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Economists Worry About the Effects of a ‘No-deal’ Brexit
Concerns are growing that Britain's withdrawal from the European Union will cause economic problems for both sides.
Making matters worse is the possibility that some European countries may see their economies decrease in the coming months.
This week, British Prime Minister Boris Johnson moved to suspend Parliament for weeks. The goal of the action is to prevent lawmakers from passing legislation to block the country from leaving the EU without negotiating an agreement. The time limit for "Brexit," as it is called, is October 31.
Negotiators have failed to reach an agreement in the three years since a majority of the British people voted to leave the EU in 2016. Many experts now believe a so called "no-deal Brexit" is likely to happen.
Economists and business experts say the result of a no-deal Brexit would cause widespread problems and disorder. Problems could include new taxes on trade, slower movement of people and goods at borders, and problems with licenses to do business in other countries.
Brexit timing also an issue
Britain's withdrawal comes at an uncertain time for the EU. The trade dispute between the United States and China has already raised concerns for Europe. And Germany, which depends on exports and manufacturing, is facing the possibility of a recession. Germany could "be hit quite badly if a no-deal Brexit occurs in two months' time." That is what Andrew Kenningham said. He is an economist with Capital Economics, a research group in London.
Germany is Europe's largest economy. From April to June, its economy shrank. Many economists believe the same will happen from July to September. That means the country would be in a recession as a no-deal Brexit takes place.
Some economists also predict that Britain could fall into a recession as well. They estimate the British economy would shrink by about three percent.
Italy's economy did not grow at all from April to June and could also face a recession.
Supporters of Brexit, however, say companies have had more than three years to prepare. Finally leaving, they say, would remove uncertainty.
Nigel Driffield is a professor of international business at Warwick Business School in Britain. He said it could take months or even years for terms of trade to be fully agreed on between Britain and the EU.
He said some companies could prepare by planning for the future.
"However, suppose another (supplier), perhaps in another country, fails to prepare, your part of the value chain still grinds to a halt, and your customer still stops ordering. What do you do?" Driffield asked.
Driffield expects a no-deal Brexit to lead to five to 10 years of negotiations over trade. That is about as long as negotiations with Canada took to complete.
The EU is Britain's largest trading partner, representing half of its international trade. Trade with Britain is 20 percent of the EU's trade total. By comparison, 18 percent of Britain's exports go to the U.S.
Experts say the European countries that would suffer the most from a no-deal Brexit would be smaller ones that ship goods heavily to Britain, like the Netherlands, Belgium and Ireland. Larger economies, like those of Germany and France, would suffer less.
The effects outside of Europe are not expected to be very large. However, financial markets could be influenced, weakening the world economy.
Possibly as a result of the lack of clarity, the European Central Bank is expected to announce new measures to ease the availability of money as soon as September 12.
Some experts warn that such measures will help over the short term, but they say politicians must act to reach trade agreements and end disputes.
I'm Mario Ritter Jr.
