ECB chief Draghi warns on hard Brexit

European Central Bank boss Mario Draghi has warned that the risks of a disorderly Brexit are rising after the ECB left its interest rates on hold yesterday as negotiations between Britain and the EU looked set to go down to the wire with the risk that Britain could crash out of the bloc in March next year without a deal.

While Ireland is particularly at risk from a no-deal Brexit with its second-largest trading partner, the EU – especially Germany – is also heavily exposed if trade tariffs revert to WTO levels and sterling plunges in the event Britain cannot negotiate exit terms,

The EU’s exports to Britain were worth €186.2bn in 2017, according to official statistics, with the bloc running a substantial trade surplus.

Germany alone exports €84bn to the UK, or 45pc of the total.

“If this lack of outcome will continue and will approach the end date, the private sector itself will have to prepare on the assumption that there will be a hard Brexit,” Mr Draghi said after the rate decision.

In addition to an economic shock to the European Union from Brexit, there is a risk that financial markets could take a hit.

Stock markets have pushed steadily lower this week due to rising US bond yields and a hard Brexit could damage sentiment at a time when China’s economic growth is slowing and US President Donald Trump’s trade wars gain traction.

It is not clear what the ECB could do in the event of a major shock as interest rates are already negative and the central bank is winding down its bond-purchasing programme.