Analysis: How would the Brexit impact Romania?

Newsroom 01/06/2016 | 13:49

Romanian companies and the overall economy will take a hit if Great Britain leaves the European Union, but the long-term implications of such a move are hard to assess at this stage, pundits told BR.

Ovidiu Posirca

 

Trade relations between Romania and Britain continued to grow last year, and there were over 150,000 Romanians working in the country in 2015, according to British media reports.

Challenges from the legal and trade perspective…

Neil McGregor, managing partner at law firm McGregor & Partners, says that if the out campaign prevails in the referendum on June 23, several legal challenges are set to emerge.

“It would be possible to overcome these, but the process would not be inexpensive or straightforward. It would be particularly tricky if a vote to leave the EU provoked a second referendum in Scotland to leave the UK. In that case and in the event of a separation of Scotland from the rest of the UK, Scotland would probably wish to remain in the EU and a considerable political mess would result. Business gets done despite the politics and although the mess which I have outlined would doubtless present some opportunities, the general sense of uncertainty would be prolonged and heightened,” McGregor told BR.

A Brexit would also hit trade terms, and Romania might be forced to find new markets for its exports.

Great Britain is the fifth biggest destination for Romania and the 15th largest importer locally, according to Bogdan Belciu, partner, advisory services, at professional services firm PwC Romania.

“Of course, the impact on trade between Romania and Great Britain will depend on several factors, including the possible negotiation of a special external trade regime for Great Britain, if there is a Brexit,” Belciu told BR.

According to a study by Citi, a Brexit would trigger a 10 percent reduction in trade between Great Britain and the rest of the EU, which is equivalent to a 0.05 percent fall in GDP. The industrial centers in Central and Eastern Europe and the EU members in the Mediterranean region that have a strong tourism sector would take the worst hit.

 

…but also for the local and EU economy

The Euro zone economy would be impacted almost immediately if Great Britain relinquished its EU membership, according to Ciprian Dascalu, chief economist at ING Bank Romania.

The bank forecasts a negative impact of 0.3 percent on the economic growth of the bloc that used the common currency in such a scenario.

“The impact on economic growth in Romania would probably be marginal, but negative, given that the value added brought by Romanian exports to Great Britain accounts for 4 percent of the total. Foreign investments from the United Kingdom are, also, relatively limited, similar to the remittances of Romanians working in the country,” Dascalu told BR.

Belciu of PwC Romania says that group might become vulnerable in the event of a Brexit.

“We have to take into account the fact that a significant number of Romanians are working in Great Britain and they are generating benefits for both British companies, given the lower labor costs, but also for Romania, because a share of the money generated there comes to Romania and is used to fuel consumption and investments. Brexit would reduce the number of Romanians that can stay in Great Britain and would make it significantly harder for more Romanian citizens to work there,” said Belciu.

There would also be more uncertainty for companies with British capital that have operations locally.

The managing partner of McGregor & Partners says that Norway and Switzerland have no problem doing business in Romania, suggesting that the UK business position locally would not be hit that hard in the event of an exit.

“Again, the problem would be one of extended uncertainty – it would no doubt take a good deal of time to negotiate the precise terms of an exit and of the rights which the UK would have to invest and do business in the rest of the EU – including Romania. Existing investments ought not to be affected – but ‘grandfathering’ has not been a strong point of Romanian legislation, as the changes to the renewable energy support scheme have demonstrated. Expect more uncertainty – let’s see who identifies the commercial opportunities in all of this,” said McGregor.

Then there are the unpredictable political developments that could be generated by an out vote. Dascalu of ING Bank says that if Great Britain leaves the EU, this could precipitate the rise of nationalism in countries close to Romania. He added that there is the risk that some Romanian politicians might take up the cries from neighboring states and challenge the unity of the EU project.

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