If Britain does crash out, the first-order effect would be on the pound. Some banks, including Morgan Stanley, estimate the British currency could fall by around a fifth to reach parity with the dollar under a hard Brexit. Sterling’s vulnerability has been on full display in recent trading sessions: It surged last week on hopes for a deal, before slumping on Monday as the EU said Boris Johnson’s latest proposals lack detail.

At Societe Generale SA, Lorenzo Bini Smaghi is worried. Last week at a Bloomberg conference the French bank’s chairman described a hard Brexit as a “systemic event” with the potential to push the global economy into recession.

Bank of America Merrill Lynch economists see a 40 basis-point hit to euro-area GDP next year if a no-deal scenario happens, heaping pain onto an already struggling region.

That would put growth-sensitive currencies such as the Norwegian krone and the Swedish krona at the mercy of a no-deal shock. The euro is also exposed, though demand for the common currency for funding purposes by investors selling riskier assets may help cushion its fall, according to Morgan Stanley.

“Europe is already flirting with recessions,” said Nikolaos Panigirtzoglou, a global strategist at JPMorgan Chase & Co. “Even if we get a Brexit deal, there are other risks still looming related to trade wars, the auto sector and lack of policy traction.”

Should a European downturn take hold, it would threaten to wake up credit premiums which have long been depressed by monetary stimulus. That would echo the 2016 breakout, when spreads of euro-denominated company bonds tracked sterling peers higher.

Brexit vote sends euro-denominated debt spreads surging alongside sterling peers
Knock-on effects would likely be seen in the markets for hard-to-trade private debt and alternative assets, and funds that have gorged on such investments could be stuck with holdings they can’t shift.

Meanwhile in the stock market, Bank of America Merrill Lynch reckons there’s a potential 8% downside for European shares in a no-deal scenario.

And the shock waves would spread further afield. Investors putting a premium on safety would likely penalize emerging-market equities most vulnerable to a global slowdown, according to Tina Byles Williams, Philadelphia-based chief executive officer at FIS Group.

“To the extent that you have a Brexit moment, that would exacerbate the decline in global trade growth and by extension undermine emerging-market asset prices,” said Williams.