Ireland is in the front line of countries that will be worst hit if the UK votes for a so-called Brexit. Recovery in the export sector could take years.
That’s according to Jean Michel Six, S&P Global Rating’s chief economist for Europe, the Middle East and North Africa.
However, a vote for the so-called remain side on June 23 would provide an immediate boost to Irish exports because sterling would immediately strengthen, he said.
A vote by Britain to exit the European Union won’t lead “mechanically” to a ratings downgrade for Ireland, but would be a blow to the economy here, he told the Irish Independent.
Sterling could be expected to weaken significantly if Britain votes to leave, making it tougher to export from the Eurozone just as domestic demand in the UK market would also weaken following the vote, he said.
“Exports to the UK would be likely to weaken for years, at least,” he said.
That would make it harder for the UK government to finance its huge spending deficit. The after-effects of a leave vote would hurt the demand from international property investors that underpins London and UK house prices, he said, creating a “shock to consumer confidence”.
Demand in Britain has already showed signs of slowing already this year, not just because of the Brexit vote, he said.
However, sterling would find a floor, because the Bank of England has the “fire power” to prevent a currency crisis, even if there is a Brexit vote, he said.
The risk of a Brexit vote is being taken “extremely seriously” by the European Commission, he said. It would come at an especially difficult time, as the EU continues to struggle with the refugee crisis, he said.
Among the key challenges would be the impact on the banking and finance sector, which in many areas is dominated by London, he said.
With Britain in the EU but not the Eurozone, the Bank of England and the European Central Bank have been able to work in partnership on issues, but anything to change that could have serious repercussions, he said.
“I’m confident the ECB and BoE are talking about a Plan B, and how to avoid a meltdown,” Mr Six said.
The ECB has asked all banks, including in Ireland, to carry out stress tests measuring their ability to cope if Britain’s exits from the EU. That is needed, “given the level of risk,” Mr Six said.
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