How serious is Brexit ?

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The question I am posing in the title of this week’s contribution is how dangerous and menacing is Brexit, not for the United Kingdom but for the 27 remaining member states. The news from the UK this week shows that the political leaders of the country seem to be so deeply split on the way forward, that it has become so hard to predict what will actually happen. Will it be a Brexit with no deal, or a Brexit with a deal, or will there be a postponement of Brexit, or will the UK remain a member of the EU after all?

However, what caught my attention was a news item early in the week saying that the European Union could declare a no-deal Brexit a major natural disaster. Such a decision would enable members to access funds normally reserved for members when facing natural disasters like fires, floods and earthquakes.

This was a fund set up 17 years ago to assist countries that had been affected by the floods of that year. Around half a billion euros have been set aside every year to deal with natural disasters, and any unspent funds in any one year can be rolled over to the following year.

Classifying a no-deal Brexit as a natural disaster would seem to indicate that the European Union is expecting the remaining members to be severely affected by such a development. It would also indicate the detailed level of preparations that have been made in Brussels for such an eventuality. Media have compared this with what is being considered the superficiality with which the UK government has handled the possibility of a no-deal Brexit.

As such the question that needs to be answered is the extent to which is the UK economy integrated with that of the other member states. According to studies, Ireland is expected to face severe job losses – a loss of around 100,000 jobs over the next three to five years, a third of which will be lost in 2020. This is likely to happen mainly because a significant part of the exporting of goods from Ireland to other EU member states happens through British ports.

Other countries will also be severely affected because of their own exports to the UK and their goods will be stuck not being able to enter the UK. The integration of other countries’ economy with the UK economy has also happened in other fields such as financial services, technology or tourism. The countries that have been mentioned as those that could be most severely affected by a no-deal Brexit, apart from Ireland, are Belgium, the Netherlands, Germany, Denmark and Spain.

I believe that one of the main issues that the EU member states would be facing in managing the change imposed by a no-deal Brexit, is the need to unlearn the processes that we have in place. With the UK being a member of the EU, this has meant the free movement of goods, services, capital and persons between that country and the other member states.

Now all of that will change and businesses may need to find new export markets, new sources of supply, new partners, new locations, and so on. This will mean unlearning what they have been used to doing so far in order to implement new processes and to establish new partnerships.

What about Malta? Rightly so, government and the business sector have sought to explore and exploit opportunities offered by Brexit, especially a no-deal Brexit. However we cannot ignore that in some respects, the Maltese economy could be impacted negatively. Even if the negative impact will be on small segments of the economy, we should still not ignore it and seek to mitigate the risks involved as much as possible.

One element to keep in mind is that if there is a no-deal Brexit and the UK economy would suffer greatly, as is expected to be the case, the UK government may adopt an economic strategy that could pose risks to our economy. Therefore we also need to look at that possibility.

I believe the effect of Brexit is still largely unknown. It will cause pain to the UK and the EU member states, but one does not really know how much. We simply need to be prepared for it, and the EU decision to declare a no-deal Brexit as a natural disaster is one way of preparing for the gravity of such an eventuality.

Lawrence Zammit’s article was published first on The Times of Malta print edition

 

 

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