AEMC meeting Brussels October 26th 2018 A Framework to Assess Brexit and its Macroeconomic Consequences Francesco Papadia

My four points Borders are bad for the economy Reducing the economic negative effect of borders, and in the extreme eliminating them, is a long and complex endeavour that has engaged the EU, including the UK, over decades Brexit is tantamount to reinstating the border between the UK and the 27 EU Members, with the height of the reinstated wall depending on the actual arrangement that will follow exit The relative damage for the UK and for the rest of the EU will approximately follow the economic size of the UK relative to that of EU 27. My four points

Borders are bad for the economy The underlying economic rational of the three fundamental Treaty freedoms: Everything equal, trade over borders is less than trade within borders (comparative advantage is lost) Optimal allocation of capital requires no borders Free movement of labour has efficiency and risk sharing advantages. Borders are bad for the economy

Just remember the relevant names: Common Market European Economic Community Abolition of capital controls Customs Union (External tariffs) Single Market (Trade without borders) Banking Union Capital Market Union Monetary Union. Reducing the negative effect of borders was a long and complex endeavour engaging the EU for decades

European Economic Area (Single market-Norway) Customs Union (Turkey) Free Trade Deal (Canada) No deal (WTO). Brexit reinstates a wall between the UK and the 27, its height depends on the actual arrangement following exit

In GDP Terms the EU 27 is about 6 times the size of the UK In trade terms (export+imports) the EU 27 is about 8 times the size of the UK So, the damage for the UK should be some 6 to 8 times larger than for the EU 27 The relative damage for the UK and for the EU 27 will follow the economic size of the UK relative to that of EU 27

Thank you! Bruegel link: http://bruegel.org/ My Blog: …and some publicity Bruegel link: http://bruegel.org/ My Blog:  Money matters? Perspectives on Monetary Policy My Tweet: @FrancescoPapad1