Brexit - irrevocable decision,“in progress” implementation

24 August 2016

CORNEL COCA CONSTANTINESCU, First Vice president Financial Supervisory Authority

As I mentioned in my previous interventions, transposing Brexit in practice is proving to be a complex and time-consuming process, which will require a long period of preparation and analysis in formulating a strategy and concrete steps for the purpose of transposing it in what concerns both the decision-makers in the United Kingdom and European countries. Brexit will lead to structural changes in terms of economic and trade regime, with not only economic effects, but also social ones, whose amplitude depends on collaborative solutions that will be identified by the parties involved.

Considering that negotiations will focus on major issues that will define cooperation with the EU on basic aspects concerning the existence of the single market, free movement of capital, people, goods and services, solutions that bring benefits to both sides must be identified, in a world increasingly more globalized with interdependent economies.

Meanwhile, the correct formula for equilibrium must be found, in the current context characterized by weak global demand, insignificant increase of trade and investment and financial market volatility.

In terms of trade, the United Kingdom finds itself in a quasi-neutral position in relation to the EU, with 44% exports and 53% imports to/from third-party countries in 2015, while the EU exports to the United Kingdom represents about 3% of Community GDP.

The volume of trade between Romania and the United Kingdom amounted to euro 3.93 billion in 2015, Romania’s exports to the United Kingdom representing 4.36%, while imports represent $ 2.49%. Therefore, Brexit impact will not be significant, although a free trade treaty at European level will be welcome in the future.

The European project of the Capital Markets Union will be susceptible to change as a consequence of the referendum results, taking into account the dedication of Great Britain towards it. The project was designed with the aim of reducing barriers in the case of cross-border investments, regarding the stock market need to provide a more consistent economy financing, given the example of the United States market where approximately 80% of the enterprises are financed through the stock exchange, compared to only 20% on European markets. A strong, more efficient capital market would contribute to the recovery of the European economy as a whole and would reduce dependence on bank financing of companies.

Romanian stock market sees a relative stability of the financial assets price, due to low liquidity and depth, given that the market's leading indices have not reached pre-crisis values, as other mature markets in Europe have. However, future impacts of Brexit over the prices of financial assets should not be excluded. The result of the referendum has not "scared" the capital markets, except Europe's stock exchange indices decrease registered during the first days after the referendum, predicting that the exit moment is still far away. London Stock Exchange FTSE 100 index gained 14% in the last two months, possibly as a result of the programs carried out by the Bank of England, also CAC 40 index in Paris rose by about 10%, DAX by around 14%. The BET index from Bucharest Stock Exchange has witnessed the same growth trend, by almost 10%.

International economic context as a result of the crisis, amid globalization, represents a challenge for many of the EU citizens, in the context in which economic growth is not at the desired level, and the feeling of economic insecurity is present in particular in the case of young people and people of the third age. At the same time, a new approach should be identified in order to meet the economic and social problems and challenges that tend to become structural.


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