On Wednesday, Council of Economic Experts of Germany, which advises Chancellor Angela Merkel said that the exit of the United Kingdom from the European Union should be prevented because of the “far-reaching impact” that Brexit would have.
In its annual report, the council said that if Britain does withdraw from the bloc, an agreement that would minimise the damage for both sides is required.
The experts said that with negotiations possibly to continue for longer than the two years visualized by European Union rules, a one-time extension period should be granted.
“There is still a risk of an uncontrolled exit and sudden adjustment reactions by economic agents,” said the report. “Conversely, the possibility of the UK staying in the EU can’t be completely excluded.”
The European Union will start talks on what the 27 countries require from a Brexit transition deal, seeking for a united stance that they can present to the United Kingdom once discussions break out of the current deadlock.
Both sides are expecting that discussions on trade and the transition can progress ahead after a European Union summit in mid-December.
The advisers of the German government also suggested the European Central Bank to stop its bond-buying program earlier than planned and consider increasing interest rates.
They stated that financial market stability risks has risen even in the absence of threats of deflation in the 19-nation euro area.
“On the one hand there’s a risk of excessive asset prices, especially in the residential real estate and bond sectors, and on the other hand, the interest-rate change risk at banks has increased significantly,” said the council.
“The ECB should therefore urgently communicate a comprehensive strategy for the normalisation of its monetary policy.”