The euro zone economy is expected to contract by between 0.2 and 0.5 per cent by next year as a consequence of Brexit, the European Union's economics chief has said.
Pierre Moscovici revealed the figures as euro zone finance ministers met for their first euro group meeting since Britain voted to leave the European Union on June 23rd.
The analysis by the European Commission’s economics directorate-general also concluded that Britain’s GDP would be affected by between 1 and 2.5 per cent by 2017.
While the “fragility” of the euro area’s economic recovery would be exacerbated by Brexit, he said, he urged the British government to begin exit negotiations as quickly as possible, arguing that the longer the uncertainty, the more costly it would be.
"It is essential for both political and economic reasons that we continue calling for a clarification," he said, referring to the EU's repeated calls for the British government to invoke article 50 of the Lisbon Treaty as soon as possible, thus triggering the beginning of exit negotiations.
Resist calls
Earlier euro group president Jeroen Dijsselbloem said he would resist calls for taxpayers money to be used to bail out Italian banks in defiance of new bail-in EU rules, amid continuing fears about the health of the Italian banking sector.
He said banks, not taxpayers, should shoulder the burden of bank recapitalisation.
“There have always been and always will be bankers who say we need more public money to recapitalise our banks and I will resist that very strongly because, again and again, its hitting on the taxpayer, again and again it is increasing sovereign debt on countries that are already heavily indebted,” he said
Instead the problems in the banks “need to be sorted out in the banks and by the banks,” he said and “the easiness with which some of these bankers are saying, we need public money to sort out our problems – I think that’s really problematic.”
The losses
Mr Dijsellbloem repeated the sentiment following the eurogroup meeting.
“Bail-in is a sound principle . . . that investors must carry the losses in the bad year.
“We cannot ignore what has legally been implemented,” he said, referring to the new Bank Resolution and Recovery Directive introduced this year.
The Dutch finance minister's tough stance underlines the scale of the challenge facing Rome as it seeks to convince the European Commission to allow the government to break new bail-in rules which state that creditors, including depositors, must take losses in any bailout.
Italy’s banks are nursing approximately €360 billion of non-performing loans, as the heavily-indebted economy continues to struggle.
A sell-off in Italian bank shares has intensified since the British referendum last month, with particular worries surrounding the health of Monte dei Paschi di Siena, the world’s oldest bank.
Speaking on his way into the meeting, Minister for Finance Michael Noonan said the matter was an issue for the Italian authorities, the EU's competition division and the European Central Bank.
“Directly putting money in would be considered to be state aid and it is not permissible at present,” Mr Noonan said, adding that it was “a serious issue which we’re watching very closely”.
