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11 June 2015

Open Europe: What might a Grexit mean for EU Reform and Brexit?

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As negotiations falter between Greece and the Eurozone Grexit looks closer than ever. At the same time a new negotiation is just beginning between the UK and the rest of the EU aimed at reforming the EU ahead of the UK referendum. But what would happen to EU reform in the case of a Grexit?

Significant immediate disruption within the EU

On balance we still believe Greece will stay in the euro, just. But a Grexit is closer than ever and if it were to happen it would cause huge disruption in the Eurozone and EU. As such it would completely change the nature of any other negotiations going on in the EU.

From the UK’s perspective, it would become very difficult in the immediate term to get anyone to discuss other kinds of EU reform. It would completely derail David Cameron’s current timeline for the negotiations and the eventual EU referendum. It’s not clear whether he would still be able to hold the referendum as scheduled, though rowing back on this would be hugely difficult domestically.

The risk would be that there would be little real discussion of reform but the referendum would be held anyway. This would likely result in a close vote and could see the worst of all worlds appearing, which is a slight vote to stay in which is seen as backing for the status quo in the EU. Of course, the lack of reform could also increase the chances of Brexit. There could also be an increased feeling in the UK that staying in the EU would be tying the country to a bloc (the single currency) in decline and disarray.

Full article on Open Europe

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