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Brexit dominates fears for the global economy - FT.com
The sentiment guiding international investors and policymakers over the last week could perhaps best be expressed by a sharp indrawn breath. As one opinion poll after another suggested that a majority would vote for Britain to leave the EU, Brexit has emerged as the biggest short-term risk bar none for the global economy.

The result has been a flight to safety in markets, a display of caution from central banks, and frenetic activity behind the scenes to prepare for the turbulence that could follow next Thursday's referendum.

Added to existing questions over US and global growth, Brexit worries have fuelled a rally in the safest sovereign debt, pushing yields on German, Swiss and Japanese debt further into negative territory and sending the yield on 10-year US Treasuries to a four-year low. A sell-off in Europe's periphery suggests investors are having renewed doubts over the EU's institutional stability. Polish bonds are suffering from calculations that poorer members would receive less from Brussels if the UK's departure cut the funds available.

This is nothing compared with the volatility that is likely in the immediate aftermath of the vote. Sterling -- already the weakest of any major currency against the dollar this year -- would be the first casualty of a decision to leave. A stampede into havens such as the Swiss franc and yen could cause problems for countries already struggling with uncomfortably strong exchange rates.

by Bernard on Sun Jun 19th, 2016 at 03:29:54 PM EST
Brexit Poses Multiple Risks to Europe's Stability - WSJ

Central and Eastern Europe may be particularly vulnerable to political contagion. The Brexit campaign is already having an impact on politics in the region, with right-wing nationalist parties capitalizing on fears of an increasingly German-dominated EU, stripped of its most pro-free market member and the most powerful champion of non-euro countries. At this month's Prague Economic Summit, the prime ministers of Poland and Hungary warned they would seek big changes in the way the EU operated if the U.K. left, raising the prospect of further clashes with Brussels over differing interpretations of what constitutes the rule of law and European values.

Brexit could unleash hard-to-control economic forces across Europe, too. Some downgrading of eurozone growth forecasts seems inevitable, given the likely disruption to British trade and the prospect of financial-market volatility leading to higher real interest rates. A stronger euro, which would hurt European exports, would also be likely if, as expected, sterling depreciated and the U.S. Federal Reserve decided Brexit was a reason to delay its next interest rate increase. Some eurozone central bankers fear that uncertainty over the future direction of the EU would lead to an even sharper shock as companies and households put planned investment and spending on hold.


Maybe?
by Bernard on Sun Jun 19th, 2016 at 03:39:39 PM EST
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