The Commercial Realities of Brexit
My thanks to a subscriber for this very informative report by Daniel Foe for Asia Research. This is so interesting that I was torn with choices in finding a brief sample to show readers:
The other significant area that Theresa May mentioned was a desire to maintain security ties.
The current EU Commissioner for Security is British and was appointed in August 2016. Despite the UK’s lead in this field by EU standards, he was described by the chairman of the EU Parliament’s foreign affairs committee as “a type of junior commissioner”. As if that was not clear enough, Gianni Pittella, leader of the European Parliament centre-left socialists and democrats, said, “it is a little, technical portfolio”, adding that there should be “no prize, no award” for voting to leave the EU. https://www.ft.com/content/bc9bb68a-589e-11e6-8d05-4eaa66292c32
Britain is the EU’s largest military power, and for a number of years Britain alone has been reaching its target in terms of defence spending (Britain is estimated to have spent about 2.1% of its GDP in 2016 against a target of 2.0%). However most of the countries in the EU, especially the large ones, are falling well short of the target. For Germany in 2016, the expected expenditure is only 1.2% (ironically, perhaps, Greece’s is 2.6%, but given that they are largely funded by German money, perhaps Germany is a little closer to their benchmark than they are given credit for!). http://www.nato.int/nato_static_fl2014/assets/pdf/pdf_2016_07/20160704_160704-pr2016-116.pdf
Thus, in dollar terms, Germany would need to spend an additional USD 27.7 billion in 2016 alone to reach their defence spending target. This has been a source of significant irritation to the US, and mentioned by all of the candidates in the recent US elections, but Donald Trump appears more likely to make waves over this matter, despite his view of the obsolescence of NATO. Thus the UK leaving the EU will draw further unwelcome attention to this deficit. http://money.cnn.com/2016/04/15/news/nato-spending-countries/
Whilst much comment has been directed at the UK–EU relationship, little comment has been directed at the EU27’s internal relationships post-Brexit.
The matter of the UK’s nett contribution to the EU budget, which was €8.5 billion in 2015, will highlight this area, as the deficit will need to be made up by the rest of the cash-strapped EU27 or there will be the prospect of services needing to be cut.
Like any relationship that breaks down, the discussion of the future relationship can degenerate into bickering and irrational behaviour as the parties struggle to focus on the best outcome for the new reality. Helpfully, Theresa May has taken a powerful overview of the requirements and levers that both sides have. https://www.theguardian.com/politics/2017/jan/30/uk-eu-economic-cold-war-italian-minister-mario-giro
Britain, as the second largest importer of EU goods in the world, will have significant leverage over the setting of tariffs for manufactured goods and will be able to use this in settling the overall trade agreement, but it is always possible that an emotionally blinded EU—especially where Juncker, Head of the European Parliament holds some sway—could make an emotional decision rather than one guided by getting the best solution for all concerned.
Theresa May hinted that, if an acceptable deal is not reached, she could turn the UK into a regional tax haven in order to retain business in the UK: a sort of ‘supersized Singapore’ in Europe.
You will be able to hear pronouncements about progress from various sources. Elections in France, the Netherlands, and Germany this year may change the way talks evolve, but we believe that the issues discussed above represent the key underpinnings. https://www.bloomberg.com/politics/articles/2017-01-26/france-s-neighbors-sound-alarm-over-election-catastrophe-risk
I commend this article to subscribers but if you are in a hurry, just read the paragraph which I have emboldened above. We have already seen plenty of evidence of “an emotionally blinded EU”. Riven with uncertainty and crises wherever they turn, EU bureaucrats are operating under a siege mentality.
The UK is only a symptom of this problem; it is not the cause. The UK electorate had the common sense to vote to get out of the EU. The real problem is the collective hubris and incompetence of this project, which built a Tower of Babel in Brussels while undermining the economic competence of a great continent.
(See also Thursday’s Comment of the Day)
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