Europe Fides 2017

Written by Simon Marsh on 2 February 2017

 

“The wall to wall media coverage of Brexit is not solely a UK phenomenon

but a treat being extended to countries across Europe and keen interest across the globe”.

 

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The reason for the interest of Europefides members and the close interest of world leaders and global businesses is clearly demonstrated in the most recent global GDP figures provided by the United Nations.

 

The table of the top ten economies shows the European Union as the largest economic block in the world and the UK as the second largest economy in the Europen Union as well as being the fifth largest economy in the world.

table for brexitReliable figures of the importance of trade between the UK and the remaining 27 members of the EU were hard to come by during the referendum due in part to the difficulty in evaluating the Rotterdam Effect – counting the value of goods transferred from the UK to Rotterdam before being exported to other EU and non-EU countries.

It is clear however that the EU is the most important market for the UK accounting for exports 44% of the total US$800bn UK exports and 53% of the total US$857bn UK imports.

The UK is also an important market for the remaining 27 members of the EU accounting for 14% of their total exports of US$3,316 and 12% of their total imports of US$2,975bn. And for certain countries, in particular Germany, and for certain industry sectors, such as motor vehicles, the UK is a key market for the remaining 27 members.

The table below provides a broad comparison of the main elements of both Brexit and the subsequent relationship between the UK and the remaining 27 members.

 

norway table1The country names ascribed to the various options provide some indication of the possible outcome from that option. Despite Theresa May’s statement to the Conservative Party that the UK position will not be like any other country, the recent clarification makes clear the preferred option is similar to that which Canada recently secured.

The Canada trade relationship resulted from seven years of negotiation and was almost derailed at the last moment by the region of Wallonia in Belgium. The UK can expect a similarly protracted period of negotiations but cannot rely on the goodwill of the 27 EU members which helped Wallonia overcome its objections. Securing a Brexit deal in line with the UK government’s preferred outcome will therefore be far from simple. Ratifying such a deal within the two years of the the UK triggering Article 50, as set out by the Lisbon Treaty, so that Brexit does not play a part in the 2019 EU elections would seem unlikely.

Theresa May’s 12 point plan for the UK negotiators set out earlier this week has met with mixed reactions from EU leaders however they provided a clear indication there is no intention for the UK to be able to cherry pick or be better off from leaving the EU. What is not yet clear is how much worse off the EU leaders intend the UK should be as a result of Brexit.

These political view on the severity of the “punishment beatings” as Foreign Secretary Boris Johnson referred to them, will change as a result of the presidential and government elections taking place in 2017 in Netherlands, France and Germany as well as in other EU member states including Czech Republic, Hungary, Serbia and Slovenia. All of these countries have seen a significant rise in populism which provided such unexpected political results in 2016 in UK, USA and Italy.

The Brexit decision of the UK population was not however based solely or mainly on the importance of the UK to the global and the EU economies.

Certain topics were more prominent during the referendum, particularly immigration and the control of UK borders and the contribution of the UK to the EU budget.

The migration figures released by the UK government for the year to June 2016 show EU migration as part of the UK immigration statistics.

                                                 Total UK Citizenships             EU                                  Non EU                                  EU % Total

Immigration                               650,000                            284,000                              366,000                                   44%

Emigration                                  315,000                              95,000                             220,000                                    30%

Net Migration                             335,000                             189,000                              146,000                                   56%

UK Migration by citizenship year to June 2016

 

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Brexit and the potential end of the free movement of labour between the UK and other EU countries will only provide the UK with control over roughly half of the net migration each year.

It remains to be seen what measures the UK government intends to implement to control migration and the impact this will have on the supply of labour to sectors, such as health services and agriculture, which rely on migrant labour as well as the impact on education exports resulting from the influx of foreign students to the UK

The other big topic of the referendum was the UK contribution to the EU. Claims of a weekly contribution of £350m were widely discredited following the referendum however the annual UK contribution is still substantial at some £10bn. Much of this potential saving will be used to replace the current EU subsidies to agriculture, research and regional grants which total over £4.4bn a year.

There is also significant debate amongst economists and pundits as to the effect of Brexit on UK economic growth. As with all economic debates it is unlikely the impact will be resolved one way or the other however it is clear that a reduction in growth by as little as 0.2% will reverse the savings from the EU contribution.

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The referendum debate about the advantages and disadvantages of membership of the EU are no longer relevant following the result and Theresa May’s recent mantra the “Brexit means Brexit”. However until this week it was unclear what Brexit did mean as the Prime Minister had also referred to hard Brexit, soft Brexit and Red White and Blue Brexit.

Understanding the options available to the UK government and to the remaining members of the EU remains challenging with so many variables relating not just to the Brexit but also to the relationship which will replace the UK membership of the EU.

There are clear signs that securing a win-win result from Brexit will be highly challenging. Leaders and negotiators for the UK and the EU will need the time and the political will to produce fair outcome for all the current 28 EU member countries against a backdrop of rising political populism.

The only certainty at this time is that the uncertainty is set to continue.

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