EU28 Capital Market Perspectives of a Hard BREXIT: Theory, Empirical Findings and Policy Options

Paul Welfens, Fabian Baier (), Samir Kadiric (), Arthur Korus () and Tian Xiong ()
Additional contact information
Fabian Baier: Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)
Samir Kadiric: Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)
Arthur Korus: Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)
Tian Xiong: Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)

No disbei256, EIIW Discussion paper from Universitätsbibliothek Wuppertal, University Library

Abstract: Key aspects covered refer to the cost of leaving the EU and in particular the implications for corporate bond risk premiums in the UK and the Eurozone: The gap between the interest rates of corporate bonds and government bonds could increase in the UK and Eurozone, respectively, as a result of BREXIT where the 2016 BREXIT referendum itself is considered to be a first BREXIT event (see the empirical findings), followed by the main BREXIT event, namely the day of officially leaving the EU - possibly as a No-deal BREXIT. It is as yet not clear what type of BREXIT will be implemented - hard versus soft - and it is also unclear what type of free trade agreement the EU and the UK could accomplish post-BREXIT. However, it is obviously necessary to carefully consider the background of the BREXIT dynamics and to then refer to various versions of BREXIT if one is to understand the inherent politico-economic dynamics of BREXIT - with a No-deal case representing an analytical benchmark which most politicians in the British Parliament obviously would want to avoid; a simple way to indeed avoid this case, with obvious high costs for the British economy, is not easy to discern as the UK's political system is fractured. If the safe-haven status of the UK should be impaired by BREXIT, the rise of government bond interest rates by 0.3% would stand for the same burden as the net UK contribution to the EU.

Keywords: BREXIT; capital markets; credit spreads; FDI; growth (search for similar items in EconPapers)
JEL-codes: F02 F21 F4 G1 G2 (search for similar items in EconPapers)
Pages: 43 Pages
Date: 2019-03
New Economics Papers: this item is included in nep-eec and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Journal Article: EU28 Capital Market Perspectives of a Hard BREXIT: Theory, Empirical Findings and Policy Options (2019)
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