Expected impact on the EU

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In March 2017, the European Commission prepared an assessment for the European Parliament of the economic impact of Brexit on both the UK and the EU. The assessment based its findings on many existing independent studies.

This section is based on the Commission’s report and Birmingham University’s study into the exposures to Brexit on both sides of the English Channel.

Pre-Brexit situation

Trade in both goods and services between the UK and EU27 was (and is) substantial (the EU report used 2015 data):

€306 billion of exports of goods by the EU27 to the UK, offset by €184 billion of imports, created an EU trade surplus in goods with the UK.
EU27’s exports to the UK amounted to 2.5% of GDP, whereas the UK’s exports to the EU27 amounted to 7.5% of its GDP.
UK was the EU27’s second largest trading partner after the US:
- US-EU27 trade in goods was only about 20% larger than UK-EU27 trade in goods.
€94 billion of services exports by the EU27 to the UK, were offset by €122 billion of imports, creating trade deficit with the UK.
Trade with the UK as % of GDP was much higher for smaller EU member states with close ties to the UK due to history or geography, such as Ireland, Cyprus, Malta, Belgium, Netherlands.

Foreign direct investments (FDI) was significant in both directions:

EU’s stock of FDI in the UK was estimated at €985 billion (8.1% of GDP);
UK’s stock of investment in the EU was €683 billion (5.6% of GDP).

Large numbers of EU citizens lived in the UK and vice versa:

3.35 million EU27 citizens were living in the UK at the end of 2016, including 2,002,000 workers, 223,000 pensioners and 102,000 unemployed
- the large ‘other’ category (656,000) presumably included students
Substantially fewer, 1.22 million, UK citizens lived in EU27, of which 400,000 were pensioners, with the remaining 800,000 being workers, their dependent families, and students.

Impact at national level

The report found that Brexit would inflict losses on both sides, but that the losses would be considerably larger for the UK than for the EU27. Only in very pessimistic scenarios would the losses for the EU27 be significant.

Economic losses would be shared disproportionately in a ratio of around 1:2 or 1:3 for the EU27 and the UK, respectively.
In terms of percentages of GDP, the losses for the EU27 would be about 10 to 15 times smaller than those of the UK.
The size of the EU27 (five times as big in GDP as the UK) means that it would be much better able to absorb the economic impact of Brexit than the UK.

For the EU27 the losses would be virtually insignificant, averaging between 0.11% and 0.52% of GDP for the optimistic versus pessimistic scenarios respectively. These amounts were modelled as the totals cumulating up to 2030, so the annual average losses would be of the order of 0.011% to 0.052 % of GDP. (For comparison, average member state contributions were about 1% of GDP a year).

At a member state level (see Figure 8.1.4), the EU study noted that the aggregate results for the EU27 under the FTA and WTO scenarios would also be roughly reflected in the results for the larger member states (Germany, France, Spain, Italy).

For several small member states, in particular those with close historic ties with the UK, the results would be more damaging:

Ireland would suffer the same magnitude of losses as does the UK. This is explained by Ireland’s trade dependency on the UK being greater than vice versa.
Malta and Cyprus were also among the most exposed member states (the acronym CCM combines Croatia, Cyprus and Malta ).
A similar picture emerged for Belgium and the Netherlands.
- However the effect may be exaggerated by the ‘Rotterdam effect’ : there is a lot of trade between the UK and the rest of the EU that transits through the seaports of Belgium and the Netherlands.

Figure 8.1.4: Losses by member state and type of Brexit scenario (% of 2030 GDP)

Source: European Commission, DG for Internal Policies, An Assessment of the Economic Impact of Brexit on the EU27, March 2017

Impact at regional level

The aggregate figures masked more dramatic impacts at regional and sectoral levels.

Birmingham University looked at the exposure to Brexit of EU27 based on trade flows. Figure 8.1.5 shows the share of EU27 regional labour income that is exposed to Brexit.

The study found that north-western European regions were the most exposed to Brexit, while regions in southern and eastern Europe would be barely affected by Brexit (other studies identified Brexit exposures in Malta and Cyprus).

In terms of specific regions, the results indicate that:

The most exposed EU regions were in southern Germany, but the levels of risk were at most half that of the most exposed UK regions.
German, Dutch or Belgian regions face Brexit exposures that were between one quarter and one half of those faced by UK regions.
Irish regions faced similar levels of exposure to the least exposed UK regions, namely London and parts of northern Scotland.