SocGen Chairman Warns a Hard Brexit Risks a Global Recession
SocGen Chairman Warns a Hard Brexit Risks a Global Recession
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Societe Generale SA’s chairman has warned that a hard Brexit could plunge the world into recession and would be a disaster for the financial system.
“This uncertainty, I think, would create quite an impact on the emotion, on the sentiment, on entrepreneurs all over the world,” said Lorenzo Bini Smaghi, who was speaking at the Bloomberg Invest London conference on Monday. “Consumption would stop, investment would stop and we could have also a recession.”
“It is a systemic event,” he said.
Prospects for a Brexit deal faded after talks between the two sides stalled. U.K. Prime Minister Boris Johnson struck a defiant tone at the weekend, saying that the country will leave the European Union as planned on Oct. 31, regardless of whether the EU accepts his latest proposal. For their part, French President Emmanuel Macron and Irish Prime Minister Leo Varadkar both signaled they want progress by Friday, adding to a sense that time is running out for the two sides to come together.
“For the financial sector, it is a big risk because if we don’t have continuity, for the financial system it is a disaster,” he said. “An agreed Brexit would have an equivalence concept that would at least allow for a transition.”
“If we had a hard Brexit, then it is a problem because the continuity of contracts, the continuity of business will be put into question,” he said.
Bini Smaghi is not the first to warn about severe economic shocks of a no-deal Brexit. The scenario would trigger a recession in the U.K. lasting four quarters, with output contracting by 1.5% next year, accountancy firm KPMG said in a report last month.
“I’m quite convinced that in the end we will get back together,” Bini Smaghi said. “I’m confident that the British people are pragmatic enough to understand that if this experiment doesn’t work, to try to build something different,” he said, forecasting that the U.K. will rejoin the EU in 10 years to 15 years after Brexit.
He compared the potential disruption with the effect of the Lehman Brothers collapse in 2008.
“We have seen in the past when there are doubts and uncertainties, these financial shocks become real economy shocks,” he said.
--With assistance from Guy Johnson.
To contact the reporter on this story: Lucca de Paoli in London at gdepaoli1@bloomberg.net
To contact the editors responsible for this story: Shelley Robinson at ssmith118@bloomberg.net, Sree Vidya Bhaktavatsalam
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