Brexit should be prevented, say German Government advisers

Economic advisors to Angela Merkel say the possibility of UK staying in the EU 'can't be completely excluded'

Germany’s Council of Economic Experts have suggested Brexit could have 'far reaching' consequences across the continent (PA Wire/PA Images)

The UK’s exit from the European Union should be prevented due to the “far-reaching impact” Brexit would have, Germany’s Council of Economic Experts, which advises Chancellor Angela Merkel, said Wednesday.

If Britain does leave the bloc, an agreement is needed that would minimise the damage for both sides, the council said in its annual report.

With talks likely to drag on longer than the two years envisaged by EU rules, a one-time extension period should be granted, the experts said.

“There is still a risk of an uncontrolled exit and sudden adjustment reactions by economic agents,” the report said. “Conversely, the possibility of the UK staying in the EU can’t be completely excluded.”

Both sides are hoping that talks on trade and the transition can move ahead after an EU summit in mid-December.

The German government advisers also urged the European Central Bank to end its bond-buying program earlier than planned and consider raising interest rates.

They said that risks to financial market stability have increased even in the absence of deflationary threats in the 19-nation euro area.

“On the one hand there’s a risk of excessive asset prices, especially in the residential real estate and bond sectors, and on the other hand, the interest-rate change risk at banks has increased significantly,” the council said.

“The ECB should therefore urgently communicate a comprehensive strategy for the normalisation of its monetary policy.”

Bloomberg