EUROPEUM Institute for European Policy

On March 29th, 2017, Britain, along with the EU triggered, article 50, which began the two-year countdown until the UK must leave the EU. This so-called transition period is due to end in less than 3 months, yet still there’s no satisfactory deal that both sides would agree on. Currently, the proposed break up deal has stranded in the British parliament pending a verdict during the January 14-15 vote – and as it stands, support for May’s proposal is lukewarm at best. As the likelihood of a no-deal Brexit increases, the preparations for severe consequences – both in Britain and the EU – in terms economy, policy and security, are underway.

Although the British political scene nowadays is clearly very polarized, in their stance on Brexit, the UK’s business organizations are being abundantly clear in what they think about the proposed deal – they fear the UK leaving the EU without any deal, which, according to them, would plunge the British economy into chaos.

Thus, they urge MPs to put aside petty politicking and instead focus on averting the economic disaster for the benefit of both the country and the population. As an illustration of the severity of a no-deal Brexit scenario, cabinet even introduced its intention of putting 3500 troops on standby as an emergency backup plan. Thus, it seems that as far as British Government is concerned, the likelihood of May’s deal being rejected is significant.

 

If the UK leaves with no deal, the consequences would mainly be experienced by citizens as they will ultimately carry the brunt of the damages to businesses, financial sector and transportation. Currently, EU laws guarantee zero tariffs on almost all the good coming from and to the UK; without a deal, this will change. British trading rules would now be under the World Trade Organization system. The immediate aftermath of this would be the imposition of tariffs across all range of sectors until new agreements between UK and EU are negotiated. These tariffs go from around 2% to massive 40%. This would make UK’s goods far less attractive to EU’s buyers and vice-versa. It is likely that some of the UK’s goods, especially from smaller businesses, will in the long run disappear from the EU’s market. Trading with the UK would be a much longer and complicated process and almost impossible for some smaller businesses, which will simply not be able to afford the new expenses. More comprehensive customs checks will eventually lead to long queues in Calais and Dover.

 

Although losing the access to the single market would be the most painful for the UK’s economy, current deals, which the UK has as a part of the EU with other countries, would also no longer be valid and in need of re-negotiation, for example the long discussed free trade agreement between the EU’s states and Canada (CETA) from 2018.

So not only all the trading rules with the EU would now be under the WTO system, but all the international agreements and deals would not be valid for the UK.

 

Another point of contestation revolves around the 3 million EU citizens living and working in the UK and almost half a million British people living in the EU. Their rights of free movement would with a ‘no deal’ Brexit disappear overnight. This is yet another question that has to be answered before the March 29th in order to avoid chaos and ensure the citizens’ rights.

 

Czech Government last week presented a proposed law that should guarantee at least some assurance for Brits living and working in the Czech Republic and Czech citizens living in the UK. Their status should be the same until the end of 2020. According to analytics from Česká Spořitelna[1], the total exports to the UK from the Czech Republic form 7% of GDP and 8% off all Czech exports. In case of a ‘No deal’ Brexit, this number could fall by up to 20%, which would lead to the Czech GDP dropping by 1.1%.[2]

 

In sum, it is essential that at least some form of an alternative deal is reached by the end of March. As far as all member states are concerned, having the UK as a part of free trade market is convenient and desirable. However, even in the best case scenarios, Brexit is certainly going to have negative consequences for particularly the UK, but to a lesser extent also the EU. With the upcoming European Parliament elections looming in the immediate aftermath of Brexit, the necessity for a strong, unified European Union is greater than ever, particularly for smaller countries and economies such as the Czech Republic, whose economic prosperity and performance is closely intertwined with the EU. Thus, one can hope that populist voices in the Czech Republic will not use the upcoming elections to advocate for nonsensical propositions such as a ‘Czexit’-vote and jeopardize the prosperity of and opportunities of future generations.

 

Matěj Hejtmánek

[1] One of the largest banks in the Czech Republic.

[2] Analysis by Česká Spořitelna, Scénáře Brexitu: rizika a příležitosti pro ekonomiku ČR , available here.

Author :
Print

Leave a Reply