Paul Krugman is "less horrified" by the British voting to quit the European Union than he had expected, but things are still dire.
In a blog post published Friday morning, the Nobel Prize-winning economist said leaving the single market comprised of 26 other European nations will stymie long-term investment in the United Kingdom and "erode trade even if there isn't any kind of trade war."
"Yes, Brexit will make Britain poorer," Krugman, a columnist for The New York Times, wrote.
He warned that the U.K. will become less productive, too.
However, he played down the financial fears that roiled markets across the globe since results of the historic vote were announced. He raised three main points that should calm some nerves:
The value of the pound plunged on Friday, but far from the levels seen during the recession in the early 1970s, when the currency fell by a third, he noted.
Britain borrows in its own currency, allowing it to avoid a "classic balance-sheet crisis due to currency devaluation."
Negotiations to leave the EU could take up to two years, and Krugman said he could see CEOs choosing to delay any spending moves until the path forward becomes more clear.
Still, Krugman said the Brexit underscores serious problems within the EU:
It seems clear that the European project – the whole effort to promote peace and growing political union through economic integration – is in deep, deep trouble. Brexit is probably just the beginning, as populist/separatist/xenophobic movements gain influence across the continent. Add to this the underlying weakness of the European economy, which is a prime candidate for “secular stagnation” – persistent low-grade depression driven by things like demographic decline that deters investment. Lots of people are now very pessimistic about Europe’s future, and I share their worries.
He summed his thoughts in three points: "calm down about the short-run macroeconomics; grieve for Europe, but you should have been doing that already; worry about Britain."