecasts -- which were largely downgraded -- actually paint a relatively favorable scenario because they don’t account for a hard Brexit.
Rehn estimted that the impact on Finland would be average, saying "the U.K. is a key export market, but not as important as it was 25 years ago.”
