Brexit will impact eurozone recovery

The uncertainty sparked by the British vote to leave European Union will "inevitably" harm economic recovery in the euro area, European Central Bank executive board member Benoit Coeure said in a newspaper interview Friday.

The pick-up in the eurozone economy "will inevitably suffer from the 'uncertainty shock' that the British referendum has triggered, even if the impact is difficult to quantify at the moment," Coeure told the French daily Le Monde.

The effect would be all the more damaging because "the recovery in the euro area is already there. It's healthy and driven by domestic demand and by investment," even it was being "kept down by high unemployment levels and debt," he argued.

The victory of the Leave vote in Britain last week has already led to severe turbulence on the financial markets.

"Central banks are continuing to monitor developments and are ready to intervene if financial stability is jeopardised, by supplying liquidity if necessary," Coeure said.

"The important thing is to clarify how and when Britain will leave, because prolonged uncertainty will carry an economic cost," both for Britain and the EU, he said.

The priority was to "re-establish confidence between European countries," by pushing through structural reforms before pressing ahead with integration.

"If everyone plays their part, confidence will return and Europe will be able to move forward," Coeure continued.

The solution to the problems "lies as much with Berlin, Paris and Rome as with Brussels and Frankfurt," he said.

Separately, the head of the German central bank or Bundesbank, Jens Weidmann, said he did not expect the ECB to ease monetary conditions in the euro area still further to cope with the fallout from the Brexit vote.

"I don't see the need for further monetary easing in the euro area," Weidmann said in speech in Munich.

"Monetary policy is already very expansive and it would be questionable whether making it even more so would really have a stimulating effect," the German central bank chief said.

"The crisis that has arisen for the EU is a political crisis and must be solved politically."

In order to help boost economic recovery in the euro area, the ECB has slashed rates to zero, pumped vast amounts of liquidity into the financial system and embarked on a huge programme of sovereign debt purchases.

Weidmann has always been sceptical of the need for such measures, arguing they could have counterproductive economic effects.

Source: AFP