Brexit to weight on EU economy

bringing negative impact to the EU financial institutions and eventually weigh on the bloc's economy, experts say.

Britain is the fourth largest net contributor to the EU's budget, after Germany, France and Italy. This year, it would have to contribute 19.4 billion euros(21.59 billion U.S. dollars) to the EU budget and gain back rebate and custom duties worth 5 billion euros, accounting for around 5 percent of the bloc's budget.

Experts said the budget gap caused by Brexit has to be filled by other EU member states, of which Germany is expected to contribute the biggest share.

Brexit means Britain will leave the EU's would-be capital market union, which aims to remove barriers for investors and help mobilize money for infrastructure projects and, most importantly, SMEs.

With Britain, the fifth largest economy in the world, the EU's economy stands a little bit larger than the United States. Media reported that the EU's equity size is only half of the U.S.'s while its securities market is even less than a quarter of the U.S.'s.

Brexit is expected to be harmful to the EU's capital market union as Britain has long stood as a significant part of the EU's capital markets.

Meanwhile, experts cautioned that Brexit would as well have negative impact on the bloc's financial institutions.

For instance, the European Investment Bank (EIB), whose capital relies heavily on the bloc's major economic powers, is faced with the reduction of Britain's share which accounts for some 16 percent.

Brexit as well puts the bank's high rating on risk, leaving the bank's bond in a vulnerable position and may drive investors away to look for safer bonds.

Fortunately, Brexit's harm to the capital of European Central Bank (ECB) could be not so heavy as Britain is a non-Eurozone country.

Britain contributes 55 million euros to the ECB and is only required to contribute to the ECB's operational costs by paying at least 3.75 percent of its subscribed capital, according to Bruegel, an influential Brussels-based think tank.

"This means that the UK's contribution to the ECB is tiny, and it should be easy to disentangle it," said a report of Bruegel.

On the other hand, trade becomes another tricky issue. Britain's withdraw from the EU's single market is costly as it has to renegotiate trade agreements with the EU member states, 52 countries which enjoy preferential trade agreements with the EU, or with over 100 members of the World Trade Organization.

Economists warned that Brexit raises great uncertainties on the bloc's growth, which unfortunately is still sluggish.

Brexit will make an impact on EU's trade, raise risks in the bloc's financial sector and postpone investment, experts said, all in all, it was predicted that the growth of the bloc's gross domestic product may slow to 0.5 to 1.0 percent in 2017, compared with the previous predication of around 1.6 percent.

source : xinhua