With Brexit, economic vitality is not the first priority
In most countries, the government claims to be doing what's in the economic best interest of its citizens. In general, this helps the cause of capitalism. Now, the oldest democracy in the world is taking the opposite route.
What's happening: This week saw the release of three separate worrisome official reports on the economic consequences of Brexit.
- The U.K. Treasury, modeling a deal very similar to the one currently on the table, says it would result in the British economy being 3.9% smaller in 15 years than it would be if it stayed in the EU. If there's no deal at all, the gap rises to 9.3%.
- The Bank of England's forecast is worse: A failure to reach a deal could cause the worst recession since the Second World War, with the GDP falling by as much as 8% in one year and house prices crashing by 30%. If Britain manages to agree to a deal, the result is still bad, with the GDP ending up between 1% and 3.75% smaller than it would have been as part of the EU.
- The Scottish government expects that Scotland will lose £1,610 ($2,055) per person by 203o as a result of leaving the EU, and that investment in Scotland would fall by 7.7%.
It's hard to model Brexit with accuracy, but there's surprising unanimity — even among Brexiteers — that its economic effects will be negative, and substantially so.
The Italian story is even scarier: The populist government seems to be steering the country toward a crisis that could be truly catastrophic, not only for Italy but also for Europe and the entire global economy. The crises of 2008 and 2011 ultimately ended with politically unpopular bailouts, but Italy, with its €2.3 trillion ($2.6 trillion) national debt, is too big to bail out.
Why it matters: China isn't big enough — yet — to drive the global economy on its own. Without G7 economies like the U.K. and Italy contributing to their full potential, the entire world could splutter into recession.