Cyprus is one of the European Union countries most exposed to the economy of the UK and a decision of British voters to leave the EU at the June 23, referendum could seriously harm its economic activity, Fitch Ratings said.
Cyprus, together with Ireland, Malta, Belgium, Netherlands and Luxembourg are the EU-countries likely to suffer the greatest impact should the UK leave the EU, as their exports to Great Britain make up 8 per cent or more of their economies, Fitch, one of the three major rating companies, said in a report on Monday.
A drop in EU exports to the UK as a result of a sterling depreciation cannot be ruled out, Fitch said. While the EU countries could benefit from a shift of foreign direct investment away from the UK, countries such as Luxembourg, Malta, Belgium and Germany with a large FDI stock could suffer significant losses in case the sterling depreciation proves permanent as the value of this type of assets will drop.
The UK is Cyprus’s largest source of incoming tourism and second biggest buyer of Cypriot exported goods.
In addition, a possible Brexit could also harm the banking sectors of countries with sizable links to the UK, such as those of Ireland, Malta, Luxembourg, Spain, France and Germany, the rating company said.
Also, a decision in favour of Brexit, would imply that the remaining EU members may have to shoulder the UK’s contribution to the EU budget which in 2014 was €7.1bn, Fitch said. “This would imply that other net contributors would have to increase payments, or net recipients accept lower EU expenditure”.
Brexit could also boost the Eurosceptic sentiment in the rest of the EU shifting in such a way the centre of gravity of the EU that would make it “more dominated by the Eurozone core, poorer, more protectionist and less economically liberal,” Fitch said.
“Brexit could precipitate Scotland leaving the UK” encouraging secessionist movements elsewhere in the EU including Spain’s Catalonia, Fitch added.
Finally, if UK voters decide in favour of leaving the EU, peripheral countries could see their borrowing cost rise, making the task of reducing public debt more difficult, the rating company said in its report.