As the Greek debt crisis reached its peak in 2012, it was almost impossible to turn on the news without hearing the word “contagion” – the idea that the economic woes caused by Greece’s huge government debt (or, to some, by the greed of its creditors) would cause a systemic financial crisis across the globe.
In 2019, a far larger country stands on the brink of potential meltdown, and the global response is … muted. If the United Kingdom does not find some way to either support a deal to exit the European Union or else to negotiate with its 27 EU partners an extension on the Article 50 process, the UK is set to leave the EU on March 29 with no deal.
It is difficult to describe the scale of economic disaster this outcome would be for the UK. Most coverage has, reasonably, focused on the initial chaos — a country which relies heavily on cross-channel shipping for food, medicines, manufacturing supplies and more could see crossing fall by a reported 75% to 87% for six months, with almost no viable alternative routes to match anything like the lost capacity.
But the longer-term economic harm would be devastating. The midpoint estimates of such a crisis suggest a drop of close to 9% in GDP — a far, far deeper recession than the financial crisis of 2009 — and huge increases in unemployment, the cost of borrowing, plummeting value of the pound, and more. This damage could easily take a decade or more to repair.
That combination of chaos and of deep economic crisis would spell trouble in any economy — as the well-founded concerns about the broader effects of a Greek collapse showed — but the UK is not just any economy.
Depending how you look at it, the UK is either the fifth- or sixth-biggest economy in the world — with a GDP around 13 times that of Greece. It is also, unlike Greece, perhaps the largest financial center in the world: many of the world’s key exchanges rely on London to function.
More than a third of global foreign exchange trading operates out of London, as does a similar proportion of derivatives trading. Its banking sector is sized at more than €10 trillion ($11.4 trillion). It manages more than a third of Europe’s financial assets, and it is the insurer to the world. And many of the world’s largest global companies are either headquartered or co-headquartered here.
Britain is an unimaginably sophisticated economy and is in many ways the world’s financial services provider. Its ties across the world economy would take years, if not decades, to unravel. And it stands on the very brink of an economic crisis never seen in living memory.
Why is the world not more afraid of a no-deal Brexit? In part, this may be the UK’s good reputation coming back to haunt it. The UK has been for decades, if not centuries, a stable, safe and easy place to do business. It used to enjoy a reputation as a canny negotiator on the world stage and an advocate for pro-business policies.
Many national leaders simply cannot conceive this partner — whom they had for so long regarded as relentlessly competent, if a little self-interested — can genuinely be on the verge of such a massive act of self-sabotage. Given the rise of populism across the world and the numerous antics of Donald Trump, the world’s politicians can also be forgiven for being distracted.
The time for such distraction is over: The rest of the world should be far more afraid of a no-deal Brexit than it has been so far. Yes, this situation would be more damaging to Britain than to anyone else, but it is hard to see how a no-deal could take place that would not launch a global economic crisis and perhaps one to rival last decade’s financial crash in scale.
Reassuring words from politicians that no one wants no-deal mean very little: New proposals revealed by a group of members of Parliament across the ruling Conservative Party — including pro-Europe moderates — include a plan for a “managed” no-deal Brexit, as a fallback. This would be successful only in normalizing no-deal — it is not a situation that can be “managed”.
The UK stands just two months away from a no-deal Brexit that will crash the world’s economy. As it stands, no plan to prevent it commands a majority of its own MPs — let alone the support of MPs and European negotiating partners. And no one is panicking. Perhaps they should be.