EU will face economic fallouts of Brexit bravely as a bloc, feels IMF

Annual global trade review cautions against protectionism

The U.K.’s planned exit from the European Union will have a “small” negative impact on the bloc’s economy, although it will prove more damaging to countries such as Ireland, the Netherlands and Belgium that have closer links with Britain, the International Monetary Fund said Thursday.

In its annual review of the eurozone’s economic policies, the Washington, D.C.-based institution also warned that failure to reduce the large trade surpluses recorded by Germany and some other members could provoke a protectionist response from their partners, as evidenced by recent tariffs imposed by the U.S. on steel and aluminum imports from the EU.

The IMF’s analysis of the costs of Brexit to the rest of the EU is its first since the June 2016 vote, and concludes that it will be more damaging to the U.K. than the rest of the bloc, but that after 40 years of deepening trade, financial and migration ties, no country will benefit.

“The strength of euro area-U.K. integration implies that there would be no Brexit winners,” the IMF said.

The study comes as even the broad outlines of the way in which the U.K. will leave the bloc in March 2019 remain uncertain, as Prime Minister Theresa May struggles to reconcile opposing views on Brexit within her ruling Conservative Party.

“We are very concerned,” said Mahmood Pradhan, the deputy director of the IMF’s European department. “It is quite late in the process and we don’t have any clarity. We are getting close to some very important deadlines.”

The IMF’s economists examined two scenarios at opposite ends of the range of possible exit deals. In the first, the U.K. negotiates a free-trade agreement with the rest of the EU in which tariffs on goods remain at zero and the non-tariff costs of trade rise “moderately.” It also assumes that exports of U.K. financial services to the EU fall by “about” 40%.

In the second scenario, the U.K. leaves the EU without a free-trade agreement, and commerce between the two is governed by the rules of the World Trade Organization. Under that scenario, tariffs on goods would rise, and the non-tariff costs of engaging in trade would be twice as high as under the first scenario.

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