The Damage a Brexit Would Do to the UK and Europe

Brexit Would Constitute Damaging "Regime Change" for UK, Says Posen

The possibility of a British exit from the European Union essentially constitutes a deep-seated regime change that will be deeply hurtful to the UK economy, said Adam Posen, president of the Peterson Institute for International Economics.

"This is a regime shift. This is effectively a change in constitution," Posen told an event sponsored by the Council on Foreign Relations in New York.

Posen said the long-term effects are hard to gauge but potentially far-reaching. First, it would leave the UK economy even more reliant on an already bloated financial sector, creating race-to-the-bottom kind of incentives for the banking industry that led countries like Ireland and Iceland into trouble.

Second, the move would potentially force the Bank of England to react by raising interest rates despite a likely recession, because it would be dealing with a currency crisis whose initial inklings are already evident in currency markets.

Watch an excerpt of the discussion above.

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