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Illustration: Sarah Grillo/Axios

Brexit has grabbed global news headlines, but capital markets have shown little fear and Britain's currency has even strengthened as the March 29 deadline nears with no resolution in sight.

What's happening: British government debt is trading little moved from its levels at the start of the year, and London's benchmark FTSE 100 is up more than 6% year-to-date — less than S&P 500 and European Stoxx 600, but not out of sync with global equity markets.

Why it matters: Even if Brexit does happen, its impact on the global economy has been far overstated by central bankers and politicians, says Jennifer McKeown, head of global economics service at Capital Economics.

  • "While the prolonged uncertainty would not be good for business or financial market sentiment, an ultimate deal and softish Brexit would have little economic effect in either direction. And even in a no deal scenario, the implications for other economies would not be too severe," she said.

The big picture: To wit, a recent paper from Britain's New Economics Foundation based on Office for Budget Responsibility data finds that the country's austerity measures instituted in 2010 will cost the country's economy more than twice what Brexit will.

  • "Discretionary policy decisions since 2009-10 have reduced real GDP growth by such an extent that in 2018/19, GDP is 4.7 per cent lower than it would otherwise have been without the austerity," Alfie Stirling, NEF's head of economics, writes.

Austerity has suppressed "incomes and expenditure in the economy by just under £1,500 per person and more than £3,600 per household, in this year alone. We also know the effects have not been evenly felt, with the heaviest burden borne by the poorest households in society," Sterling writes.

Between the lines: To put this in perspective, policymakers warned that the vote to leave the European Union would cause rampant uncertainty and seriously damage Britain's economy.

  • The Bank of England recently estimated that since the 2016 Brexit vote the economy has lost 2% of GDP in the 2018-19 fiscal year. That's about £900 less per person or £2,100 less per household than what the numbers show austerity has cost.

Our thought bubble, per Axios' Felix Salmon: "Austerity has always been Europe’s Achilles heel. The European monetary union was built on the Maastricht limits (debt no greater than 60% of GDP, deficit no greater than 3% of GDP) which caused unnecessary austerity and a bunch of governments lying about the true nature of their finances."

  • "Both phenomena increased mistrust of Europe’s institutions. Ultimately, the EU’s insistence on austerity was instrumental in souring some 500 million people, to a greater or lesser degree, on the entire European project — including the 17.4 million Britons who voted to leave the EU in 2016."
  • "Austerity has had many deleterious consequences, but Brexit is the greatest of them all."

Editor's note: This piece was corrected to show Maastricht limits say government deficit should be no greater than 3% of GDP (not 60%).

Go deeper

Study: Fear of debt keeps Latinos out of college

Illustration: Aïda Amer/Axios

Fear of never being able to pay off school loans is keeping many young Latinos in the U.S. from going to college or completing a degree, according to a report published in September.

State of play: Latinos tend to have more difficulty repaying school debt than white student borrowers, according to Federal Reserve data, at the same time that they need more loans in order to afford tuition.

2 hours ago - World

Scoop: Biden administration objects to Israeli settlements plan

Israeli PM Naftali Bennett (L) meets with Secretary of State Tony Blinken. Photo: Olivier Douliery/Pool/AFP via Getty

The Biden administration has privately protested to the Israeli government over its plan to approve the planning and construction of more than 3,000 new housing units in the Israeli settlements in the occupied West Bank, sources briefed on the issue tell me.

Why it matters: The approvals for new homes in the settlements will be the first since President Biden assumed office, and come after Biden and his top aides personally pressed Israeli Prime Minister Naftali Bennett to restrain settlement activity and decrease the number of new housing units.

3 hours ago - World

Pentagon warns of ISIS-K capabilities outside Afghanistan

The site of an airstrike conducted by the U.S. against a planner for ISIS-K in Nangarhar province, Afghanistan in August. Photo: Xinhua via Getty Images

U.S. intelligence believes ISIS-K has the "intent" to eventually launch attacks outside of Afghanistan and could be capable of doing so "somewhere between six or 12 months," a top Pentagon official told senators Tuesday.

Why it matters: The U.S. withdrawal and subsequent Taliban takeover of Afghanistan has raised fears that terrorist groups will reconstitute and potentially pose a renewed threat to the U.S. homeland.