Panicos Demetriades's picture
Affiliation: 
University of Leicester
Credentials: 
Professor of financial economics
Former Governor, Central Bank of Cyprus and ECB Governing Council member

Voting history

Brexit: the potential of a financial catastrophe and long-term consequences for the UK financial sector

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Question 3: What do you think will be the overall economic consequences of Brexit for the UK?

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Answer:
Significantly negative
Confidence level:
Extremely confident
Comment:
Uncertainty will weigh heavily on private investment and many companies will relocate elsewhere in the EU. The U.K. will eventually negotiate a deal that is bound to be much less favourable for UK industry and financial services than EU membership, partly to make sure that the precedent that is set deters other countries from leaving. There will likely be a dissolution of the U.K., due to Scotland rejoining the EU and adopting the euro. England on its own will have much less influence on world affairs than the UK within the EU and with less international support it will be less able to safeguard its national interests.

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Question 2: What is the probability that the UK experiences such a significant disruption to financial markets and asset prices following a vote for Brexit on 23 June?

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Answer:
> 70%
Confidence level:
Extremely confident
Comment:
This event will unleash the kind of uncertainty that Keynes had in mind when he said "we simply do not know" when referring to the likely effects of war. Such uncertainty can only be disruptive for financial markets. We will enter a new era of volatility that is likely to last until these difficult negotiations are completed.

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Question 1: Do you agree that there would be substantial negative long-term consequences for the UK financial sector if the UK were to leave the EU?

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Answer:
Agree
Confidence level:
Very confident
Comment:
A vote to leave the EU will be followed by an extended period of uncertainty, which will is likely to put a hold all long term decisions. We do not know how that uncertainty will be resolved but it is likely that the EU will not want to create a precedent whereby a country that exists gets a favourable deal. Thus, the new equilibrium, which would be 2-3 years down the road, is likely to be worse than the current status quo in both trade and financial services. While London is unlikely to lose its status as a major international financial centre, it will nevertheless likely to lose business to Frankfurt and Paris and possibly other places in the EU. For example, the European Banking authority, which is currently located in London, it is unlikely to remain there if Britain votes to leave the EU.

The future role of (un)conventional unconventional monetary policy

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Question 2:  Do you agree that central banks should operationalise the use of these alternative tools of unconventional monetary policy for use either in the near term, or in the future, as economic conditions warrant?

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Answer:
Agree
Confidence level:
Extremely confident
Comment:
Having a range of tools thatbarebready to be used if and when the need arises makes very good sense for any central bank. It convinced markets that the central bank is always ready to act and increases the confidence that markets have to the ability of monetary policy to achieve its objectives, even when conventional policy has reached its limits. It can make forward guidance more credible.

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Question 1: Do you agree that central banks should continue to use the unconventional tools of monetary policy deployed in response to the global financial crisis as part of monetary policy under normal economic conditions?

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Answer:
Disagree
Confidence level:
Extremely confident
Comment:
Unconventional monetary policies are intended to be used when conventional,policy has reached its limits, when interest rates have reached the zero lower bound and negative interest rates cannot be relied upon. They have too many side effects, some of which are not well understood, to become part of conventional monetary policy. For example, they tend to transfer wealth to asset holders, by raising the value of financial assets, and transfer risk from the private sector to the public sector, which can create added moral hazard. They also increase the size of central bank balance sheets and when they unraveled can create losses which may need to be covered by the taxpayer. If such a situation arises and the central bank needs to be recapitalised by its respective government, central bank independence is likely to be threatened and possibly jeopardised. Moreover, the more they are used, the greater the risks as their scope may need to be extended to cover riskier and riskier assets.

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