Föhrenbergkreis Finanzwirtschaft

Unkonventionelle Lösungen für eine zukunftsfähige Gesellschaft

Brexit: Breaking Up Amicably Is Hard to Do

Posted by hkarner - 13. Juli 2016

Date: 12-07-2016
Source: The Wall Street Journal By SIMON NIXON

There’s good reason to believe the U.K. and EU will go the same way as many divorcing couples, Simon Nixon writes

U.K. retailers, such as those on London’s Oxford Street had their worst June in a decade as consumers reined in spending ahead of the country’s EU referendum, according to figures from accounting firm BDO.

Britain’s exit from the European Union promises to be one of the most complex divorce negotiations in history: Untangling this 43-year relationship will require painful decisions that touch upon almost every aspect of national life. As things stand, both sides say they are determined to keep the negotiations amicable, not least to minimize disruption to lucrative cross-Channel trade. But can the U.K. and EU avoid the fate of so many divorcing couples? There are three reasons to fear the negotiations may yet become acrimonious.

The first concerns the very different debates taking place in the U.K. and on the continent over the process and timing of Britain’s exit, or Brexit. In the U.K., there is a growing consensus that since no one currently has a credible Brexit plan, the government should delay invoking Article 50 of the Lisbon Treaty, starting the clock on a maximum two-year divorce negotiation, until early 2017 at the earliest. That is provoking alarm in many European capitals, where there is an equally clear consensus that Article 50 should be invoked as soon as possible.

The urgency on the EU side partly reflects concern about the effects of prolonged uncertainty. Italian and Portuguese bank shares have come under extreme pressure since the referendum, and the International Monetary Fund last week downgraded its eurozone growth forecast for 2017 by 0.3 percentage points to 1.4% in 2017, citing Brexit concerns.

It also reflects a determination to have resolved the British question ahead of new EU budget negotiations in 2018 and new European Parliament elections in 2019. Some EU governments also regard a swift Brexit divorce as essential to limit political contagion, in the expectation that the heavy economic costs to the U.K. would discourage further populist revolts.

True, the EU doesn’t have any formal power to compel the U.K. to invoke Article 50. But EU member states can apply political pressure, including carrying out their threat to refuse to hold informal discussions with London. British officials fear the diplomatic temperature may heat up before the Brexit talks have even begun.

A second source of acrimony concerns the U.K.’s future relationship with the EU, where there is a widening gulf between what many in the U.K. hope to achieve and what the EU may be able to deliver. The chances of the U.K. agreeing to the “Norway option” of European Economic Area membership, which would preserve its full access to the EU single market, appear to be receding since this would require the U.K. to accept the right of EU citizens to live and work in the U.K., keep paying into the EU budget and accept the jurisdiction of the European courts—all of which look politically unfeasible following the referendum. Brexiters say their goal is a bespoke trade deal that preserves zero-tariff access to the single market.

However a bespoke deal won’t be easy to achieve. True, some EU countries, particularly in Northern Europe, have indicated they intend to show flexibility to the U.K. to preserve their own trade. These countries have succeeded in handing initial responsibility for Brexit negotiations to an official from the European Council rather than the European Commission, which is likely to be more zealous in its defense of the integrity of single-market principles.

But the EU member states find it increasingly hard to agree on common positions on anything, and all countries have interests in defending against a post-Brexit U.K. free from common obligations in areas such as tax and regulation. Some countries are also eyeing opportunities to gain a competitive advantage. Besides, only the commission has the expertise and resources to undertake a detailed trade negotiation.

Even if a deal is reached, the EU might struggle to ratify it: The EU’s free-trade deal with Canada took seven years to reach and now awaits ratification in 27 parliaments. The risk is that the U.K. is forced into a “hard Brexit,” quitting the EU in two years without any trade deal at all.

That points to the third possible source of acrimony, which is the gulf between the expectations of many Brexit voters and what is likely to happen if most economic forecasts, which point to a sharp slowdown next year, are correct. Some Remain voters hope that Brexiters will eventually succumb to buyers remorse, opening the door to a second referendum.

But the evidence of the past two weeks—in which sterling has tumbled, consumer confidence has slumped and some real-estate funds have been forced to halt redemptions—suggests the opposite. Brexiters have pinned the blame on departing Prime Minister David Cameron and the civil service for not having a plan for Brexit and accused the Governor of the Bank of England and bitter Remain supporters of talking the economy down. British governments have a long tradition of blaming Brussels for domestic woes and it is hard to imagine this practice will be suspended during the divorce negotiations.

For an amicable settlement, it is vital that cool heads prevail. That may be asking too much.

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