Chart: One Reason a Brexit Makes Sense

Chart: One Reason a Brexit Makes Sense

The UK escapes a swath of troubled loans and fiscal problems.

The Chart of the Week is a weekly Visual Capitalist feature on Fridays.

Economic authorities and pundits have been vocal about the potential economic consequences of a Brexit.

The Bank of England said a “Leave” vote would increase unemployment, stoke inflation, slow economic growth, and prompt consumers and businesses to delay spending. The results would be recessionary.

The IMF warned that leaving the EU would cause “severe regional and global damage” for years to come.

The main argument here is that a lack of access to the single market will hurt the UK economy, and this could prove to be very true in time.

Market, Schmarket

While keeping economic ties to the single market is an important point to consider, the UK also gains a distinct advantage from maintaining a further distance from parts of the EU ecosystem.

Why? Because parts of Europe are still an economic mess, and things aren’t getting better. Just look to the recent banking mess in Italy and non-performing loans (NPLs) as an example.

Historical NPLs (Data from IMF)

Italian banks are currently being crushed by €360 billion in non-performing loans. According to the European Banking Authority, they make up 16.9% of all lending as of March 2016, and are unlikely to be paid in full. As a result, bank stock prices in Italy have plummeted.

Banca Monte dei Paschi di Siena, Italy’s third-largest bank by assets, is now trading for €0.31, which is a mere 15% of its 52-week highs at €2.04. UniCredit, the country’s largest bank with just under €1 trillion in assets, is trading at one-third of what it was worth a year ago.

To help solve the disaster, the ECB’s Mario Draghi is now backing a public bailout of Italy’s banking sector.

Outside of Italy

Portugal has a similar banking crisis brewing. Non-performing loans have mounted to 18.5%, and Prime Minister Antonio Costa is also publicly looking for a solution to help Portuguese banks.

Even Germany, which is typically rock-solid, has its own banking issues. As we covered a couple of weeks ago, the country’s largest bank, Deutsche Bank, has seen its value collapse as it has been engulfed by scandals, record losses, missed stress tests, and poor planning.

While access to markets is important for the UK, keeping a distance from flailing European banks also seems like it could be a wise choice in the long run as well.