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Economy & Business

United Kingdom To Face Economic Costs In Leaving The EU

ROBERT SIEGEL, HOST:

The British vote to leave the EU drove stock prices down here in London, and even more so in France and Germany. U.S. stocks were down, too. Brexit advocates had acknowledged that there might be short-term economic pain. But they frequently stress the U.K.'s status as the world's fifth-largest economy, a place that can stand on its own. How big a deal is it to be the fifth biggest economy? Well that was one of the questions I put to Martin Wolf, the chief economics commentator for the Financial Times.

MARTIN WOLF: The problem about the fifth-largest thing is that there are a few - one or two enormous economies, and then there's a really big drop. And there are a lot of economies around size. And we're, of course, declining in relative size because the big, emerging economies are growing relatively rapidly. So we will shrink further. But there are two more important points, which go in the opposite direction. Yes, we will be able to stand on our own. But the cost of the transition will be very large and we will lose what are, quite clearly for us, enormously beneficial opportunities to trade really freely from within this vast single market of the European Union. And in our dealings with the EU, we are a relatively small country.

SIEGEL: Is it a realistic fear that companies - foreign companies that have invested heavily here because Britain is part of the European Union will now either scale back or leave?

WOLF: I think, to some degree, it's a certainty. I expect banks to move people relatively easily. So the big American banks, for example, which have huge European operations here in London, we'll move some of that into the continent. If you've got a big factory - you know, let's say your Nissan up in Sunderland - you can't move a factory overnight. You probably won't move it overnight. You'll continue to produce. But I would expect, depending on the future negotiations on our exit terms, that they will think, well, our next investment should be somewhere else. At the margin, as it were, new investment will go elsewhere. And that's a big deal for Britain. We have had a lot of inward investment.

SIEGEL: Martin Wolf, over 15 years ago, you explained to me in an interview why joining the euro was a bad idea for the United Kingdom. And you described that a currency is something that a country has. The EU is not a country. It doesn't have the characteristics. Most people today would agree you were right. Do you think that the European Union, in many other respects, overreached and went beyond what indeed a collection of countries is capable of, as opposed to a single country?

WOLF: Yes, it's clear to me now - it's even worse than I thought- that moving towards a single currency was a huge overreach. And they now have imbalances which they find very difficult to deal with. And that has nothing to do with Britain. And it is - remains an immensely sore point because lots of countries are mired in terrible, terrible recessions. Spain, Italy - really important countries have lost decades at least and soaring unemployment. The second thing is they made the decision, which I think was right but a huge gamble, to enlarge to the Eastern - Central Eastern Europe as quickly as possible. It would have been better to have had longer-term, stronger safeguard arrangements for movements of people. Nobody imagined that, for example, that nearly a million Poles would, ten years after joining, now be living in Britain. Now, I happen to think they're wonderful people and doing a great job for Britain, but it has created huge anxiety. And if we'd had the possibility of saying, look, we just got to take a timeout for five years - we'll stop this for five years. Let's see where we are. If we could have done that, the result of the referendum would have been different, and we'd still be inside.

SIEGEL: Martin Wolf, columnist and chief economics commentator for the Financial Times. Thank you.

WOLF: It's a great pleasure. Thank you. Transcript provided by NPR, Copyright NPR.