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Title: The Impact of Brexit on the Stability of the Euro Area
Authors: Macchiarelli, C
Campos, NF
Keywords: economic consequence;economic policy;euro area;European Union;European Union membership;legislation;monetary policy;United Kingdom
Issue Date: 28-Nov-2016
Publisher: European Union
Citation: In: An assessment of the impact of Brexit on euro area stability. Monetary Dialogue 28 November 2016 : compilation of notes, pp. 7 - 31
Series/Report no.: European Union. Directorate-General for Internal Policies of the Union. Policy Department A. Economic and Scientific Policy;IP/A/ECON/NT/2016-04
European Parliament. Committee on Economic and Monetary Affairs;PE 587.328
Abstract: What is the impact of Brexit, which is the British decision to withdraw from the European Union (EU), on the stability of the euro area? This is a difficult question that, given the uncertainty surrounding it, may benefit from a novel approach. Euro area asymmetries depend on the degree of integration among euro member states or, more specifically, on the relative strength of core and periphery sets. This paper argues that assessing the “core content” for each member state may help address questions about the stability of the euro area. We first analyse the extent to which economic activity in the United Kingdom is synchronised with that in the euro area and we find it increased with the single currency. We then discuss the need for going beyond this standard analysis of business cycle synchronisation. We construct a “core-ness index” (CMCI) which shows that the core-periphery pattern has significantly weakened after the introduction of the euro. To better characterize this result, we investigate the CMCI determinants and find it is strengthened by euro membership and weakened by product market regulation. In this light, the paper concludes with novel policy implications to increase the “core content” of members states and, consequently, shore up the stability of the euro area after Brexit.
Description: DISCLAIMER The opinions expressed in this document are the sole responsibility of the authors and do not necessarily represent the official position of the European Parliament. Reproduction and translation for non-commercial purposes are authorised, provided the source is acknowledged and the publisher is given prior notice and sent a copy.
The notes in this compilation provide an indication of the possible economic and financial impact of Brexit on the euro-area/EU economy. Notwithstanding the potential adverse effects, Brexit could also provide an opportunity for far-reaching reform to the euro area governance. The notes have been requested by the Committee on Economic and Monetary Affairs as an input for the November 2016 session of the Monetary Dialogue.
Gov't Doc #: IP/A/ECON/NT/2016-04
PE 587.328
ISBN: 978-92-846-0725-9
Appears in Collections:Economics and Finance
Dept of Economics and Finance Research Papers

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