BANKS across the EU are preparing the toughest possible stress test to prepare for Britain leaving the bloc, a move they fear could spark a severe recession and deliver an 8.3 percent hit to its economy.
The European Banking Authority on Wednesday unveiled the scenarios against which 48 of the largest banks across the 28-member bloc will be tested, with results to be published by early November.
Since 2008 banks around the world have tested their ability to respond to global “worst-case scenario” conditions that include variables like financial crashes, changes of government and the tectonic shifts in global power associated with China’s rise.
The savage economic downturn, it is feared, could lead to a 3.3 percent rise in unemployment.
If there are approximately 333.8 million working-age residents in the EU job losses could feasibly run into the millions.
The EBA said: “The adverse scenario encompasses a wide range of macroeconomic risks that could be associated with Brexit.
“Elements of the baseline scenario already reflect the average of a range of possible outcomes from the United Kingdom’s trading relationship with the European Union.”
In November last year, the Bank of England confirmed that British banks could cope with, and even support the UK through a “hard” Brexit scenario without curbing lending or relying on taxpayers’ support.
David Paton, professor of industrial economics at Nottingham University Business School, member of Economists for Free Trade and Labour Leave, told Express.co.uk at the time that news of the UK financial institutions having passed the “worst-case scenario” stress test showed the economy can survive and thrive in Brexit Britain.
While the UK remains a significant destination for European goods that a “no-deal” Brexit could prove as damaging for the EU as for the UK because cutting the bloc off from the City of London could undermine financial stability on the continent.
While in the early days of negotiation the spotlight has very much been on the supposedly ruinous effects of Brexit on the UK economy, more recently the EU has began to look more closely at how it will cope with the loss of its second-largest economy.
In December the European Investment Bank was accused of quietly planning to grab millions of euros to cover the 16 percent funding hole which will emerge when Britain stops paying into the project.
A senior Commission official warned at the time: “This is a defence manoeuvre because Brexit is looming.”
In January this year a paper from Deloitte warned that 18,000 jobs at German car firms jobs at risk if a price rise scuppered 20 percent of sales.
Richard Gane, director and automotive sector specialist at supply chain firm, Vendigital, told Express.co.uk a hard Brexit, without any transitional arrangement, would leave a significant dent in many EU suppliers’ order books.
He said: “For German car parts makers, currently serving manufacturers in the UK, this outcome could have serious consequences.
“There is a strong likelihood that German car prices will rise after Brexit, especially if there is an end to tariff-free trading.”